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Thread: In the news

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    Veteran Member person's Avatar
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    Default In the news

    Going on a trip so I'll post a few notable articles with the weekend only half-over

    (Haven't seen anything more substantial about this yet)
    SEC Set To Offer Permanent Short-Sale Restrictions
    http://www.finalternatives.com/node/5301

    NEW YORK (MarketWatch) -- A sharp jump in oil prices and a weaker U.S. dollar had airline investors scrambling for the exit early Thursday.
    http://www.marketwatch.com/news/stor...%7D&siteid=rss

    Aug. 22 (Bloomberg) -- Merrill Lynch & Co., Goldman Sachs Group Inc. and Deutsche Bank AG agreed to pay $160 million in fines and buy back as much as $15 billion in failed auction-rate securities, settling probes by state regulators.
    http://www.bloomberg.com/apps/news?p...&refer=germany

    Many hedge funds have suffered from the downturn in commodities prices. Not so European energy hedge funds.
    http://www.finalternatives.com/node/5307
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
    - Dr John Zoidberg

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    God/dess Deogol's Avatar
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    Default Re: In the news

    Can't short sell. Stupidest idea in the world.

    If I can't short stuff that goes wrong I am going to be very careful about what I buy long.

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    Default Re: In the news

    It also means that people who _do_ want to buy have to pay higher prices because there will be less sellers around. This can lead to prices going artificially high when the average market sentiment is that they shouldn't be that high. So when the market subsequently enters bear-mode, prices can drop sharply because people didn't ever actually want to pay these inflated prices and certainly don't want to in a bear market.
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
    - Dr John Zoidberg

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    Banned Melonie's Avatar
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    Default Re: In the news

    arguably, 'naked' short selling is illegal for small investors and should also be illegal for hedge funds / 'qualified' investors. The 'tin foil hat' crowd will tell you that 'naked' short selling is tantamount to counterfeiting ... since it involves the ability for hedge fund managers and multi-million dollar investors to 'print up' stock shares that don't really exist, sell them into the market thus depressing share prices, buy them back out of the market at the lower price (and pocket the difference in price as profit), and 'destroy' them before anybody figures out that they weren't 'real' in the first place !

    I doubt that the SEC will ban the practice of 'legitimate' short selling ... which involves 'borrowing' of real existing stock shares from a current stockholder (with interest payment), sale of the 'borrowed' shares, buying back the 'borrowed' shares at a hopefully lower price, and returning the 'borrowed' shares to the actual stockholder. The difference of course is that there are a finite number of outstanding real stock shares, thus it is impossible to sell more shares than current stockholders are willing to 'lend'. This inherently limits the number of real stock shares that are available to be sold short in relation to the total number of outstanding stock shares, and as a result limits the downward pressure on the stock price.

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    Banned Melonie's Avatar
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    Default Re: In the news

    Goldman Sachs Group Inc. and Deutsche Bank AG agreed to pay $160 million in fines and buy back as much as $15 billion in failed auction-rate securities, settling probes by state regulators.
    In truth, this is another 'bailout' ... in this case a bailout of state and local governments as well as multi-million dollar 'qualified' investors who have been 'cashing in on a de-facto tax avoidance scam for decades. Auction rate securities provided a source of comparatively 'low cost' borrowing for state and local governments, and provided a comparatively 'high interest' tax exempt investment opportunity for rich investors (compared to money market rates anyhow) because they operated like short term investments for decades. However they are in fact long term investments ... and as such should either require the borrowers (state & local gov'ts mostly) to pay the higher long term interest rates, or require the investors to leave their money invested until maturity or face risk of loss, or both !!!

    Basically, the auction rate securities market was allowed to operate in the financial 'twilight zone' for decades because banks would always step in and 'make a market' when investors wanted to sell. When this practice stopped about a year ago, in order for investors to sell it then became necessary to match them up with other investors who wanted to buy ... and there weren't very many of those given the fact that the interest rates being paid by state and local gov't bond issuers were very low compared to their actual risk of default ! In the absence of banks voluntarily 'making a market' at face value, the actual auction market drove the interest rates on these state and local gov't bonds to astronomical levels ... with immediate negative impact on the state and local gov't bond issuers whose interest costs increased accordingly. There was also an immediate impact on the multi-million dollar investors who could not extract their money without facing major financial losses. Thus the $15 billion mandate that banks buy auction rate securities at face value from those multi-million dollar investors amounts to a de-facto shifting of losses away from these bondholders and instead onto the bank's balance sheet / stockholders / share price.

    Of course those bank shareholders are for the most part Joe Sixpacks with 401k retirement funds, grandma and grampa living on a fixed income etc., so it's OK for them to take the loss I guess ??? And of course the fact that state and local gov't agencies are now shifting away from auction rate securities and toward long term muni bonds with higher interest rates also means that Joe Sixpack and grandma will have to pay higher state and local taxes to cover the higher interest payments !!!

    ~
    Last edited by Melonie; 08-23-2008 at 04:33 AM.

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