The uptick rule is back - nearly

[NumquamPerdo]

Now that Cox has succeeded in further enriching a handful of already vastly wealthy hedge fund managers and misanthropes at society's expense, the geniuses in Washington think it might be a good idea to reinstate the uptick rule.  What a concept!

Combined with the good news out of C and the news about possibly changing the mark-to-market accounting, we might actually get a rally!

Would it be too much to ask for them to guarantee stock deliveries too?

 

 

http://www.cnbc.com/id/29616614

[ubuy2wron]

I just checked the NYSE Reg Sho list this am. There was a grand total of one company on the list GM. Talk about closing the barn door AFTER the horse has left the barn. I suspect the game has changed to one of trying to use the media to keep prices down so you can initiate a long position. I noticed that BRKA had a zero declared short position as of mid Feb tally yet it was under a full fledged media assault. Short and distort is dead long live pump and dump!!!!!!

[Parsad]

Talk about closing the barn door AFTER the horse has left the barn.

 

Isn't that how the government normally works?  :D  Mary Schapiro has also confirmed that they will be proposing the reinstatement of the uptick rule in April.  Cheers!

 

http://www.cnbc.com/id/29634974

[sfwusc]

Isn't the uptick rule an attempt to rig the market to the upside?  I have never heard of a down tick rule for long positions!

 

I think shorts effect on the general market is way overplayed.  Some small cap sure...but big/large caps  no big deal.

 

-SFWUSC

[NumquamPerdo]

Society is rigged to the upside!  Also, there is a downtick rule for corporate buybacks.  Plus, it's much easier to drive the market down than up and people are more easily scared than excited.  All reasons that the uptick rule worked well for 70 years.  They removed it for a year and a half and look what happened.  It's not necessarily causal but it looks a little coincidental! 

[sfwusc]

So it was the lost of the uptick rule and not the over leverage and bad loans? 

 

-SFWUSC

[bargainman]

"So it was the lost of the uptick rule and not the over leverage and bad loans?  "

 

well not to go too out there, but between the uptick rule, and the FASB account mark to market rules, there's certainly a case to be made for some grand conspiracy  ;)

[Guest ericopoly]

Capitalism would survive without the shorts, but not without the longs.  So I could care less what happens to the shorts.

[oec2000]

So it was the lost of the uptick rule and not the over leverage and bad loans?

 

In general, I would agree with you that the shorts cannot "attack" something that is not in a weakened state. However, a case can be made that unscrupulous shorts can create sell-fulfilling vicious cycles. Soros's Theory of Reflexivity postulates that trading can sometimes change the fundamentals - I believe he used it to good effect when shorting the Pound in 1993 and later the Asian currencies in 1997/8.

 

Capitalism would survive without the shorts, but not without the longs.  So I could care less what happens to the shorts.

 

Be careful what you wish for. As beneficiaries of FFH's shorting activity, we should be less quick to condemn short selling. One could equally argue that capitalism can survive shorting. The UK did, just as the Asian economies did. Or, I could argue that capitalism would survive without stock markets - so do you want to go back to a world without stock markets?

 

Shorting has a legitimate role in free markets in that it can be a mechanism for imposing market discipline; it also facilitates hedging. In fact, if there was a more even balance between shorts and longs amongst market players, it is likely that we would have less speculative bubbles and excesses.

 

We don't outlaw dynamite just because some people use it to cause harm. In the same way, doing away with short selling just because of a few bad apples doesn't make sense. Just to punish a few, you want to take away the benefits from people who use it for good? This is a sledgehammer approach.

 

The uptick rule is a good compromise and we should try it first before we resort to more drastic measures, imo.

 

 

 

 

[NumquamPerdo]

So it was the lost of the uptick rule and not the over leverage and bad loans?

 

What part of "It's not necessarily causal but it looks a little coincidental!" did you miss?  Of course the lack of an uptick rule didn't cause the meltdown but I can guarantee you it made it worse.  We might not have had the runs on Lehman and Bear Stearns without naked shorting and no uptick rule.

 

[sfwusc]

Lehman and Bear deserved to die.  They played with fire and got burnt. That is life.  I think the uptick rule is way over valued, so it really doesn't matter to me either way.

 

Mark to Market was a good thing, but again it made things more clear. When you are highly leveraged then you want things murky and  clear as mud.  When things are clear, then it is easy to see that you are swimming naked.  When it is known that you are swimming naked, then those short sellers and bailing longs will drive your stock to IV aka zero.

 

I think we are trying to blame the problems on the messengers.  The problem is/was an unhealthy amount of leverage and bad underwriting standards.  If things would have been better without the messenger, then it is because people would have been less informed of the problems.  So they would have over paid for those businesses.

 

If you would rather be lied to then fine.  I would rather know the truth. 

 

"Mr. Corleone is a man who insists on hearing bad news immediately."    If Mr. Corleone would have been in charged, then the bubble wouldn't have gotten as bad.  They would have stopped writing crap loans in 2005 or 2006 if they ever wrote them to begin with.

 

 

Mark to Market has a down side when thing are overly negative, but no one complained about mark to market of equity securities in the late 1990s.  Discount cash flow method is crap. (Who said crap in crap out...well they might have been talking about the DCF method)  I was an auditor, and I am telling you that most managers look through rose colored glasses.  They would pull up some historical crap about CA only have default rate of x % since 1995 and use that number until actual defaults were twice that. Then they would argue that some of those defaulting would sell the house for a profit, so they should count those...etc and etc.  I have seen AR allowances with only reserving 10% of stuff past due over a year.  Oh they will pay..they are just having some cash flow problems right now. Ok, for the past few years, but they are good for it!

 

So who do you want to get your valuation from?  The market or management?  I am sure that Lehman executives would have been  real good valuation guys..... Didn't they say there was no problem right up to the Chapter 11 filing? 

 

-SFWUSC

[Guest ericopoly]

. In fact, if there was a more even balance between shorts and longs amongst market players, it is likely that we would have less speculative bubbles and excesses.

 

 

I doubt that shorting reduces speculative bubbles.  I think the shorts stand out of the way of the bubbles, and then jump in once the weakness begins.

 

I've seen too many ridiculous things thus far for it to be otherwise.  Don't you remember 1999? 

 

[Rabbitisrich]

. In fact, if there was a more even balance between shorts and longs amongst market players, it is likely that we would have less speculative bubbles and excesses.

 

 

I doubt that shorting reduces speculative bubbles.  I think the shorts stand out of the way of the bubbles, and then jump in once the weakness begins.

 

I've seen too many ridiculous things thus far for it to be otherwise.  Don't you remember 1999? 

 

 

 

I think the best arguments against shorts have less to do with shorting, and more to do with associated evils. Shorting can encourage false rumors, media corruption (cough*CNBC*Chanos*cough), collusion, etc. The longs might do the same, but the danger is a temporary misallocation of capital, whereas shorts can destroy companies.

[oec2000]

I doubt that shorting reduces speculative bubbles.  I think the shorts stand out of the way of the bubbles, and then jump in once the weakness begins.

 

The problem is that 99% of investors have a long bias - we have been conditioned to think that way. That's why shorts are not able to stop stock market bubbles - because there are too few of them.

 

My proposition was that if there was a more even balance between the numbers of longs and shorts, there would be less extreme market swings. It  is wishful thinking on my part, no doubt, as nothing is going change anytime soon.

 

To get a better gauge of the impact of shorts, we should look to the currency markets which have no natural long or short bias (every long position is also a short position). Apart from times when govts distort the markets by creating artificial pegs (Asian currencies in the 90s) or intervening to defend fundamentally unsustainable levels, I think the experience is better than in stock markets. Despite much larger volumes of 24 hour trading centred on just a few currencies, the volatility of these markets are much lower than stock markets.

 

Would be interesting to see what academic studies there are on this. Btw, my recollection is not clear now but I thought that several studies recently concluded that the short selling ban last Sep actually aggravated the problem.

 

My point? Benign shorts (i.e. shorts like FFH who have no malevolent intent) do no harm and we should try to find solutions to tackle the problem of the "evil" shorts without banning shorting completely. There are too many unintended consequences of a full ban, one of which would be the effect on options markets. If the "evil" guys just migrate to the options pits, do we ban options also? How are we going to buy our cheap FFH LEAPs then? ;)

 

 

[sfwusc]

http://www.nytimes.com/2009/03/13/business/economy/13norris.html?_r=1&ref=business

 

 

-SFWUSC