Forum Archive Index - March 2004

["Baa Baa" <baa_baa@hotmail.com>]

Some excellent points made and noted, however within a narrow context of 
local AUS/NZ markets, as opposed to the accessible opportunity of the really 
large markets ...

In precious metals (as extreme, but still real example), -ergo commodities, 
where trading regulation extends only to alleviating counterparty risk 
through ability to cover positions 'in currency' versus the commodity 
actuallly traded(!), such exemplifying disparities emerge where paper short 
positions actually exceed the entire known existance of the commodity 
itself, let alone the annual production. (silver, and gold). This is an 
extreme, but real, example of short selling (hedging in various forms) gone 
mad, and a fundamental driver for [long / speculative] investment based on 
'overhang', -ergo against the counterparty, those with the capacity and 
capability to sustain short sales, and roll-overs ad infinitum, position as 
effective market controllers, until such time as the price increase [for 
whatever reason] forces [short] capitulation, hence the short versus long 
battle is concluded.

In stocks, similar circumstance pervades, where short positons can be taken 
-without the underlying ability [or requirement!]- to recompense an 
exercised position with the stock [asset] itself, and instead, cash 
compensation as closure is -acceptable- without regard for provision of the 
asset itself! Extraordinary, but real.

Short selling is a reality of the stock and commodities markets, and a 
useful vehicle for taking positions in a declining market circumstance, or 
in commodities as a hedge against falling prices where inventory is held [or 
speculative profit can be garnered], however, the travesty occurs in the 
situation where settlement is permitted [by the mediating party - the 
exchange commissions] .. -in cash-, as opposed to the -assets- sold short.

One does not need to be Sherlock Holmes to determine that circumstances 
exist where some stocks are sold short to such an extent that the entire 
market cap is in fact exceeded in the short position! This can only be 
achieved where it is permissable to settle in currency as opposed to the 
asset itself. Think about it.

IMO, the system is seriously fecked, but the system does exist, and while it 
does, this presents opportinuty, which, for those of moral fibre might 
appear appalling, whereas, for those of interest in material gain, it 
appears compelling.

So while such circumstance exists, why focus ones capital gain outcome 
solely on appreciating assets when one can achieve the same desirable 
outcome within an asset class that is in price decline? Especially when the 
mechanism not only exists, it is advocated and supported by regulations 
which permit settlement in other than the underlying assets sold short! What 
a gift.

It is a strange and obsequious world we live in. But it is real, and 
knowledge of how to particpate is critical, as is complete lack of emotional 
ties to ethical business practice. History may eventually show that the 
-mode- of profit achievement which exists in this -form- is both unethical 
and unsustainable. But for now, it is -in fact- real. [for those 
knowledgable, willing, and able to participate].

BAA

p.s. one shouldn't read neccessarily that that one does indeed participate, 
moreover, that one understands/interprets the ethical and practical hurdles 
of doing so, and shares that with you. On the other hand, why wouldn't you, 
or I, do so? [while such incredible opportunity presents itself].

It is indeed, a strange and obsequious world we live in.


>From: "Karyn W" <karyn_in_oz@hotmail.com>
>Reply-To: sharechat@sharechat.co.nz
>To: sharechat@sharechat.co.nz
>Subject: [sharechat] Short Selling Conditions
>Date: Thu, 25 Mar 2004 04:19:02 +0000
>
>Short selling doesnt have much effect on a market as there are VERY strict 
>conditions placed on such sales by the stock market.  It is not something 
>that everyone can do, even if they wanted to, unlike buying shares.
>eg. only a limited number of companies can be short sold, only a small 
>percentage of their shares may be short sold in any one day, sales must 
>usually be settled within 3 days, requirements for margin cover, etc  ... 
>for more detailed information see the ASX conditions at
>http://www.asx.com.au/markets/l3/ShortSales_AM3.shtm
>
>Automatic stop losses are a more potent tool to put a market into a 
>spiralling decline, and indeed has been given as the reason for the big 
>"one day" market crashes that have occured - ie.  as the price falls, 
>pre-determined stop losses are triggered, the stock is sold automatically 
>without human intervention, the increased volume of sellers pushes the 
>price down, triggering more stop losses, and so on.
>
>Now that people can set auto stop losses via online brokers, it will be 
>interesting if we see the same type of volatility in the Aust markets as 
>has been seen in the US.
>
>Karyn
>
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