Short sellers as whistle-blowers

[IBWino]

Short sellers as whistle-blowers

Interesting piece. The author claims that short sellers were real watchdogs and now they are the ones being punished.

Quote:

I really thought that all statements and prospectuses prepared by the issuers, reviewed by independent counsel and auditors, and reviewed by the SEC and NASD gave a true and honest picture of the risks and rewards of any offering and company. The regulators were supposed to regulate and make sure all risks were known and communicated. But they didn't do their jobs, and neither did the rest of the alphabet soup.

Quote:

Our only protection was the true guardian of the market: the short seller. When these brave investors saw a company that was overrated and/or overvalued, they shorted it, and that information was public. Short interest was a figure that was known and published. The shorts were the true whistle-blowers of the public investment world.

[dex]

NYSE Short Interest Ratio Deviation

The indicator's predictive value is based on the belief that when there is a predominant opinion among short sellers it is usually wrong.
MarketGauge by DataView, LLC
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they got it right this time but not usually

The co. fundamental analysis he is basing it on is good but the short selling conclusion is dubious

[Gone4Good]

Yup, in a functioning market short sellers provide a valuable service by calling BS on over valued stocks. I think we're a couple steps removed from well functioning markets where the financials are concerned.

And as a matter of public policy, is it wise to have the government pump money into firms while simultaneously allowing short sellers to target them for extinction?

[Gone4Good]

Quote:

Originally Posted by dex The indicator's predictive value is based on the belief that when there is a predominant opinion among short sellers it is usually wrong.

Except in markets (like this one) where aggressive, persistent, leveraged, selling of confidence sensitive firms (together with a few false rumors) can create a self fulfilling run-on-the-bank scenario.

[capjak]

Short Sellers are interested in driving a stock down, they do not really care if it is over valued or not. This became the large investor game dujour..where large institution decided to short a particalur stock/bank until they make $$$$$$$ that is why it was stopped.

In the case of Banks they all get lumped together and the hedge funds start short selling driving the stock price down and all of sudden no one will lend the bank money or do business with them because they believe something is wrong with the bank (whether it is or not).

The other investors say Hey what's up your stock is diving and the bank says nothing...and they say yea right that is what Lehman said...

Next thing you know a bank that had no subprime paper is out of business....

[Gone4Good]

Quote:

Originally Posted by capjak Short Sellers are interested in driving a stock down, they do not really care if it is over valued or not.

In a normal market short sellers are disciplined by a market that generally trends higher. And also the knowledge that their upside is capped but their downside is unlimited. These conditions normally create a very difficult environment for the short seller. His mission is to find not only a stock that is over valued, but also a catalyst that will bring about a price correction.

In the current market, where panic prevails, the normal discipline is significantly curtailed. If in addition to that their are firms who are widely known to be troubled, have opaque balance sheets and whose liquidity is dependent on investor confidence, the short seller can create his own catalyst by trying to drive the price down rapidly.