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Your guess is as good as mine. Feels like totally uncharted waters here. EOM.
Methinks the other shoe just dropped. EOM.
Today's biggie...
WASHINGTON (Reuters) - Treasury Secretary Henry Paulson said Sunday that foreign banks will be able to unload bad financial assets under a $700 billion U.S. proposal aimed at restoring order during a devastating financial crisis.
Or we could do what Norway does..
You mean overfish and put oil-drilling platforms on every square inch of the ocean?
Seems like there three main choices:
1. Don't allow institutions to become "too big to fail" with extensive anti-trust type regulation
2. Allow "too big to fail" but regulate the snot out of them to ensure transparency
3. None of the above - accept that bubbles are part of the human experience and that societal bailouts are a post-dated check to pay for the up-front subsidy
All three approaches have their downsides, I'm not sure any one of them is more viable in the long run than any other.
Love Section 8:
"Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."
I thought the pedastal of US goverment had three equal feet: executive, legislative and judicial. Is it even theoretically feasible to exclude the courts like this? I understand the intent (not saying necessarily agree - just that I understand why they want it) - just wondering if this is actually possible.
Totally OT:
"What we are witnessing is the collapse of Gordon Gecko ("Greed Is Good!") capitalism."
- Pat Buchanan
It will be official by market open - all market makers, whether working the underlying or derivatives thereof - will be exempt from the short-selling ban. It took a couple of knee-breaking CEOs from Chicago to fly to HQ and explain to the morons manning the SEC that they were about to cause a global market lockup - but it's done.
It boggles the mind to think the people supposedly responsible for regulating the markets could be so clueless...truly frightening.
...who is going to lend the treasury
The same people who drove T-bill to zero percent and the 30-year to under 4%. Demand for Treasury paper has NEVER been higher - they'll sell all they can print.
Eventually that will change...but not today, tomorrow, or next week.
The cluster**** that is the SEC continues unabated...
Statement of SEC Division of Trading and Markets
FOR IMMEDIATE RELEASE
2008-213
Washington, D.C., Sept. 19, 2008 — The Securities and Exchange Commission’s Division of Trading and Markets today issued the following statement:
“The Commission staff is recommending to the Commission a modification to its order prohibiting short selling in securities of specified financial firms. This modification would extend, for the life of the order, the exemption for hedging activities by exchange and over-the-counter market makers in derivatives on the securities covered by the order.”
Hopefully this will all be slightly less half-baked by the time Asia opens on Sunday afternoon. Leaving really stinky bids on the table in case it isn't. :)
Contrary to what was posted here earlier today, the SEC did NOT curtail market maker shorting activities at any point this week. The restriction did not go into effect until midnight Friday, long after markets closed. The exact quote from the reg is as follows (link available on request):
"Finally, to facilitate the expiration of options on September 20th, options market makers are excepted from the requirements of this Order until 11:59 p.m. on September 19th when selling short as part of bona fide market making and hedging activities related directly to bona fide market making in derivatives on the publicly traded securities of any Included Financial Firm."
It would be great in these times of market stress if people would actually read the damn docs before posting bogus information, but we're all human and, as they say, s**t happens.
There is now discussion inside the SEC about exempting all market makers - including options and other derivative market makers - from the rule for the duration. Apparently the 3 or 4 neurons remaining over there still capable of firing realized they were about to blow up the equity markets come Monday morning. Or worse - freeze them tight. Knock on effects are firmly in "unknown unknowns" territory.
The next step will come when they further realize one can build a synthetic short out of options and long stock.
If there is a step after that is firmly in "God help us" territory.
Good luck to all. I personally am around 95% cash, having sold all my financial and tech long positions today.
Big Ole Delete. EOM.
Big Ole Delete. EOM.
...when a company like Lehman needs to raise cash to stay solvent by selling stock then I seriously quastion WTF is going on.
Or take it a step further, Enron style. Pretend you're not doing a stock offering (all that messy paperwork!) by doing an OTC loan-with-stockprice-covenant instead. As far as I'm concerned, any company deliberately obfuscating its capital structure like that deserves to get taken out back and shot. And it appears at least some of that was happening with Lehman
I can accept - or at least listen politely :) - to the extreme deregulation arguments. But if you go that path, you HAVE to let the market do its thing, or the carcasses will never rot away.
So I was going to add something to my reply to DewDilly but got distracted by the process of adding a HD to a Mac Pro - damn, they've got these little shock absorbing rubber thingies on the mounting screws on the disk holder/rail thingie!
Anyway - Mini due for an update - something called a "Brick" is coming - the old Mini had an optical drive - more or less shares a motherboard with the MB - which now apparently will have full HDMI support.
So yeah, it sure sounds like there's at least a chance we're finally getting bluray.
If they actually use the HDMI capability to put an HDMI port on the laptop, it may mean BluRay is finally going to be an option. Other than that, it's pretty much the kind of incremental improvement you'd expect a couple times a year.
Nevermind. This is pointless. EOM.
You've got JOE, I've got SIX, if we could convince Lango to buy some PACK we'd have the ultimate prole portfolio.
:)
Bud, you don't even know what you're buying and selling. You are the walking talking example of an Economic Moral Hazard - trading in near complete ignorance and then whining to Mama Government to save your sorry behind.
Bud - YOU are the #1 problem with the US markets.
I am not buying derivatives when I push the buy button.
You are delusional.
Sorry, but it's the truth.
Over and out.
Shares are just paper????? The money I pay for shares is REAL MONET.
Well then, you should be ecstatic, because what you're buying is REAL PAPER. Representing REAL SHARES. Which represent a complex relationship of the capital and debt structure of a company.
IE, a derivative with opaque valuation.
Options MMs no longer have the right to sell counterfeit shares into the market and call them real shares.
Nobody has ever had the right to sell counterfeit shares.
If you would like some recommendations on books covering market mechanics, I would be happy to oblige.
"Requires" is a term coined by the options MMs. Who says the transaction "Requires" the ability to naked short to build a hedge?
Because that's how options work. Without the ability to short the underlying at will, you cannot construct the offsetting synthetic equivalent. If you can't protect your own backside, you won't take on a position.
I, as a long buyer, am under the impression that I am buying actual shares of the company.
Shares are just paper. They're just another derivative. The easiest to understand derivative, but a derivative none the less.
We are ALL derivatives traders. That should be obvious to everyone by now.
The options MM should have to borrow the shares to hedge with, just like everyone else.
You can do this (in theory, anyway). It would effectively kill the options market, which in turn would do serious damage to equity markets. The net effect would be even more trading would vanish into the OTC black hole, and common stock would become even less relevant than it already is.
I hope you understand that while stock markets are the front page news, in financial terms they are by far the least important part of the overall financial puzzle.
I'm out of almost everything - ~95% cash - remainder mostly in index calls. It's difficult to play a game where the rules are unknown and subject to arbitrary change.
OK, applies to a list of ~800 stocks. However, it exempts market making activities, option exercise and option assignment. Basically, it doesn't look like this will be to be much of a restriction for anyone but rank amateurs, as all you have to do is sell an ITM option and get assigned into a short position.
ETA: It appears the exemption may expire after opex. Here is the text of the order...
http://sec.gov/rules/other/2008/34-58592.pdf
Your post made no sense whatsoever. Would you like to try again?
...many hedge funds do short the stock they own...
Selling something you own isn't "shorting", it's "selling".
As you well know.
You have the govt about to ban all short selling...
According to at least one reputable source, the short selling restriction will "only" be for some combination of banking and financial stocks. No official statement as of 11:40.
You have the govt creating this bank repository to save the banks.
The last I heard is an $800B fund to deal with the illiquid "assets", and a smaller $400B to prevent money market funds from going sub-par. That's roughly 10% of the entire federal debt, in one fell swoop!
Everything is wildly in flux right now and we're running out of time. Not clear whether we'll have sufficient details to make rational decisions before the opening bell. Expect to see some tired people on TV in the morning.
In all honestly, if things are so f'ed up that they need to consider these steps, they should simply close the market for a day or three and plan this out a bit better.
MM's dont like that they like an even ratio of calls/puts
MM don't give a flying **** about ratio of calls/puts, most option hedging isn't even done by MMs, it's done by programs, and it's done on the fly continuously through the life of the option.
The only ways to make things dicey on opex are strong run (either direction) going into the close, as it leaves the final price unclear, or having the price of the stock end up too close to a strike price, as that creates pinning risk. The max pain stuff is crap - ideal situation for options writers is to land as far *away* from strike prices as possible as it provides the easiest hedging.
'Cause I know everyone is just dying to see it...
That's a great theory. Only problem is many of the SIVs - especially the petrodollar based ones - have huge investments in the very companies you're suggesting they "could" wipe out.
The biggest individual shareholder in C is a Saudi prince, IMO it is ludicrous to think a petrodollar fund in Norway is going to even think about shorting that guy. Barclays was the third largest shareholde in Lehman - and Barclay's largest shareholder is Quatar - more petrodollars. Etc etc etc, similar stories up and down the line of the headline US financial names.
What you are describing would mean these guys & gals are shorting stuff they already own. I know people can be stupid at times, but it's rare to find them THAT stupid...
...naked shorting requires little or NO capital expenditure...
This is not and never has been true.
Wonder how this will affect the inverse EFTs
A very VERY good question.
i have absolutely no idea how or if this is true
At this point the only thing I'm convinced of is that I don't have anything close to a complete story. Which is really @#$#@ scary.
Yeah, US equities are in a bear phase, so what? What else is going on that "requires" this sort of intervention?
Yes, it is true, though it is not yet "enacted policy". And yes, in the long run it will be very very bad for US equity markets.
This affects pretty much everybody...
WASHINGTON -- The Securities and Exchange Commission took its most aggressive assault against bearish stock bets by stating its intention to issue a temporary ban on short-selling.
And to think, just a couple of days ago a friend and I were laughing about the Pakistani federal gov't legislating a "bottom" to their own equity market.
This is being confirmed "Everywhere", though it appears it is not an official policy...yet. By the sounds of it - done deal before the pre-market opens.
I'm more than a little curious how they expect functional futures and options markets when managing futures/options books *requires* the ability to short the underlying (more or less) on demand.
And I have to say - if this is what happens when the supposed free-marketers are in charge - there's no point in worrying about a so-called liberal administration. The mind boggles at the sheer scale of this government intervention...
Well thanks guys - but it ain't a good call 'til you exit with a profit - and no guarantee this market won't take it all back (and more!) overnight. If it can run into lunch tomorrow, then I'll buy (virtual) beers all 'round. :)
I'm in by proxy - added QQQQ longs this morning.
ETA: LEH is now a pink sheet stock.
The stock is around the bottom of it's recent range. With the usual caveat of never betting more than you can afford to (completely) lose, this seems like a reasonable place to add a longer-term long position.
OT: This might help explain today's failed rally...
"We need a merger partner or we’re not going to make it..."
Quote attributed to none other than Morgan Stanley's CEO.
Props to Tampa - over the last two series with Boston they had ample opportunity to choke - and they didn't.
It seems this year more than most, it's anybody's game once the playoffs start.