You are both right, in a way.
Let me explain what Poet means and what most people understand shorting to be.
BTW, I think everyone would agree, it takes more than a pea-sized brain to understand the mechanics of shorting.
It might temporarily appear that shorting increases the float or O/S but it isn't permanent or the companies would have to show that in their filings. Which obviously doesn't happen.
1) Poet has 100 shares of MSFT.
2) Matt shorts 100 shares of MSFT by borrowing her shares and selling them at $20 to Gary.
3) Gary now has those 100 shares of MSFT.
4) Poet shows 100 shares in her account -- which are there in theory but not physically there.
5) Matt has about 3 days to find somebody to buy shares from, so he can return those 100 shares to Poet.
What happened? Just a transfer of shares and a profit/loss based on the spread between where I sold and bought. Not an increase. But for 2-3 days, yes, there was a false increase in shares out there because that 100 shares of Poet now shows up as 100 in her account and in Gary's account. BUT! Matt can't borrow anymore to short because that is all that was in the entire brokerage house.
Gary, the point your are exluding is this: Say 100 shares of MSFT was all E*Trade had. Me and Poet have E*trade accounts. You are using DLJ. You are saying the ponzi game, which would mean you are selling to one person, then shorting off what you just sold them to cover all over again continulally. Churning it. But that plan is flawed unless you have a brokerage account where you just sold that stock to, so you can borrow it again. That's the flaw in the logic. And that is the only way you can roll it like that.
I just cleaned the dust off my second keyboard. Bring it on, flyboy.
MB
