Kingguy- There is only really one way to battle a short position effectively and that takes two things. Corporate successes and constant buying pressure. Back in the late '70's when I owned my brokerage firm, one of our clients was the Hunt's short selling group led by Richard Rainwater. One of my largest accounts was an individual, John Harvison from Fort Worth who while part of the Hunt Group he also was a major short seller himself. In the early '80's there was a very successful short selling fund called Aspen Capital. Needless to say that none of these groups are operating today. In fact the old Chairman of Aspen, Bruce Carlsen is still a close friend who today wouldn't short a stock today (after being squeezed and losing $70 million on one deal) if he knew it was going BK tomorrow. All were doing great on the short side until they made a mistake. Remember, you can only lose 100% if you are long a stock. There is no limit how much you can lose if you are short it.
I make the above point to let you know I do know the mentality, psychology, tactics and weaknesses of short sellers.
For example, contrary to popular opinion, Shorts DO NOT cover when a stock is running down hard with momentum. They SHORT MORE to keep the momentum down. They also DO NOT cover when a stock is running up hard. They SHORT MORE to try to kill the Momentum and to average up their short. The only time a short voluntarily starts covering is after they break the sprit of a stock and cause real shareholder capitulation out of frustration. The volume dies and sellers are about all that is left. At which time they put a MM on the bid with a catchers mitt sopping up those loose shares. Short sellers, just like MM know one thing that is all holy. That there is any number of reasons why long shareholders HAVE to SELL stock. No reasons whey the HAVE to BUY stock. So if they can break the spirt in a stock, AND the Company doesn't have anything going for it to re-excite the shareholders, they will get covered cheap.
We have a couple of things going for us longs in this stock. The last line in the above paragraph is the most important one, and secondly is that this short probably didn't start because of an inherent weakness in the Company, IMO it started due to a misconception that the Company would do a 504 to take the short out quickly with a big profit. Once Foster starts telling these funds "how the cow ate the cabbage" with no 504, I suspect they will start trying to cover them-selves, particularly if the momentum is out of the stock. But for the time being, it is important for those of us who understand the opportunity here to take advantage of the cheap stock that is being provided, both by the shorts, and by the weak holders. One thing that is certain about ALL shorts (contrary to what you all may have heard) and that is that ALL shorts do eventually have to deliver the shares they shorted or else cover as long as the company remains in business. The old urban legend that they can stay short (naked or otherwise)for ever is a fallacy. In spite of the pitiful performance of the famous REG SHO, it doesn't eliminate naked shorting like it was suppose to, but it does shorten the time a bit they can stay naked short.
BTW, there is only one way a company can battle and win a true short war with something other than performance. I know how to do that, and in fact, at Rigs request, he can confirm I told one of the largest SLJB shareholders how it is done. I am not about to explain it on this board, but if it ever gets down to having to do it, and I sure hope it doesn't, I have no qualms about sharing it with Management. All the other stupid things like spinning off unregistered warrants and shares, or companies getting vocal with PR threats don't do anything but stir up the hornets nest and bring more short sellers into a stock. Case in point. Back on August 18th, I was asked on another chat board the following question (Corstrat is my Yahoo name)
Corstrat -- will this work for Pegasus? Message List
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Corstrat -- will this work for Pegasus? Message List
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Re: Corstrat -- will this work for Pegasus?-ctohtb Re. the PGWC short squeeze trick. I suspect that the recent movement has more to do with the hype of the stunt, then the actual stunt itself. Particularly with that ignorant Motley Fool column endorsing it. Theoretically, if you believe the Company's earlier August 16 release on this trick, then it is too late to cover now.
"As previously stated, Pegasus is issuing one warrant for every ten shares of common stock owned at a strike price of $8.00 to every rightful shareholder as of August 11, 2006."
According to this statement, if you were long the stock on Aug. 11, you are entitled to get that dividend. It should make no difference if you subsequently sold the stock. You should still get the dividend. Since we assume that the short was not covered by that day, then no matter what happens to the stock after that day, there cannot possibly be enough warrants to to around on the 28th if everyone follows instructions. The reason the shorts will probably get away with it is that there is no way that "Every" shareholder is going to take the time to call their broker and request the shares be put in their own name. Plus you have the problem dealing with IRA and other retirement accounts that most brokerage firms will NOT handle the account unless it is in street name. So as long as at least 10% of the shareholders don't give the special instructions, (remember, the warrants are on a 1-10 ratio) then most of the shorts should walk away clean.
Actually better than clean in that you can bet that if they like shorting it at $5, they have to love shorting it at 7.50. Particulary since any new shorting after Aug. 11th isn't affected by this dividend. I suspect it is going to fall like a led baloon after Aug. 28th if not shortly before.
And my follow up post on Sept. 6th was:
I think I should become a short seller. My short picks... Message List
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seem to be working better than my longs :-)
Remember my response to ctohtb regarding PGWC back on Aug. 22 when the stock was at $7? The company extended the deadline by one day to Aug. 29 but look what happened over the next four trading days. The stock hit $1.10. I would say that qualifies as a "lead baloon" drop.
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