Replies to post #594835 on Zeev's Turnips Patch-No Politics (ZEEV)

[Joseph Silent]

Regarding

>>> I don't buy the line that Bear was brought down by shorting. Rumours and a run on the bank maybe, but shorting no. If shoritng can bring an entity down, then it is already dead.

Of course, people are entitled to their views.

Entities like BSC and LEH (and most others) function in terms of many parameters. Their existence depends on those parameters satisfying certain constraints just as the value of your house depends on parameters and how they relate to certain constraints.

In principle, all your neighbours up and down the street could sell their houses to one another for a tenth of their value, if their intent is to temporarily depress the value of your house. This is much easier to do for our "neighbours who operate in the markets."

It is very easy to destroy companies via systematic shorting, and many entities have suffered such a destruction. All shorting needs to do is to bring one parameter (e.g., price) to a point where crucial constraints are violated. At that point animal spirits take over and outcomes are more or less predictable.

Prior to these points (perhaps aptly called "threshold points") it is possible to ward off such a crisis. But one has to acknowledge the existence of such a point first, or dwell in ostrich-land. FNM and FRE are at such points now.

At the heart of things there is great simplicity --- animal spirits, greed, fear and related actions. The complexity lies in size, volume and information/misinformation. This is the noise.

[Initq]

I agree with you shorting alone would not have brought down BS (although as Bruce points out it can, in an extreme cases destroy a company).
The BS Bear raid also included but was not limited to calling clients and starting rumors of insolvency after they had positioned themselves. In this market fear needs little excuse to action and reason does not have the luxury of due diligence. Ruthless Bears understand this and it puts all at risk.
It's the same thing as penny stock operators but in reverse BS was a major target no one liked them and it is why Ben let them fail. If you ever get the chance "Reminiscence of a stock operator" is a veiled biography of Jesse Livermore. It’s a fascinating read and one that I keep going back to time and again, IMHO this stuff happens a lot. And in Bear markets it's the easiest route to malfeasances #1 cause of PE compression in Bear markets risk.

[Joseph Silent]

shorting

for example:

"Many small cap companies are in the process of obtaining financing and the price of their stock is the determining factor of how their deal will conclude. Too often the performance of the company becomes secondary to defending the deflation of its stock price. "You spend your days combating allegations and answering questions to existing shareholders, this puts you immediately on the defense. There were days when I was personally buying stock in an attempt to cut the short position and show investors that management was still confident and strong." explains the COO of one company.

It is unfortunate that actual performance may not always dictate stock price when the stock is being shorted. Firms are required to report their short positions as of settlement on the 15th of each month. A compilation is published eight business days after and can be found on www.nasdaq.com.

If you notice a short position is being taken on a company in your portfolio do not be so fast to throw in the towel. Quitting too early is what short sellers are betting on. They have created an uneasy feeling for existing shareholders that will test their loyalty. This possible misdirection could be a way of luring existing investors down the wrong path resulting in a loss for those who jump ship."

http://www.smallcapreview.com/Shorting%20Stocks.htm


If the price of a small brokerage (e.g., Ameritrade, Etrade, Shwab) is brought low enough, they will lose their accounts in a flash and go under. It is doubtful that even you will stick around to see if your brokerage survives. Shorting can bring price down to where this may occur .... it is all a question of bringing it to that threshold point. Downgrades,, bashing, misinformation ..... this is all part of the organized short-mafia toolbox.