Market crash: are we there yet ?

[wind_magic]

The SEC was smart not to ban short selling altogether and instead just put a temporary halt on short selling against 800 companies. Banning short selling is a really stupid idea, and it worried me that there was even a rumor that it was going to happen.

Looks like the after hours traders ran it up another 5% overnight on all these rumors of what the gov's were going to do. Wonder how long that will last.

[Sonofasonofasailor]

Rick, I realize the mortgage game is slow right now but you should find something more productive to do with your time than regurgitate political & economic blogs on Sailnet.

If you were even 10% as learned on the matter as you think you are then you wouldn't have the time to be here 24/7.

[wind_magic]

Originally Posted by Rickm505

Evidently, your kindergarten analogy has been soundly rejected by traders worldwide. Professionals fully support the SEC in this matter. It appears you'll just have to find a different way to make a living.

Rick, was I cruel to you in a previous life or something or are you just angry ?

The market was looking for a reason to rally.

[sailingdog]

Cheney is the one with his hand up Bush's butt in control of Bush speaking, since Bush doesn't have the common sense God gave an ant...

Bush and Cheney should both be impeached for violating the Constitutional rights of all Americans. Apparently, it is an impeachable offense to have sex with a consenting adult and lie about it, but it is okay to lie about Weapons of Mass Destruction and go to war and kill hundreds of thousands of innocent civilians, as long as their foreigners, and it is okay to illegally search millions of Americans and violate their Constitutionally granted rights.

Originally Posted by Packrat

I guess it will take some people having their kids starve to wake up to reality. Bush sold us out. As a matter of fact I don’t think Bush is smart enough to have schemed up this mess. He is being led around like a stupid puppet. You can do that to a fool with a huge ego. The world economy is in chaos, the greatest nation in the world is imploding due to greed and self interest. He and his cronies have committed treason plain and simple. The saddest note is it has taken all this for Americans to start to complain! Wake up America! What happened to the intestinal fortitude of those enlightened people from the 60’s? Come on, put pressure on these criminals, trade embargos on the Arab nations. Keep the oil from Iraq, our boys died for it. Grow some testicles. The best leaders America can come up with is Obama and McCain? Holy crap. Just a thought…

[sailhog]

Originally Posted by wind_magic

If you need money for the down payment on a house and you go to your sister and ask her for it, and she sells 100 shares of MSFT to give it to you, you have just done EXACTLY the same thing that stock market traders do every single day. You have caused 100 shares of MSFT to be sold into the markets, and you have used the proceeds from that sale to generate cash and then used it to buy long into a piece of real estate. You have "attacked MSFT's stock" by selling stock that someone else owned and which you will have to purchase back later to replace. That's all a short sale is.

It isn't evil, it's just commerce. It's traders making a market.

I'm dense. The corollary of my sister in this analogy would be a bank. In this case she would be a bank holding MSFT shares. The bank sells the MSFT shares to raise money to lend to me to buy a house. The bank didn't "short sell"; they just sold. I don't see the difference between "short selling" and old fashioned "selling" in this analogy. It was my understanding that the short seller "buys back the stock" at a later date, and somehow keeps the difference. Does anyone else share my confusion on this matter?

[PBzeer]

Funny about that Rick, I guess being an attorney in real estate isn't much of a knowledge base, huh?

[SailKing1]

Dow up 400 in first 15 minutes of trading.

[PBzeer]

Let me guess, though it was all Bush's fault for the financial crisis, he will get no credit for the positive reaction throughout the markets that is now taking place.

[wind_magic]

Originally Posted by sailhog

I'm dense. The corollary of my sister in this analogy would be a bank. In this case she would be a bank holding MSFT shares. The bank sells the MSFT shares to raise money to lend to me to buy a house. The bank didn't "short sell"; they just sold. I don't see the difference between "short selling" and old fashioned "selling" in this analogy. It was my understanding that the short seller "buys back the stock" at a later date, and somehow keeps the difference. Do you understand my confusion on this matter?

Yes I see. The difference is the "borrowing", that's what makes selling different from short selling.

I didn't say it exactly right is why it's confusing - the actual transaction isn't that the holding company sells the MSFT and gives you the money, instead the holding company loans you the MSFT shares and your broker sells them and you get the money. Same end result. In most cases the company holding the shares is actually your own broker, if you use a broker, and when you go short you are selling your own brokers long position.

We are accustomed to the idea of banks loaning money to people, but most people aren't used to the idea of banks loaning other assets such as bonds, or of holding companies loaning shares. You can borrow most anything for the purposes of going short, even precious metals.

People also tend to assume that short sellers are trying to make money on a decrease in price because that's the most obvious way it can be used, but that isn't the only way it it is used. I will give an example.

Pretend you have a $us denominated account, and you want to buy ¥jp, but you don't want to buy ¥jp using $us, you want to buy ¥jp using £uk because you don't have any idea what the $us is going to do vs. either currency, but your analysis has told you that those other two currencies are going to move in a certain way. To create this position the most obvious thing to do would be to open an account in Japan that was denominated in ¥jp and then use that account to buy and sell £uk, right ? But the way traders do the same thing is to short one of the currencies and buy the other one, which does the exact same thing. In this way they are not actually trying to "make money" by shorting one of the currencies, instead what they are trying to do is make their trade $us neutral, so that it doesn't matter what the $us does in relation to either currency, all that matters is what happens in those two currencies against each other. In this example, the shorted currency might actually be going up in value, but the trader would still make money so long as the long currency was going up in value even faster.

Related to this, say you wanted to be in a position where you thought that the £uk was going to rise or fall vs. CSCO shares. You could create that position by borrowing CSCO shares from the holding company, selling them, and then converting the $us you gained into £uk. Exiting that trade would be the reverse, you could sell the £uk for $us, then buy CSCO shares and return them to whoever you borrowed them from. Make sense ?

Using short selling you can create an infinite number of positions that are denominated in whatever asset you want to trade from, all without ever leaving the $us.

Short selling is essentially just borrowing something and then returning it later. Most normal investors/speculators only think of "buying" and "selling" something, it doesn't occur to most of them that "buying MSFT with a credit card" is actually shorting the $us, even though it is.

[Rickm505]

Originally Posted by Sonofasonofasailor

Rick, I realize the mortgage game is slow right now but you should find something more productive to do with your time than regurgitate political & economic blogs on Sailnet.

If you were even 10% as learned on the matter as you think you are then you wouldn't have the time to be here 24/7.

It's difficult when someone crams reality into forum posts, isn't it? Although I aprreciate your tips on time management, as long as you wacko's are posting garbage, I'll be here to refute it.

Incidently, don't like what I post?...then refute it. Oh that's right...you can't.

sheesh.. this guy is a waste of sailnet bandwidth. At least John has an educated opinion.