The ISEQ Thread Part I - March 2008 - October 2008 **LOCKED**

johnfás wrote:

Shudda put some money in yesterday so. Ah well!

It seems so. With all the turbulence generally would you trust this rally? Bank stocks are still very cheap compared to their highs - around €5 now whereas they went up to €18+ a while back. If it's on the way up it'll go higher than €5 don't you think?

IF it's on the way up.

Volatility or what?

We were up 935 points 20 minutes ago, now we're up 532. So we're back down 400 in 20 minutes.

story with BOI?

zakalwe wrote:

story with BOI?

Anglo or Santander making noises to buy it? The other night on Prime Time, David McWilliams said a big bank would buy one of ours. Is this ir?

Did I hear correctly the ISE have banned short selling also ?

I'd say there has been shitloads of shorting these past few months. I don't like the practice of shorting, there's something very pessimistic about it.

EvotingMachine0197 wrote:

Did I hear correctly the ISE have banned short selling also ?

I'd say there has been shitloads of shorting these past few months. I don't like the practice of shorting, there's something very pessimistic about it.

Yeah they stopped it too. You can't watch that youtube under picoftheday but your man has some defences of shorting. Isn't it a healthy part of the market though? Pessimism should mean caution and there was plenty of caution ignored in the states market.

I wonder can short sellers engineer the market to go down though or do they try to? Again it may not be such an evil thing after all if there's true shite on the balance sheets after all .... (could be an interesting debate)

FTSE 100 is also up.

They are all putting a lot of faith in banning shorting and the interventions.

Here the sharp rise is the usual we have been getting over the last month. Fall followed by rise. Get a fall, wait for news that may cause a rally then buy, bail out fast after it rises a bit, for it is still a bear market. This time you have people saying Ohh isn't that good value, I could make some money here must jump in.

Ask yourself this, has the FTSE or the DOW bottomed out? Are we confident in our financial institutions? Why exactly is there massive intervention? Are we out of the woods? I would tread carefully. I think we may have our own HBOS moment.

What I don't understand is why people going long would loan their securities to someone to sell short ? Are they not effectively in competition with each other.

Is that not like me backing a horse in a race, and then loaning you money to back a different horse ?

EvotingMachine0197 wrote:

What I don't understand is why people going long would loan their securities to someone to sell short ? Are they not effectively in competition with each other.

Is that not like me backing a horse in a race, and then loaning you money to back a different horse ?

Or is it like me borrowing your money to bet that your horse will fall? You can't lose from my bet - if your horse wins, you win. If your horse loses, I win and give you back your money.

EvotingMachine0197 wrote:

What I don't understand is why people going long would loan their securities to someone to sell short ? Are they not effectively in competition with each other.

Is that not like me backing a horse in a race, and then loaning you money to back a different horse ?

Commission!

I don't particularly like shorting myself. Let's say I owned shares in ANYTHING value goes up I decide to sell and take profit. If I also think that the price is now likely to come back down I could then step in and short. So my impact of selling is more than doubled.

Shorting provides traders an opportunity to make money on a falling market. It is a risky enough business for you can take a serious hit if you get it wrong.

Whilst I don't like shorting it is clearly not the root of the problem. The problem is lack of confidence and the more importantly the reasons for that lack of confidence.

But it involves a sell-off of shares though which is where the money comes from ( I think!) - and perhaps in a panicked market based on liquidity it's wise to delay the short sellers for a period. Wikipedia has an example (since when did they start putting examples in? it's a good idea)

Quote :

Example

For example, assume that shares in XYZ Company currently sell for $10 per share. A short seller would borrow 100 shares of XYZ Company, and then immediately sell those shares for a total of $1000. If the price of XYZ shares later falls to $8 per share, the short seller would then buy 100 shares back for $800, return the shares to their original owner (paying a fee for having borrowed the shares) and make a $200 profit (minus the fee for having borrowed the shares). This practice has the potential for losses as well. For example, if the shares of XYZ that one borrowed and sold in fact went up to $25, the short seller would have to buy back all the shares at $2500, losing $1500. Because a short is the opposite of a long (normal) transaction, everything is the mirror opposite compared to the typical trade: the profit is limited but the loss is unlimited. Since the stock cannot be repurchased at a price lower than zero, the maximum gain is the difference between the current stock price and zero. However, because there is no ceiling on how much the stock price can go up (thereby costing short transactions money in order to buy the stocks back), an investor can theoretically lose an arbitrarily large amount of money if a stock continues to rise. Also, in actual practice, as the price of XYZ Company began to rise, the short seller would eventually receive a margin call from the brokerage, demanding that the short seller either cover his short position or provide additional cash in order to meet the margin requirement for XYZ Company stock. http://en.wikipedia.org/wiki/Short_selling

Is the action of limiting those fellas a bit of woodfiller over dry rot though?

EVM. The lad that owns the shares never knows anything about them being sold. Nearly alway when someone buys shares, the actual shares are left with the broker for safe keeping. He will have shares belonging to a multitude of investors in a multitude of companies. It is the broker who lends the shares(which are not his) to the short seller who sells them. The short seller now owes the broker the shares and will return them later after he has made, a hoped for, profit.

If the owner wants to sell then the broker just sells someone elses shares and gives him the cash. Eventually the short seller closes out his trade and the broker is given back the borrowed shares.

Thanks for that Dan and Squire. (and Audi )

That makes the broker sound like a banker , except instead of cash, he's got stock, effectively on deposit, which he can extend to short sellers as a form of stock credit. Mad !

Is that analogy reasonably accurate ?

Yup!

You can stop them doing it by getting them to issue you the share certs but most people wouldn't be bothered.

If you had purchased €1000 of Anglo shares yesterday afternoon and sold them this morning you would get €2000. You could then double the amount of cans and recycling.

On the alcohol note, Superquinn are selling all their Italian wines for a fiver a bottle this weekend.

Squire wrote:

..

Then there is naked short selling. Trading takes place with shares that have not yet been borrowed and may never be. Naked shorting lets traders short sell large amounts of stock that may not be available to borrow in the market. Sometimes, lenders of securities tell several short sellers that they can borrow the same shares. Yep sure fills you with confidence. ..

FFS, these people should all be sent to Gamblers Anonymous.

So can someone tell me then, why the existence of short sellings improves liquidity (see P.ie thread HERE) ?
I don't really get that.

If I have shares in a company, then the company has my cash to the value of the shares. That's liquidiy is it not? Unless the company has used the cash poorly or tied it up in stock/assets etc.
So how does shorting these same shares affect this liquidity ? No idea.

EvotingMachine0197 wrote:

Squire wrote:

..

Then there is naked short selling. Trading takes place with shares that have not yet been borrowed and may never be. Naked shorting lets traders short sell large amounts of stock that may not be available to borrow in the market. Sometimes, lenders of securities tell several short sellers that they can borrow the same shares. Yep sure fills you with confidence. ..

FFS, these people should all be sent to Gamblers Anonymous.

So can someone tell me then, why the existence of short sellings improves liquidity (see P.ie thread HERE) ?
I don't really get that.

If I have shares in a company, then the company has my cash to the value of the shares. That's liquidiy is it not? Unless the company has used the cash poorly or tied it up in stock/assets etc.
So how does shorting these same shares affect this liquidity ? No idea.

It does nothing for the company.

I think they are referring to liquidity in the market, it helps move share values down to where they should be. At least I think that is the arguement, but to me it is the equivalent of placing a bet today and paying after the race next week. The only advantage that I can see is that it enables people to make money (or lose more) in a falling market. I am not a great fan of it at all, but I am no expert and prefer simplicity.

Anyway selling short did not cause the current problems, rather the current problems encourage people to sell short. The problem with banning it in a crisis is that they are trying to interfere in the market, and it is an indication that the problem is grave.

$400 trillion rocky ... are we seeing a war on the horizon? I can feel it in my water.

One thing about short selling - do you specify a date or before a date that you want to buy again? You sell the 100 shares at $10 each and get $1000 expecting them to fall to $8 a share. You can't wait indefinitely though, can you?

Auditor #9 wrote:

One thing about short selling - do you specify a date or before a date that you want to buy again? You sell the 100 shares at $10 each and get $1000 expecting them to fall to $8 a share. You can't wait indefinitely though, can you?

It will depend on whom you've borrowed the stock from and what terms you've mutually agreed. Usually the amount of stock floating around the market universe is large enough that a specific date becomes irrelevant. I would tend to think most shorting is done on short to medium time frames (1 day to several months). Don't forget, just because one shorts a stock doesn't mean that one's analysis is correct. The stock could just as easily go up, in a well regulated and liquid market, as it can go down.

There seems to be some confusion about shorting stock and market manipulation. Market manipulation occurs in several ways but usually involves a cartel of people who buy and sell stock in a coordinated manner in order to influence the final prices at which they sell or dump the stock? The vast majority of cases of market manipulation occur through artifically inflating the price of an equity - not deflating the price. What would get your interest peaked in a particular stock. One that is touted to go up in price or one in which the price has been falling? It's almost, if not exclusively, the former. The people sucked into market manipulation schemes, the ultimate schills who are left holding the overvalued equity, are always looking to make a quick buck for little or no effort on their own part.

Think about shorting in this way. Say I didn't have any money to buy "x" stock but through superior analysis, insight or inside information I just knew the price was going to increase. What do I do? I go out an borrow the money to buy shares. Should this practice be curtailed? Afterall, I didn't have the money to buy the stock but went and borrowed it and drove the stock price up (hypothetically) by buying shares. I am just as guilty of influencing the buy side of the equation of a share price as I would be by selling a borrowed stock on the other side.

That's a very good explanation and defence of it but is there an opening for knowingly shorting stocks? Say if there are 400 of us on websites like this orchestrating a sell of €1000 or €2000 each at the same point then the value will go down won't it? It's not unthinkable and not undoable but are there checks on it? Wikipedia says the long holder of the stock has to give permission for it to be used but this doesn't happen in practice does it? I can imagine that there are ways to consciously short a stock.

Auditor #9 wrote:

One thing about short selling - do you specify a date or before a date that you want to buy again? You sell the 100 shares at $10 each and get $1000 expecting them to fall to $8 a share. You can't wait indefinitely though, can you?

No you can't. They are almost always tied to a specific date. Trades really can't be made on the never-never.

The Government have increased the guaranteed deposit to €100K this morning.

The ISEQ has made a shaky start today. I am not surprised. I wonder whether the position of the Irish Nationwide has anything to do with it?
Or just it just the general malaise - is everyone putting their money in the Post Office?

Speaking of which, Brian Lenihan's hauling in of RTE and their backing down worries me. People had a legitimate worry that they were entitled to discuss. Ireland seemed to have the lowest level of deposit protection in the Western World. That was changed by Government directly as a result of the programme.

I see a tendency developing for people to start saying that open discussion is "rocking the boat". Those "in the loop" can chat amongst themselves carry on trading, but the Great Unwashed are meant to sit quietly whilst their assets and pensions go down the pan.