howard mcsweeney1- Location: Dover
- Registered: 12 Mar 2008
- Posts: 62,352
http://www.telegraph.co.uk/finance/markets/8696624/France-bans-shorters-as-markets-bounce-back.html
all very confusing, maybe barry can explain all this in lay terms and how it impacts on us if at all.
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
Short selling then Howard. It is a perfectly reasonable and sensible practise that can be used to good effect by a skilled trader to the benefit of their clients.
Basically it is the selling of a stock because you think it will fall. A 'long' is where you hold a stock because you think it will rise. These can be combined with derivatives to reduce the volatility of a fund, offsetting risks. It is a highly skilled operation that can result in a manager generating gains even in a falling market.
This is one of the investment styles that can be used by the managers of what are called 'Absolute Return' funds. These funds seek (but don't promise) to achieve a positive return under all market conditions. They can be used as an 'alternative asset' within portfolios for diversification and to help reduce the downside risk of a portfolio. I have used one of the long/short style AR funds though I prefer to use multi-asset AR funds as a general rule. They work very well but need to be used with caution and highly selectively. Personally I am fairly conservative in my use of them and they form a rather small proportion of my portfolios.
Overused shorting can increase the volatility of the markets, so I can understand why some countries have banned the practise for bank stocks, specially as banks are under pressure in other ways in those countries. That said at a time when managers need liquidity this ban may well be counter-productive and may itself depress the value of bank stocks and the market.
howard mcsweeney1- Location: Dover
- Registered: 12 Mar 2008
- Posts: 62,352
thanks for the explanation barry, sounds as if the country's banning the practice have a case of the jitters.
can i put a question on this?
say for example an investor buys stock with the intention of it being a long term investment then they have cash flow problems and need to sell, are they stuck?
Keith Sansum1
- Location: london
- Registered: 25 Aug 2010
- Posts: 23,942
Barryw
thanks for that info there are a number of posters that im aware of watch the stock market very closely as iv sad before for a number of reasons
ALL POSTS ARE MY OWN PERSONAL VIEWS
Guest 716- Registered: 9 Jun 2011
- Posts: 4,010
``Short Selling ``benefits the Short seller and his/her client. Nobody else.
Keith Sansum1- Location: london
- Registered: 25 Aug 2010
- Posts: 23,942
REG;
HOW ARE you mate hope your good
I'm afraid that barryw is blinkered but good luck trying to get through
ALL POSTS ARE MY OWN PERSONAL VIEWS
howard mcsweeney1- Location: Dover
- Registered: 12 Mar 2008
- Posts: 62,352
this is a blog from jeremy warner on the telegraph website.
I was on BBC Radio 4's Today programme this morning, ostensibly to put the case against further "quantitative easing", of which more later, but the conversation naturally focused instead on the overnight ban on short-selling of financial stocks in France, Italy, Belgium and Spain.
My fellow guest, James Bartholomew, described the ban as like shooting the messenger, or killing the canary down the mineshaft. He's absolutely right of course. In Britain, the Financial Services Authority imposed a similar ban on short-selling in the run up to the Lehman Brothers collapse. Little good did it do back then, and little good will it do now.
Thankfully, the FSA has stayed clear of the state of denial that exists among some eurozone regulators this time around, but the narrative is exactly the same as it was back then. There's nothing wrong with the big European banks which are perfectly solvent, regulators insist, but the short-sellers, by crunching the share price, threaten a self fulfilling prophecy by creating a panic which causes a run and thereby makes the banking system freeze over anew.
As I say, exactly the same arguments were used back in 2008, when the Financial Services Authority went so far as to put out a statement saying that HBOS was completely solvent and was the target of malicious scaremongering. A little while later, the Government admitted the bank was bust and recapitalised it with billions of pounds of taxpayers money.
The reality is that the downward spiral in European bank stocks has very little to do with short-selling, and everything to do with the fundamentals of the eurozone debt crisis, which European policy makers would prefer to deny rather than face up to. It's much easier to blame greedy Anglo Saxon hedge funds than to admit to harsh realities.
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
Reg - the job of a fund manager is manage money and to look after their clients, they have a duty of care and would be in trouble if they did not. You might think that kind of thing odd and Keith clearly prefers to believe you but then that's his problem being the truly blinkered one.
Below is what people who really do know about this are saying. I have a professional need to understand these matters and have passed examinations on this, even so, these do know more than me.
This is from Portfolio Adviser from a bulletin sent to me today. The journal has no axe to grind on the issue and is a industry publication not pushing a particular point of view:
"""""""""""""""""""""""The next debate will be over whether short-selling should ever be used and this will probably be as short-lived as this ban. Put simply, it has made the City and others' financial centres considerably more money than it has lost so is here to stay and this will remain the case no matter how strong the argument is against betting that something will fail given its inherent downsides for markets and investors.
The Financial Times called it a 'knee-jerk' reaction, adding: "Plans to ban all short selling of financial stocks in four European Union countries but not in the rest of the 27-nation bloc will sow confusion and may well fail to halt the recent downward slide in bank share prices."
It reminded readers that lending between the banks themselves dried up completely between October and December 2008, after the short-selling ban was implemented in September.
After the events of 2008, the Investment Management Association did its own research, asking whether the ban was effective. It found that: "In the run up to the ban financial stocks were falling at much the same rate as the market as a whole. But once the ban was in place, the fall in financials accelerated, while the rest of market steadied."
The IMA's chief executive Richard Saunders, concluded: "So whatever drove down the price of financial stocks in 2008, it doesn't look like it was short-selling. And banning short-selling did not seem to do much to check the declines - the stocks went into freefall anyway.
"On the basis of the evidence, the proponents of short-selling would seem to be right and the regulators wrong."
As for the market consequences, Andrew Shrimpton, a member of the regulatory compliance practice at Kinetic Partners, suggests the move will reduce price volatility for a few days at best with volatility coming back after a day or two.
On top of this, he adds: "This measure will reduce the ability for banks to raise capital and increase the risk of a full blown recession in the countries that have adopted the ban."
If the aim is to curb market volatility, there is little evidence if any that short-selling bans work and this exercise does nothing except show that regulators do not know what to do about market volatility.
A bit like Frankenstein's monster, they have created something they now have no control over and they have no idea what to do about it - and as with the battle between market (in)efficiencies and its masters, in Mary Shelley's classic tale, the monster outlives its creator.
Chris Alexander, head of investment strategy at BNP Paribas Wealth Management, summed it up saying: "A ban on short selling of financials - that produced ambiguous results elsewhere in 2008 - in parts of the eurozone risks looking more like panic than logic."""""""""""""""""""
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
Note in the above - 'the ban on short selling could increase the risks of a full blown recession in the countries that have adopted a ban' -
Andrew Shrimpton Kinetic Partners who are a regulatory compliance practise, not a trader.
Guest 698- Registered: 28 May 2010
- Posts: 8,664
Markets and stocks where there is no short selling tend to be far less liquid. For example it means that if you want to buy a share but the trader you call has none in his trading portfolio, he can't sell it to you.
NASDAQ has a much more sensible 'uptick' rule: you can only sell short into a rising market. This means that short sellers can't jump on a bandwagon and chase a market down.
I'm an optimist. But I'm an optimist who takes my raincoat - Harold Wilson
Guest 645- Registered: 12 Mar 2008
- Posts: 4,463
I thought short selling was one of Snow Whites mates at the Panto trying to palm you off with a glossy programme.
Marek
I think therefore I am (not a Tory supporter)
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
I think that has changed Peter given the increasing use of derivatives to under-pin positions.
Howard - your question, sorry I forgot, no not necessarily but it could cause some problems it depends how the rules are established in detail and applied in practise. A lot of short selling goes on without the stock actually being owned by the seller - no, Howard - lets not go there!!!!!!!!!!!!!!
Guest 698- Registered: 28 May 2010
- Posts: 8,664
As a registered marketmaker, if you have a long derivative position to cover you can still short the cash market on NASDAQ. What you cannot do is open a new naked short position except on an uptick.
I'm an optimist. But I'm an optimist who takes my raincoat - Harold Wilson
Guest 696- Registered: 31 Mar 2010
- Posts: 8,115
There are conflicting allegations of being blinkered,
, so I'll keep out of this one.
Guest 716- Registered: 9 Jun 2011
- Posts: 4,010
Push aside,if you can,the gobbledegook of short selling.It becomes self-fulfilling as traders spread scare stories to push down prices.They are simply the gamblers of a troubled stock market.William Hill should start a book.
Guest 698- Registered: 28 May 2010
- Posts: 8,664
Interesting that you should mention William Hill. In social terms bookies are the uber-parasites along with pawnbrokers and illegal moneylenders. They put bankers in the shade.
I'm an optimist. But I'm an optimist who takes my raincoat - Harold Wilson
Guest 716- Registered: 9 Jun 2011
- Posts: 4,010
surely....you jest!
Guest 698- Registered: 28 May 2010
- Posts: 8,664
No Reg. Consider whom they prey upon.
I'm an optimist. But I'm an optimist who takes my raincoat - Harold Wilson
Guest 716- Registered: 9 Jun 2011
- Posts: 4,010
Bankers.............The world population.
William Hill.........A few may be!!!!!
Brian Dixon
- Location: Dover
- Registered: 23 Sep 2008
- Posts: 23,940
peter,bookies you can take them or leave them,if you want to place a bet you wouldnt go in a bank now would you.just imagin going into hsbc and putting 50p each way on red rum,they would tell you to get lost.
