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Equally culpable here is leverage. With investment bankers, banks and
even insurance companies built like a house of cards with excessive
debt, combined with portfolios of those stocks built with margin debt,
of course when anyone starts to lose confidence the house will
collapse.
It's funny that we look back at the old investment trusts of the late
1920s, laugh at their outrageous leverage and say 'well, of course the
crash of 1929 was inevitable.' Yet what we've created today seems
perfectly reasonable. Before outlawing short selling, the critics
should take a long hard look at the excesses encouraged by the Fed.
Let the malinvestment get washed out of the system. The correction
will be sharp and painful, but the alternative is slow and excessively
painful.
From: Robert Arbuckle <bobskc@xxxxxxxxxxxx>
To: realtraders@xxxxxxxxxxxxxxx
Date: Wednesday, September 17, 2008, 6:54:14 PM
Subject: [RT] My thoughts on the market
I admit that I have not seen anything quite like what is going on
before. I've been at this for about 37 years and I've seen a few bear
markets but never the destruction of one firm after another after
another. I am fairly well convinced that hedge funds are working
together and taking these financial firms apart. They know that if
they drop the share price significantly, the firm will be forced to
raise capital which they can only do to a point and then, it's end
game. Mean while, they have shorted the hell out of the stock and
walk off with a big bonus while the share holders, employees and
associated businesses are left with nothing.
I think that enforcing the naked short rule will help this situation
and it may help it a lot. We should put the uptick rule back in place
too. Speaking of hedge funds, it's way past time they were caused to
be transparent. If not for the good of those who have invested in the
funds, then for the good of the investment community as a whole.
Last, as expected, we are now seeing forecasts of total gloom and doom
and today, gold rose $80 an oz and 2 month bills had a negative
return. If that isn't capitulation, there is no such thing. The
enforcement on naked shorting kicks in tomorrow ... capitulation was
today .. Thursday will be very interesting.
Bob
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