Lucky # 7

Nice Flop

WASHINGTON -- The Securities and Exchange Commission said shortly after midnight Monday that it would revise rules to curb short selling that it had issued just three days before.

The SEC's latest change of direction on short selling caught some market participants off guard and prompted criticism that the agency has miscalculated the impact of its rulemaking.

The SEC, in a release issued at 12:26 a.m. EST Monday, reversed a position it had taken Friday when it said that market makers couldn't short financial stocks after Friday. The new rules as of Monday: Those engaged in bona fide market making and hedging activity, including in derivative contracts, could continue to short.

(courtesy of thw WSJ via Dealbreaker)

Nice Move

Hello Kitty.

We just went full-on Pakistan style capital markets.

The SEC just made it's worst move ever, surpassing it's second worst move ever, which only occurred a few years ago when it let banks lever up 40 to 1 and sell awful mortgages.

Yes, tonight they did it. Tonight they have banned short selling. This is not a joke. For those that are already puking, and understand how awful this is, please carry on vomiting, and move on, because I'm gonna try to explain this to everyone else.

Okay, not getting into the mechanics of it, short selling is simply a bet that a stock price goes down. Now, you might be saying, why would anyone want to do that? Or how is that a good thing? Or even, good riddance! I'm very happy they banned that evil-doer practice!

Okay, easy, just give me 5 minutes, Mrs. Holyer Than Thou.

Short sellers do their thing for the same reason that you buy a stock, the profit incentive. Bulls make money, bears make money and all that. Also, short sellers do their thing to hedge their portfolio, (hence the term hedge fund). Hedging is hugely important to protect one's wealth.

For example in today's market, a properly hedged portfolio might only be down 5-10% year to date, instead of 15-20%. Hedged portfolios will never do as well in a bull market, but they will save you a lot of volatility and help you sleep at night.

Hedging is better than just diversification because, as we've seen, most asset classes move together in lockstep when, not to get too technical, the shit hits the fan. Just about anyone with a lot of wealth is hedged, bc they are concerned with preserving their abundance, not just growing it.

Also, although short sellers make up a small fraction of the market, they act like the market policemen, sniffing out awful companies that don't deserve their lofty share price. This is amazingly important because it allows you to get the closest thing to a fair price when you buy a company.

People lost a boatload of money during 2000 dot.bomb. It can be argued that if there was a more active hedge fund community in the 90s, shares would have never reached those peaks, and never crashed as hard. In other words, most people would have been waaaaay better off, because no one was selling at the top.

Even more hugely important, due to the mechanics of the short trade, short sellers at some point need to buy the stock to book their profit. This is HUGE. Huge, because it puts a floor on stock prices. Without shorts, no floor. Once the selling gets going, and it always does, no natural buyers and you have the mother of all crashes.

Hey, but China does not allow shorts! And guess what, they're down 60%. Yes, SIXTY percent. That's like Dow 6000, or complete anarchy, or both.

Yeah, it gets better. Hedge Funds are a huge part of the economy. These funds are enormous, like massive beyond even the banks, which all just went out of business btw. As these funds blow up, and they will blow up at lightening speed now, they will need to liquidate, and this unwind will make the last week seem like a walk down Main Street Santa Monica -you know, like after yoga class you float over to the vegan cafe, have an elixir, jump in the ocean, fly your new kite, but i digress. . .

Finally, well not finally, but we're both exhausted, the actions of the last few months make us full on Communists, no hyperbole. Free Markets only work when markets are allowed to correct, and when bad companies are allowed to fail (for our new analog, see Japan zero growth going on 30 years).

And Democracy only works with free markets.

So, the good news is the Market will rally hard, I mean hundreds, maybe a thousand points. This will be followed by lethargy.

Which will be followed by the biggest crash in the history.

Have a nice day!

!Viva La Revolucion!

Books, Links, Comments, Misc

Still crying over the death of Capitalism/ Western Civilization. Fear not, Milton Friedman, Josef Schumpeter, Adam Smith, Paris Hilton and Fredrich Hayek lovers.

It is still ALIVE and well!

. . .in Communist China.

Here is my Dad's book just published by Wiley and Sons, selling out at b-schools across the country. Per usual, I cannot link it due to GOOG blogspot nonintuitive engineering. Just fucking go to Amazon and buy it. Search Frank Gallo, 12 bucks, click, boom, done. And short Google.

And yes, I know it's like IMPOSSIBLE TO COMMENT here, which is exactly what I did not want, but what may be happening is, I may shift over to a dedicated site under name to be determined, and then we can get rolling saying fuck every other sentence as a community!

Thank you all for your kind words and support. It is an honor that you take any time here at all.

Much Love, Peace,
yt

!Viva Socialisma!

Drill Baby Drill and Cackling Madmen

Hey, last night I was fired up by this Sarah Palin, and yes, they should flip the ticket.

But after meditating all day (yoga school), all I can remember from the Repubs is the whitest people ever, screaming, "Drill Baby, Drill!" and Rudy Giuliani cackling like Dr. Evil.

Somehow, at the margin, where the election will be decided, I don't see this playing that well. Not to mention the whole rape/ incest abortion thing just might be a deal killer for the female earth dwellers.

If I was the Dems, I'd just run an ad montage of Giuliani cackling, and the new mantra "Drill, Baby Drill!" on loop, then fade to black with white letters reading:

HOLY FUCKING SHIT.

Anywhoski, Palin will make it interesting, but the odds haven't moved (www.intrade.com) and again, at the margin, at least this year, fear, 9-11, war-mongering, drilling, playbook 04 ain't selling.

It's the economy, genius.

Speaking of, congrats to all the long-only CNBC pundits for telling everyone the bottom was in and to get bullish.

Did I mention it was highly inadvisable to watch CNBC? Yes, I did. Carry on buying and praying.

President Palin

She is fantastic. This is a great country.

Fake Hurricane Warning Spurs Fake Cancellation of Fake Convention

The Misinformation Society is peaking. I've never seen the MSM so consistently wrong on the stories of the day, often times just completely missing the obvious questions, focusing now on Sarah Palin's daughter, instead of why was this hurricane was so hyped.

And why, all of a sudden does this administration care about New Orleans, much of which has been rotting for 3 years.

This is the most amazing political theater I have ever seen. Sheer awesomeness.

Repubs feel their convention will be a bust (likely incorrectly), and don't want GW anywhere near the TV -we know this to be basically true.

Okay, so we're in hurricane season, no shit, we have it every year, and we have one coming, let's call it the "storm of the century", scare the shit out of everyone, terror-alert-code-orange, evacuate, save the day, send GW down there with the bat-phone and galoshes.

Then have McCain say, for the good of the country, the whole fucking Repub convention is cancelled, and get this, we're gonna fundraise for Gustav victims!

Wait a fucking second. . . these guys did not give one shit after Katrina, what is going on here, and way more important, why is no one calling them on this?

The MSM is completely lost, same with the MS biz media, they are walking the plank, running actually.

And Repubs, by all means, evacuate, raise money yes, but get in front of the country and please make your case. And don't fuck around with GW, put him up there, don't hide, there is no hiding, so get him up there and let him make his case too.

I bet he'd surprise everyone, and I also believe he will go down in history as NOT that awful, really, I mean it, no, I'm not fucking with you. Oh, just fuck off.

But, this whole fucking thing is too cute.

It is highly advisable that one never watch CNN or CNBC.