Tag Archives: short selling ban

ProShares announcement: it was the ban.

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ProShares Announcement
Friday September 19, 11:25 am ET

BETHESDA, Md.–(BUSINESS WIRE)–Due to the emergency action announced by the Securities and Exchange Commission on September 18, 2008, temporarily prohibiting short sales of shares of certain financial companies, Short Financials ProShares (SEF) and UltraShort Financials ProShares (SKF) are not expected to accept orders from Authorized Participants to create shares until further notice. Unless notified otherwise, shares will be available for redemption by Authorized Participants as normal. The shares of these ProShares are expected to trade in the financial markets today, but may trade at prices that are not in line with their intraday indicative values.

No more SKF for me, ever. I’m on an accelerated schedule to get out of the rest of my short ETFs. Too many wild cards, not enough disclosure.

Long-term puts only from now on. I had hoped to hold onto the ETFs until we started to really plunge, because I had figured market functions would hold up that long, but we are apparently on an express train to Animal Farm.

I wonder how many others feel the same? I bet this week’s shenanigans are going to put a lot of people off the markets entirely. All they have done is burn a few shorts and set the markets up for a rapid retracement of the last 900 Dow points, plus give or take a couple thousand to the downside.

Markets don’t drop because of shorts (though shorts can drive them up fast). Markets drop with the scales off of longs’ eyes.

Short selling ban should not affect short ETFs

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My understanding is that these ETFs do not actually engage in plain-vanilla short selling, but use options, futures, forward contracts and swap agreements in order to perfectly track their respective indexes. The ProShares ETFs that I have been watching lately have been doing a good job of operating exactly as advertised, providing twice the inverse of the indexes on a daily basis. I expect them to continue to do so, and believe that their vital risks are still counterparty defaults and government meddling in the derivatives markets.

Page 7 of the ProShares prospectus (PDF) has a rundown of strategies employed by its short funds.

MarketWatch reports that ProShares ETFs have seen massive volume this week, especially SKF, the double short financial ETF, which benefited from earlier naked shorting restrictions.

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This is one heck of a rally. Dow futures are up 347 points on top of a 600 point rise from the intraday low yesterday afternoon. This is a gift for shorts using means other than plain short sales, since it sets us up for a spectacular failure, financials included.

SEC intends to ban short selling. Government boxcars reported in Greenwich.

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Hedge fund managers said to pack dirt under fingernails, roughen hands on bricks to avoid suspicion and possible shipment to North Dakota re-education camps.

These days it seems like we are living in an Onion article (1 , 2). It would be funny if it were not the end of the world as we know it.

I’ve been a bear since spring of 2006, preparing for a depression since early 2007, and have had no illusions about the death of the idea that was America. I saw these events coming a mile away, but the speed with which they have arrived is shocking.

By edict of the Duma…

I figured that the shorting ban (WSJ article) would pop up somewhere near the midpoint of the bear market, maybe Dow 8000, but this train to Animal Farm is an express. When will they ban international money transfers? Unapproved foreign travel? Gold?

The speed with which our leaders are dropping any pretense of respect for markets just makes me that much more bearish. 8000 could be next month, not next year as I had figured. And I have to rethink my bottom target of 3500. Really, that would not be the end of the world — this market started at 800 back in 1982, and you have to remember that equity values go POOF after an economy gets as leveraged as ours is. 75% stock market drops are not black swans. They follow credit bubbles like day follows night.

Markets are so bourgeois, anyway.

The possibility of Dow zero just ticked up a standard deviation or two. What happened to the Moscow stock exchange after 1917 anyway?

The end of the stock market? Impossible, right? Well, if our Bolsheviks enact their desires to use government funds to buy all manner of securities (as the Russians are now doing), they could eventually own everything, not just the mortgage market and a huge insurer.

Buyout mania, with a twist.

If a security’s market price is $10 and the government offers $20, that is not ‘market support’, that is a buyout. Of course, there are limits to this sort of nationalization, namely the difference in scale between the Fed’s $900 billion balance sheet and the many tens of trillions of dollars in US private equity and debt instruments, so at first they will be very selective (ahem), but they do have two tools to help them work around those limits: printing presses and guns. In a few short years, when the former lose their potency, the latter can be brought to the fore.

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PS — Of course, my opinion is that this rally (futures are up 2% on top of today’s dramatic close) is just a short squeeze and dead cat bounce. The air pocket under stocks just got a whole lot bigger. 90-day T-bills last traded at 0.07%. The stall warning light is still on.