Short Sellers to Blame?

by Larry Levin

Today's coverage of the market's most recent drop has all of the long-only fund managers in a twitter, as well as the twits in the media. They cannot believe that the house of cards has fallen to the ground. They are angry. They want blood. After all, how can long-only fund managers continue to live on caviar and lobster if the market goes down? And worse, how will they retain their financial-celebrity status if the rubes watching on TV turn on them? They need a scapegoat: short sellers!

Short sellers are to blame? Give me a break! There are many reasons why you are losing money today, one of which is you for believing in the long term flimflam of Wall Street, but the vast majority of the blame can be safely laid at the feet of one man: ALAN GREENSPAN. More on him in a moment.

Naked short selling is illegal - kind of. I say that because naked short selling, which is the short selling of stock without borrowing it first, happens all the time. The SEC regulation allows it! When institutional investors want to short a huge block of shares, the SEC realizes its broker may not have the entire sum needed to be borrowed for the short sale, so the regulation allows the brokerage firm to grant the order and then deliver the stock at a later date. Neither the broker nor the client is doing anything illegal; they are following the rules laid out by the government.

The SEC can grunt all it wants, pretending that wicked, greedy speculators and so-called illegal naked shorts are driving the markets down. Of course, this is a feeble attempt to ignore the real problem: a global derivative meltdown in a financial system that grew morbidly obese with outrageous debt and fees collected via its ability to foist that debt on unsuspecting investors. Stocks are falling because of the actual condition of these financial institutions. They are falling because they have hundreds of billions of dollars of liar-loans on their books in Level-III assets. A ban on naked short covering may slow down the sellers, but covered short selling will continue - en masse.

It seems like today's buzzword on television, as mentioned earlier, was short sellers. To be fair, they mention naked shorts, but only briefly. The effect of this is to lump all short selling together with the goal of making it illegal entirely. It is simply another step on the road to the new U.S.S.A (United Socialist States of America ). Have there been any investigations into those evil individuals who caused Bear Stearns to fail? Did the itsy-bitsy short seller FORCE the gargantuan US government to bailout Fannie Mae, Freddie Mac and AIG? Did the elusive and immoral short seller also cause Merrill Lynch to be sold and Lehman Brothers and to fail?

Unless you have been brainwashed into believing that you are OWED an ever rising market, the answer is an unequivocal NO! To be sure, short sellers are profiting as these stocks fall, but they would fall anyway.

? Blame the media and your advisor for brainwashing you into believing Wall Street's flimflam.

? Blame Congress (both sides) for repealing the Glass-Steagall Act in 1999 for allowing commercial and investment banks to consolidate.

? Blame the regulators for allowing Wall Street to use Level-III books, which are like a hush-fund: off the books. Enron did it and people went to jail. Why should Wall Street be allowed to keep several financial books, putting all of the toxic garbage in Level-III?

? Blame the unscrupulous lying mortgage brokers and con artists that pumped rotten loans.

? Blame the deadbeats on your block for buying a home they couldn't afford with money they didn't have.

? Blame Congress for (nearly) demanding mortgages be given away to said deadbeats to garner a vote.

? Blame Wall Street's insatiable GREED for the next big deal - the next huge fee - reality be damned.

? Blame the Haaa'vad crowd on Wall Street for believing the unbelievable - that home prices can increase at 3 times the rate of inflation forever.

? Blame the rating industries.

? BLAME ALAN GREENSPAN!

Without Alan Greenspan's negative interest rates after 9/11/01 that lasted far, FAR, too long, most of this wouldn't have happened. Greenspan's preposterously low rates, coupled with Wall Street's insatiable GREED and HUBRIS puffed up the housing bubble. Because Greenspan's interest rates were so low, Wall Street had virtually free money. Because Greenspan's interest rates were so low, housing speculation exploded. Because Greenspan's interest rates were so low, investors were losing money to inflation at the bank. (Why doesn't the Fed care how its actions affect savers?) Because Greenspan's interest rates were so low, investors were forced to chase yield. Because Greenspan's interest rates were so low, it made it easy to sell these Frankenstein investments to pension funds, insurance companies, YOUR investment professional, etc. They needed to buy this junk to make up for the ridiculously low rates of return on Treasuries, caused by E-Z Al himself.

Do not blame short sellers; blame Alan Greenspan.

Mr. Greenspan was on television Sunday where he made a comment that has been repeated often (already). He said the credit-crisis that is happening now is a once in a century phenomenon. Ummm, not really. Mr. Greenspan would have you believe that this came out of nowhere, that NO ONE saw it coming. He wants to equate it to a freak of nature, like a once in a lifetime flood. He wants you to believe that, because that gets him off the hook.

Mr. Greenspan, however, is a fool. We don't buy it, Alan. Weather patterns are indeed unknowable and freaks of nature. Flooding the market with easy-money is not a freak of nature. Humans are, in fact, predictable when it comes to money. And when high school drop outs are given a million dollars to buy a home, and are encouraged to lie about their lack of income, only one thing will result: calamity.

Either Alan Greenspan is liar, desperately trying to preserve his legacy - or he is a fool.

But it doesn't end there Mr. Greenspan. Your preposterous pumping of money into the system is now jeopardizing the solvency of the United States . The S&P ratings agency warned this morning that the USA 's AAA Credit Rating must be earned and is not guaranteed. Said another way, the horror show of bailouts on Wall Street is so bad that they may downgrade our sovereign debt. And unfortunately, that would make the current problems look like a walk in the park!

In addition, this morning the Treasury Department announced that it is going to issue a special auction of T-bills for the explicit purpose of adding it to The Federal Reserve's balance sheet, which is a clear statement that The Federal Reserve is out of money. Other than its long term Treasuries, the Federal Reserve is BROKE! Hello, McFly - anybody in there?!? The Treasury Department is blatantly PRINTING MONEY FOR BAILOUTS BECAUSE THE FED IS BROKE. And that is why investors flocked to gold today, notching its greatest single daily gain in history.

Investors have seen this BS before. They have seen governments unashamedly print whatever amount of money is needed to bail itself out of a jam, and it always ends very, very badly. Does Argentina , Zimbabwe , or the Weimar Republic ring any bells?

In the end, short sellers may make you angry because they are making money while you are losing money, but they didn't start ANY of this. In fact, short sellers are just helping to put an end to the miserable companies that have lied and stolen from you for so long. These firms have died of their own affliction, like a drug addict that ultimately took his last hit - that ended his life.

Real Time Trading Signals*for

Trade Date: 9/17/08

E-Mini S&P Trades*
(before fees and commissions):


1) VA sell @ 10:40am at 1178.00 = -2.25 (1 lot)

2) Engf sell @ 11:25am at 1171.00 = -2.25 (1 lot)

3) VA sell @ 11:50am at 1179.00 = +3.50 (1 lot)

4) FT sell @ 1:35pm at 1186.75 = -2.00 (1 lot)

5) Algorithm positions (4)...combined total...+7.50

ZB (30 Year Bond) Trades*
(before fees and commissions):

1) No bond trades today.


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