Sep

19

This is similar to what happened to the H#nt brothers when they made money from buying silver and gold. Not only did they lose their gains,…

Nigel Davies adds:

It's difficult not to feel some sympathy for the shorts. The chess equivalent would be for the tournament director to take a look at your position and, on seeing your rooks poised to penetrate the opposing ranks, declare that for the next ten moves they could move only backwards.

Kim Zussman agrees:

Who wants to compete in games where the rules are unstable?

Victor Niederhoffer comments:

When the exchange rules on silver were suspended, the gold and silver markets ceased to exist for about eight years, especially in Chicago. I wonder if many people feel as Dr. Zussman does, and whether this will lead to a tremendous diminution of trading.

Sushil Kedia writes:

SushilA short position, in general, turns out to be a postponement of purchases. Even though they are intended to be opened with an objective of purchasing lower, it is just a potential demand in the future; since buying may happen lower or higher out of a short position.

With short sales not existent or not allowed afresh this one key source of periodic demand into the future is absent. Such markets tend to go down with way more ease than those markets that do have an existing short interest. A large subset of emotive responses that can be forced into buying the dips or the squeezes is non-existent.

Likewise, a ban on short sales rather than solving the problem of weak markets only postpones the inevitable weakness into states where there are only herds of long only hands turned into sellers and no motivated buyers to step into the dips.

This perhaps can be studied, if data can be obtained, by comparing the downside swings during periods when short selling was not available and since when it has.

Kevin Depew sees another historical parallel:

Arthur "Bull" Cutten some 70-odd years ago was trotted out before the grain futures commission where he was declared guilty on six counts of "price manipulation." Same type of villification of short sellers occurred then too. I wrote about this in June during the "oil speculator" hearings because I found his declaration after the trial quite apt. I don't wish to self promote my article, the gist of it is this:

Some 70-odd years ago, the Grain Futures Commission declared that Cutten was guilty on six of the price manipulation counts he was charged with and ordered him suspended from all U.S. grain exchanges for two years. After the verdict Cutten declared, "What's the use of trading? The market doesn't move."


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