OT: This how stocks come back � government corporations paying 10 and 12%!

[Colin]

"You always find out who's been swimming naked when the tide goes out. We found out that Wall Street has been kind of a nudist beach," said Buffett, who was called the world's richest person by Forbes magazine.

http://www.reuters.com/article/topNews/idUSN2237903020080822

[Colin]

Even a walloping dilution at the hands of new investors would leave plenty of upside for the existing shares.

(I hope so!)

http://online.wsj.com/article/SB121979831489375015.html?mod=googlenews_wsj

Bill Miller, the Legg Mason fund guru who's been on a bad run lately, was prescient when he doubled down on Freddie's shares

[Colin]

BTW, I dummied down once on FRE and FNM (at $1), now thinking of doing it again! Fed very carefully preserved equity in their take over, but who knows how much more housing/mortgage pain there is for the market to absorb. On the other hand, I am certainly right soon on Crude:

http://forums.klipsch.com/forums/p/106226/1093448.aspx#1093448

[InnerTuber]

You got the oil right Colin, course you said maybe a couple years, but still right!

Okay - the trade of the day suggestion (OJH9)

Sell 95 put
Buy 1.10 call
Sell 1.40 call

Can collect a penny or two on the deal, or at flat raise the 1.40 to 1.45 or similar, maybe drop the 95 to 90 on a tanking day.

That ought to at worst do nothing, at best you get 30 cents a pound, assuming OK doesn't fall below 95 which the Brazilians will try to prevent.

Think LDC is on the buying side if I was to guess

Wheeeeeeeeeeeee

[Colin]

I still expect Crude to crack lower, perhaps as low as $90 per barrel, if only briefly, by the end of the year

8/1/2008

We are clearly in the blow-off stage of a long-term bull market, with no easily visible sign of support until prices drops down to $88 level.

In the next few weeks and months, possibly a year, I suspect Crude will rise $10-20 again (without any scary crisis event, like a bomb) before falling, first to $110, then $100, before testing lows below $90, even to mid-60s. I do not expect a test of the mid-140 highs unless there is a worldwide crisis. Long-term trend though still remains bullish, with Crude prices rising about an average of $10 per decade…8/7/2008

so what if I am right - did not put any money behind it!

[InnerTuber]

crude contract scares me a bit, kinda big - I don't trade it but it's a decent derivative for resin costs

Agree mid 60's - that's what it will probably take to slow alternative energy development and for the producers 60 still smokes the old days <40

[Colin]

American officials show an appalling lack of understanding about free market and capitalism. At the first sign of real, needed and healthy correction in the hyper-inflated housing market, they rush to rescue a well-connected investment bank and insurance company. They officials create new regulatory agencies and limit stock selling.

The bail-outs caused by the suddenly low value of mortgage securities could cost as much as five years of our military invention in Iraq ($500 billion). Selling stocks is a proven trading technique to create a liquid and viable market. China is moving in that direction; slowing allowing more citizens and foreigners to buy and own more Chinese and foreign stocks. And allowing them to be able to sell them with shorter holding periods. This is know as a free market. Short selling (without buying the stock first) is a proven trading technique that brings liquidity and rationality to free market discovery of price.

If such rash, expensive and directed economic actions happened overseas, we would quickly label such actions as communist or socialist. Yet all this occurred without a single public vote. This is classic taxation without representation.

The strange thing is that not only is the economy not in recession …yet (albeit only officially and with a decade of high unemployment), but the recent economic gloom has dropped the price of crude oil, lifted exports, slowed Chinese growth, reduced rate of foreign investment, reduced trade deficits and lowered the dollar. All this is a good thing. In the long run. Because in the long run, busts are good for the economic booms.

Do we need more oversight? Yes. When the unseen credit swap market dwarfed the credit, equity and even the commodities markets, government should have began monitoring the positions and leverage of the market (http://www.time.com/time/business/article/0,8599,1723152,00.html).

Do we need more regulation? No. Managing markets by government edict has and will, never work.

What the U.S. needs in time of economic upheaval is government assistance to a smooth transition.

When hurricanes, drought, bank liquidity, scams, war, “irrational exuberance,” free trade, transparent borders, product standards, cooperatives and globalization hit our pocket books so heavily that it dents, or even reverses, national productivity, Americans need the tools to dry, wet, speed, tighten, flow, solidify and break up themselves up so they can improve their lives.

[oldtimer]

While I agree with most of what you say Colin, naked shorts (selling a stock you haven't borrowed) is just wrong.

[Colin]

Of course naked short selling isn’t wrong. It isn’t wrong in retail, farming, automobiles or commodities. It isn’t wrong in stocks either.

If I go into your store and place a special order for an item you don’t have in stock, you just sold me something that your don’t have. You are naked short that particular item. You are betting that the cost is x amount and you charge X plus some gross revenue percentage. If your cost goes down before you delivered, you win. If the cost goes up, you lose.

If you agree to sell me your crop before it comes out of the ground, you are short selling, although not naked. If the crop is ruined and you have to buy from someplace else to cover my order. You lose. If the crop is bumper and you have extra to sell, you win.

If you sell your neighbor’s car to me before you give your neighbor the money for it, you are shorting selling the car.

If you sell gasoline futures today because the price of Crude oil crashed recently, but hurricanes are pushing gasoline up, you are shorting the market. If you are right, you win.

Naked short selling is a form of short selling. While short selling itself is simply a method of selling. Ban naked short selling and all you do is force people to use the options market and buy puts (abet the stock is going down).

Buying and selling make markets. The action discovers the current price of an item. Buying and selling is good for markets and economies. It is good for people who can adjust to the current prices of things.

Governments can’t force free markets. No government is big enough. No country, not even the U.S. is big enough to defend its own currency. To ban selling is to ban free market action.

Government shouldn’t ban naked short selling to prevent a meltdown of financial stocks. Might as well just buy shares in the financial stocks. Hey, maybe that is what the four Social Security trusts should be doing now: buying lots of cheap stocks.

[Coytee]

I don't have any issue with normal short selling. Naked short selling I also believe is wrong and here's why.

When doing 'normal' you must first borrow, then sell. On the naked side, ... well, let me change the perspective. I think your above analogy is a bit off the track because if I sell you a special order for an item I don't have in stock, I'd suggest that's not naked short that item. Why? because I know I can get it, I have a cost to buy it (perhaps unknown) but the real difference is the initial premise...you are asking me to sell it to you, I'm not forcing you to buy it as happens in the stock market when you have a market maker or specialist involved. Since they MUST trade in the stock, their only weapon is price adjustments to help keep an orderly market.

Let me change the equation a bit...

Suppose you're walking down the street next to my store and you are REQUIRED to purchase my special item if I ask you to (think market makers or specialists). If I sell it to you , you MUST buy at least one. If every store on the street made you purchase that same item how can you react to buying it? Well, since you can't control the requirment of having to buy it and choose not to, you react in a different way by telling me yes you'll buy it BUT you will only buy it now at 30% of its prior value. I agree, then you go to next store and they force you to buy one....exasperated, you tell them you'll only give them 20% of prior value (let's say prior day close for reference point). This happens again and again and again. Finally, you don't need nor want 40 of these special order items, you drop your purchase price to 1% of prior value.

Now, the retailers have essentially driven the price of this special order (stock) to near zero because they're forcing you to buy something they have yet to have a cost basis in. If they were required to obtain the item FIRST, they might now hesitate before simply forcing it on someone because you might balk on what you're willing to pay.

I don't think the above is really a fantastic analogy (I'm usually fairly decent with them and actually have one now that I think about it, being a retailer (market maker) selling diamonds or watches or something). furthermore, I don't have the deft type to get my stories across like some of you. I'm better verbal and to do it via typing, I always have to write a freaking book.

My understanding of naked short sellers is, they're allowed to do it UNLIKE "you & me" (who must first borrow the stock) however, they're required to show it as a liablity on their books (fair enough it seems to me)

So... if they've got the finanical horsepower, they can sell "infinity" shares of stock as long as they can support that liability on their books. If the price of the stock goes to zero (which is the only way a market maker or specialist can 'defend' themselves from the onslaught of this phantom stock) then the "bear raid" has been successful

I do not view it as a valid "investment strategy" at all. I view it more like collusion by the raiders.

http://www.investorwords.com/444/bear_raid.html

bear raid

Definition

A trader's attempt to force down the price of a particular security by heavy selling or short selling. In the case of short selling, the trader then makes a profit by buying the stock cheaply to cover the short position. Bear raids are often carried out by large groups of traders together, since an individual trader might not have a large enough trade to influence market price significantly. This practice is not allowed under SEC regulations, which allow short sales only on upticks.

[IB Slammin]

OT, after all said:

I bought gas today for $3.19 per gal.

[Coytee]

I bought gas today for $3.19 per gal.

Actually, the gas station shorted you the fuel, betting that they'd be able to replace it soon with much cheaper replacement.

[]

[JJkizak]

The government just tookover Wall Street today to prevent a total collapse of the economy worse than the Great depression caused by greed, and some people are still calling for a free unregulated market? Give me a break.

JJK

[artto]

Of course naked short selling isn’t wrong. It isn’t wrong in retail, farming, automobiles or commodities. It isn’t wrong in stocks either.

If I go into your store and place a special order for an item you don’t have in stock, you just sold me something that your don’t have. You are naked short that particular item. You are betting that the cost is x amount and you charge X plus some gross revenue percentage. If your cost goes down before you delivered, you win. If the cost goes up, you lose.

Naked short selling is a form of short selling. While short selling itself is simply a method of selling. Ban naked short selling and all you do is force people to use the options market and buy puts (abet the stock is going down).

Colin, I’m surprised at you, especially since you’ve said that you used to be in this business. (Maybe I shouldn’t be after some of your responses to my financial-related posts)

There is a big difference between “naked short selling”, and “short selling”.

You say there’s nothing wrong with naked short selling? Where have you been the last century?

Naked short selling is ILLEGAL. Short selling is NOT.

The above example you gave is dead wrong. “If I go into your store and place a special order for an item you don’t have in stock, you just sold me something that you don’t have. You are naked short that particular item.” WRONG. That is simply “short selling”. You are “short” the particular item. Naked short selling would be more like I sold you an item and that item doesn’t even exist.

Definition of Naked Short Selling: “The illegal practice of short selling shares that have not been affirmatively determined to exist.” What you have described is simply “selling short” which is perfectly legal, appropriate, adds liquidity to the market place and is part of the process that helps “price” securities. What has happened recently is that there were more shares, especially involving financial securities, that were sold short than were actually available.

You can check the NYSE or NASDAQ SHO Lists for compliance. These are the stocks that will likely have a very strong rebound on any reversal due to excessive short covering.

[oldtimer]

Amen artto!

[Fish]

The government just tookover Wall Street today to prevent a total collapse of the economy.

JJK

While the situation is very serious,and needs the attention it's getting,I'd have to say you overstated it a little.[^o)][8][<)]

[JJkizak]

Yes, that's possibly true, since I was thinking at the time of a famous quote "Why did you shoot me, I didn't have no gun.", "Well you should have". (Clint Eastwood to Little ED)

JJK

[Colin]

a little?

With globalization, growing EU, Chinese and Russian influence, energy and health care issues facing us, the Republicans rush out a $1T rescue package for...Wall St?

"Well, it's time for some perspective. The world is not coming to an end. The stock market has tumbled, but it's still over 10,000. In late 2002 it was 7,500 and in mid-1982 it was 750. Are things really that bad?

With home prices falling, foreclosures and defaults are at the root cause of the run against all manner of mortgage-related bonds held by the banks. But as investment guru Don Luskin points out, foreclosures today are less than 3 percent. During the 1930s they were 50 percent. Or how about the unemployment rate? Today it's 6.1 percent. Back in 1982 it was near 11 percent and for most of the 1930s it was over 20 percent.

As the oil bubble pops the underlying inflation rate is somewhere between 2 and 3 percent -- quite unlike the double-digit hyperinflation of the 1970s. Home prices themselves have fallen between 10 and 20 percent, but they're still about 50 percent higher than at the start of the decade."

http://www.intrade.com/jsp/intrade/misc/blog.jsp

[Colin]

Arto, only the stock market has tricky hidden rules to make it look like stocks generally just go up, the "naked" part of the short selling rules is one of them. See the Kudlow article for more of them.

[artto]

Arto, only the stock market has tricky hidden rules to make it look like stocks generally just go up, the "naked" part of the short selling rules is one of them. See the Kudlow article for more of them.

Larry Kudlow? Oh give me a break Colin. Kudlow doesn't know his @$$ from a hole in the ground!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Larry Kudlow is an ignoramus extraodinaire, bigot, hippocrite and extremely biased. Not exactly what I would call the virtues of an intelligent person.

And wrong.....the stock market is NOT the only thing/place that has tricky hidden rules ~ its all around us.

And there's nothing tricky or hidden about naked shorting. It's been illegal since the Securities and Exchange Act of 1934. What's tricky about it (or should I say "was tricky"?) are/were the loopholes that existed for some brokers/dealers prior to 2007. Also, it would have been of some benefit if Georgy Porgie's crony Chris Cox at the SEC actually enforced the law.

And as far as the false illusion that the markets always generally go up, I couldn't agree more. That's why I don't rely on the major indexes as an indicator of anything, except in the most general terms.

Example: Thursday Sept 18, 08, the markets (DJIA, S&P500, NASD100, etc) were all up, and up strongly right? How about Friday Sept 19? Same thing, right? WRONG. Market breadth, the internals ~ the ratio and strength of advancing vs declining issues, and of new high vs new lows, etc actually declined Friday regardless of what the indexes show us. And what's worse, is that any of these recent "strong" rebound days were actually not that strong. The fact of the matter is they were much, much stronger on the rebounds back in March 08, November 07 and August/September 07.

The good news is (hopefully) that a broad range of sentiment, technical and fundamental indicators have finally hit historic extremes ~ some setting new records ~ has always resulted in positive results in the intermediate term, even long term, going forward. The kind of action that occured all of last week has never occured before a crash, only during or after. If history proves correct and repeats itself again ~ ~ ~ well, I guess we'll just have to wait and see.