We have spoken for the last couple of weeks to subscribers how important it is to not allow your broker to hold your stocks if you wish to prevent them from lending them to short sellers. I am amazed at how many readers have not done this as Jim has spoken of it since at least 2005. He has also advised investors either DRS their shares or have physical certificates sent to them…yet here we are in 2019 and I am getting bombarded with questions like “why” and “how”.
How? Contact your broker and tell them you want your shares sent to the transfer agent and then tell the transfer agent to send the certificate sent to you. Why? Because your broker effectively neutralizes your original purchase share for share when they lend them to a short seller who will do what short sellers do…SELL the stock you paid for and were dumb enough to allow your broker to lend them!
With regards to the mining share near and dear to our hearts, I have now seen a letter from a broker to a shareholder with my own eyes. The broker offered 55%/per annum to their customer if they would lend their shares out. One should probably ask “why”? Why would a broker offer 55% to borrow shares of any specific company if the current norm to borrow is something like 5% or 6%? We have also checked with various brokers to see what the cost to borrow is. It seems the number is now approaching and even over 100% per annum. Does this make sense in any fashion? One could conclude there might be a tad bit of a problem on the short side, specifically finding borrowable shares?
In a world where interest rates hover near all time humankind lows, does your eyebrow raise when you hear a broker offering clients 55% per annum to lend their shares? Does it not tell you something is very, very wrong in this instance? Does anyone remember the VW short squeeze?
To quote again, “he who sells what isn’t his’n, buys it back or goes to prison?”