Can junior gold stock holders finally breathe a sigh of relief regarding Naked Shorting in your opinion?
To a degree, yes.
This would explain the recent hatchet job on the AMEX junior gold with the 7th largest short on the exchange.
High & Low Finance
Goodbye to Naked Shorting
By FLOYD NORRIS
Published: April 30, 2009
In some circles, those are fighting words. There are companies that blame all their problems on that kind of trading, which is illegal if it is intended to manipulate the market. There are claims that it has destroyed thousands of public companies, although those making the claims have trouble naming any such companies.
But now, it appears, naked shorting — the practice of selling shares short without borrowing them — is almost gone. The Securities and Exchange Commission’s hurried changes of short-selling rules last fall appear to have all but eliminated the number of companies where such selling seems to be occurring. This appears to be an example of regulation working.
The primary example of the decline in naked short-selling is in the shares of Overstock.com, an Internet retailer whose chief executive, Patrick M. Byrne, has for years been on what he called a “jihad” against such trading. Overstock has sued many Wall Street firms for facilitating such trading, as well as a hedge fund and a research firm that it believes acted illegally in spreading negative information about the company. The suits have not yet gone to trial.
The primary evidence of naked short-selling is a large number of trades where shares were not delivered on time, causing a “fail” in Wall Street jargon. Naked short-selling can save a trader the costs of borrowing shares, or can make it possible to short a stock where borrowing is very difficult because so many others want to sell it short. A large number of fails does not prove naked short-selling, since there are other reasons for trades to fail, but such a number does indicate it is likely.
Critics of naked short-selling often say it produces “counterfeit shares,” but that term is misleading. Any short-seller, naked or not, takes on the same economic risks. If the price rises, the trader will lose money. If it falls, he will profit.
IT AINT OVER ‘TIL THE FAT LADY SINGS
May 1, 2009
Spring is here and optimism is creeping back into the world economy. In this newsletter we will discuss why there will be a long time before the fat lady will sing (for explanation see Wikipedia). In our view we are still in the first act of three in a drama, the outcome of which will dwarf the most tragic of Wagner’s operas.
In our January 2009 Newsletter we forecast that there would be a correction up in the US stockmarket similar to 1930 when the market went up 50% from the low and then declined by a total of 90% and resulted in a depression. None of the fundamentals have changed and we are going to see the most horrendous hyperinflationary depression that the world has experienced for at least 200 years. It will be worse than the 1930’s because the world is now totally interconnected both financially and economically and because there has never been in history a worldwide asset bubble and credit bubble of this magnitude .
“There can be no other criterion, no other standard than gold.
Yes, gold which never changes, which can be turned into ingots
bars, coins, which has no nationality and which is eternally and
universally accepted as the unalterable fiduciary value par exellence”
Charles de Gaulle
THE US GOVERNMENT HAS LOST ALL CONTROL
The US Government is not running the country. It is running around like a headless chicken reacting to events and firefighting. It doesn’t have a cohesive or proactive plan how to deal the biggest financial crisis that the world has ever experienced. So it hasn’t taken a single measure that could solve the crisis. The only thing it knows is to print money. The US Government doesn’t understand that running the printing presses ever faster can never be a solution to a problem that was caused by excessive credit and deficit spending.
Wall Street is in control
All reactive decisions taken by the Government are governed by Wall Street who are more in control than the Government. Wall Street understands the problem much better since they are the principal beneficiaries of the current financial crisis. The crisis was created by the loose monetary policy of the US Government. Wall Street took advantage and exacerbated the problem by issuing unlimited amounts of toxic debt and derivatives. Wall Street obviously had the total blessing of Government which benefited greatly from political donations and the perceived prosperity that the credit bubble created. So not only did Wall Street make immoral amounts of money during the credit bubble but they are now the main beneficiaries of the Governments money printing. So far the US Government has lent, invested or committed $ 13 trillion since the crisis started in 2007. The majority of these funds are being used to save the financial system.
Wall Street by, being too big to fail, has created the perfect situation for itself. Losses are being socialised and absorbed by the Government and profits are privatised. So whilst the economy as a whole is suffering greatly due to financial crisis, most of the financial sector is continuing to prosper. In the medium term such unfair inequality will have political and social consequences.
What the US Government doesn’t understand is that directing virtually all their rescue efforts to Wall Street is not going to solve the problem. The Nobel Prize winning economist Joseph Stiglitz said in a recent interview that the bank rescue efforts will probably fail because the programs have been designed to help Wall Street rather than to create a viable financial system. Stiglitz went on to say: “the people who designed the plans are either in the pockets of the banks or incompetent”.
US debt growing exponentially
The US Federal debt in 2009 is likely to grow by at least $2 trillion and reach 100% of and GDP at around $13 trillion. In 1929 Federal debt was only 15% of GDP! Also in 1929 the US was a creditor nation as against today when the US can only survive due to its foreign creditors. In 1929 total US debt (private, commercial, state, federal, etc.) was 170% of GDP. In 1932-3 it reached 260%. In 2009 total US debt to GDP (excluding unfunded liabilites of circa $ 60 trillion) will be around 425%. Before this crisis is over this percentage will be significantly higher and possible even exponentially higher.
What is important to understand is that the US and the rest of the world is entering this crisis in a much worse position than in the 1930’s. This is one of the reasons why the current crisis will be much worse. But it will also be worse because the whole world is in a similar situation which is unprecedented in world history. What makes this crisis totally insoluble is the toxic debt and the derivatives outstanding of over $1 quadrillion. We have in the last few years consistently stated that a major part of these derivatives is worthless. Fudging the valuation methods of the derivatives is not going to solve the problem. at best it will defer the eventual collapse for a few months.
The Stress Test of US banks
In our April 2008 Newsletter we stated that the US banking system was a house of cards. A stress test has just been done on the US top 19 banks in order to ascertain their strength under various economic scenarios. The results are expected to be published on 4 May. Unofficial and unconfirmed advance reports of the stress test state that 16 of the 19 banks are technically insolvent. Not one of these 16 banks can withstand further disruption of cash flow or deterioration of loan portfolio without further injection of funds. The 5 top banks are so severely under-capitalised that there is doubt about their ability to survive.
The findings of the Stress Test are unlikely to be published without major censorship. Like most reports emanating from the US authorities the final publication will bear little resemblance to reality. Also the problem with the stress tests is that the criteria set assumes a relatively mild downturn and not the severe crisis that is going to unfold.
The fact that the whole financial system is bankrupt is not new to our readers who have been told that this was the case for the last few years. It is now a certainty that the biggest US banks cannot survive any further losses without additional government money. And since there are still $ trillions probably tens of trillions of losses to come, it is guaranteed that the money printing will continue at an even faster pace.
US AAA Rating – a farce
US Federal debt is still triple A rated. This is an absolute joke. We are looking at a country which has lent or committed $13 trillion in the last 12-18 months on top of a Federal debt of $11 trillion and unfunded liabilities of $60 trillion. Government debt is set to grow at an accelerating rate for many years to come since there is no chance of balancing the budget with escalating outgoings and revenue falling rapidly. US Government debt will therefore grow exponentially and there is no possibility that this debt will ever be repaid in today’s money.
The rating agencies never anticipate major problems with either sovereign or commercial debts issuers. They always react after the event and therefore serve very little purpose in protecting investors. They are commercial organisations that are paid by the debt issuers and therefore they are more interested in pleasing their paymasters than the investors.
If the rating agencies had integrity and understood what they were doing they would have downgraded US debt long ago. However, the consequences of downgrading the US would be so dramatic that they are unlikely to take any action before the dollar and treasury debt have collapsed.
World trade collapsing
The table below shows the decline in exports from 15 major exporters for the 12 months to February 09. The top exporters had the following declines China -41%, Japan -38%, Germany -32% and USA -22%.