Zero Beta

Long/Short News Portfolio: Long Position added in "Shortselling on a Downtick"

I am adding a position in the Zero Beta Long/Short News Portfolio in the news item last week that came out about short selling from the SEC.  It turns out the the old rule of only being able to sell stock short on a uptick has been repealed and now stock can be shorted on a downtick.  This rule was put on the books after the stock market crash in 1929 in order to eliminate downward pressure on stocks.  It has also put a bit of a put on the markets since as the market as if a selloff occurs, someone can not short until the stock ticks up - eliminating the chance for Armageddon type situations.  This strikes me as odd in both the timing, nature, and relative lack of press.  Isn't this some built in stabilization mechanism to combat mass panic - akin to the trading curbs put into place by the exchanges?  Why then such great celebration?

"It's a historic day at the commission," Republican commissioner Paul Atkins said. "We are eliminating rule 10A-1 today because we have determined it is simply not needed."

I agree it is not needed and has prevented the end for quite some time, but I ask, why now?  Well another item that they approved had to do with naked shorts - something that Overstock CEO Patrick Byrne probably found quasi solace in (now Patrick go focus on why your company was shorted to begin with). 

"Separately, the SEC voted 5-0 to change certain trading rules to reduce the amount of "failure to deliver" in certain securities.

The agency eliminated a provision that protected certain short positions from requirements to deliver shares within 13 days of settlement."

When something like this comes along, I ask, "qui bono".  On one hand owners of crappy companies who were not grandfathered in benefit a bit, I guess.  Ordinary investors don't usually short stock, but hold it long, so now they have a huge downside risk.  Hedge funds, who have been naked shorting for years, and are starting to get scrutinized for naked shorting, can now knock down stock prices with velocity without breaking the law.  Also, companies like Goldman who run prop desks, can take advantage of any downturn that may cut into their Private Equity earnings, and short a downside hard.  Either way, February 27th showed us what was probably an ETF (which are allowed to be shorted on a downtick already) selling off.  Now we can see how individual stocks may behave. 

Either way.  I believe this law change is undervalued and am long this item until I see the headline, "Stock Market Crash...S&P Drops 20% in a Single Trading Session".   

Apologies and Updates

I apologize for the unannounced absence, however, months of studying combined with work and this blog had me worn out so I pledged to take a break from everything for a week or so and have "me" time.  The exam had me put my life on hold and contrary to what you may believe I do have a life outside of complaining about market bubbles, baby boomers, and inflation. 

Since I've been gone we have seen a huge rally in bond yields, a market reversal, and most importantly a change in sentiment.  I guess for all the bears out there my absence was a good thing.  The urge to get on here and write "Errr Duhh" was strong but this market in the past year or so has taught me humility among other things. 

Anyway, I am back and am looking to really get this site going now that the exam is behind me.  The time away gave me a chance to reflect on how to bring this site to the next level.  Below are a list of additions that I have planned for the next month:

1. Regular Columns - Instead of completely randomly distributing ideas that have no organization.  I plan on posting these regular columns that I hope you will find interesting.
• "Zero Beta Bios" - Examining Individuals whose ideas are not mainstream but should be.
• "ZB After Market Hours" - Every Thursday I will try to post weekend events or new clubs, restaurants, or bars in New York that would appeal to the younger Zero Beta fan base.
• "Long/Short Society" - looking at relative value relationships in society, and presenting them in financial context.  For example, "Going long Sin and short Virtue"
• "People and Stuff" - a look into demographics, its role in the past, and its implication for the future.
• "The Bull Sh*t Chronicles" - Fictional diary entries from a male and female (Blake Edwards and Kelly Diamond)  born during the early 80's and its bull market- presenting a satirical look at my generation. 
• "Metaphorical Analysis" - Presenting market ideas in metaphorical context.
• "Long/Short News Portfolio" - Every weekend in addition to my "Weekly Round Up", I will delve through the week's news stories and assemble a portfolio of news releases I am long (i.e believe are undervalued) and that I am short (overvalued).
• "Blog Post of the Day" - Each day I plan on linking to a blog post I believe was great and providing a few comments and congratulatory remarks.
• "Adjusted R-squared" - A look into events that the media assesses causation or correlation and exposing any sort of error that they may have made.
• "Ear Food" - As a writer of music reviews for my college newspaper, I have always enjoyed listening and sharing music.  So whether it be a new or old release I plan on sharing a regular review. 
2. Blogger's Roundtable - I plan on organizing an online chat session for sometime in late June or early July as a roundtable discussion on the markets by a variety of bloggers. 
3. Zero Beta Forum - I am looking into putting together an online message board for people to discuss ideas, markets, media, politics, and culture with other open minded people.  

That's it for now.  It's good to be back and I look forward to the next level of Zero Beta - hope you do as well. 

 

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