Michael Gracie

If you’ve already planned your weekend, keep reading. Otherwise, you have more important things to do.

• Why the rumors about the Mormon Church buying Facebook made sense - it’s about genealogy business. Personally, I think the Mormon Church is run by very smart folks, and very smart folks don’t buy businesses that don’t justify their valuations via profits.
• In defense of short selling. It only needs defending because the powers that be want to ensure folks the “buy and hold” strategy they were “sold” doesn’t come back to bite.
• A state record channel catfish was caught on a Barbie Rod! I wonder when Mattel will start dumping last year’s model on eBay.
• The CFTC found that a select few speculators were dominating the oil trading market, but they also noted that those few didn’t really manipulate prices. I’ll bet that if oil was trading a $200 a barrel right now, some of their “findings” might have been a little different.
• Banks are still lining up at the pig trough discount window, and their wealthy clients are feeling the pain as private-equity capital calls come in. Didn’t those clients know the banks lent out all that money they were supposed to be safeguarding?

That in turn brings up the question…

• How safe is your brokerage account (yes, brokerages use securities as collateral on loans too)? Guess that depends on your brokerage…

Source: Weiss Research, Inc.

Adieu.

Forget waiting for “fail to deliver” notices on the short selling of financial issues - some firms are refusing the shorts altogether. It’s a classic case of “you pat my back and I’ll pat yours.”

It’s high time the SEC implements the “No-Loss Sale Rule” instead…

(h/t Big Picture)

Save a trader from a coronary today!

Motivated by the clampdown on short selling of financial stocks, the Wall Street Journal says…

That is one takeaway from Washington’s recent response to market turmoil. By singling out “speculators” who want to push bank stocks down and oil prices up, lawmakers and policy makers reinforce a message that the free market is a wonderful thing as long as it isn’t going against you.

From the list, you could also surmise the SEC is trying to keep last year’s stock bonuses above water, for its buddies of course .

UPDATE: Yet the WSJ contradicts itself a little while later, lobbying for return of the uptick rule. The argument cries out “Save my retirement account from those evil short-sellers.”

Nobody was whining when the financials were reporting billions upon billions in fresh new earnings during the mortgage boom. Now that those financials are writing off the same billions and their stocks are reflecting that fact, deflecting blame is the obvious reaction.

Via Forbes:

What could be the beginning of a broad crackdown on short-sale abuses came Tuesday, when Securities and Exchange Commission Chairman Christopher Cox told a Senate committee the agency was moving swiftly to prevent mischief in the trading of shares of Fannie Mae (FNM) and Freddie Mac (FRE), the battered mortgage finance companies.

The SEC will also be providing cover for brokerages including Lehman Brothers, Goldman Sachs, Merrill Lynch, and Morgan Stanley. I suspect other financial companies, including regional banks (and possibly insurers with heavy exposure to mortgage-backed securities) are not far behind.

For those just joining, the SEC is targeting naked-short selling, a process which by traders short the stock without borrowing the shares as required. It’s usually a quick process - short and cover before settlement date, although sometimes it is just done for efficiency sake. If the stock is widely held, some firms allow shorting from the list - they make sure the stock is borrowed on the trader’s behalf after execution, and they generally have pre-arranged dealers for this purpose. Now, short-sellers will be required to secure the stock before they short, at least for this handful of issues.

I am sure the SEC means well here - they are trying to slow down the “rumor trade.” But they are favoring obvious short targets, using rules that are already technically in place (since 1934), and making the markets somewhat less equitable in the process (i.e. little guys may see more “cancelled” notices on their trading screens while the big guys with direct lines to stock loan departments will continue business as usual).

I wonder how many “fail to deliver” notices were handed back over Fannie, Freddie, and Lehman shorts to push them in this direction.

UPDATE: Barry Ritholtz says it’s akin to “idiots fiddling while Rome burns.” There certainly is a deer-in-the-headlights aspect to all this.

UPDATE 2: Here’s a list of the affected issues…

- Allianz SE
- Bank of America Corp.
- Barclays PLC
- BNP Paribas Securities Corp.
- Citigroup Inc
- Credit Suisse Group
- Daiwa Securities Group Inc
- Deutsche Bank Group AG
- Fannie Mae
- Freddie Mac
- Goldman Sachs Group Inc
- HSBC Holdings Plc ADS
- JPMorgan Chase & Co
- Lehman Brothers Holdings Inc
- Merrill Lynch & Co Inc
- Mizuho Financial Group Inc
- Morgan Stanley
- Royal Bank ADS
- UBS AG