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Not a Conspiracy–A System

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  • Not a Conspiracy–A System

    Not a Conspiracy–A System
    October 31, 2006 (businessjive.com)

    AntiSpin: None.
    Last edited by FRED; 10-31-06, 06:46 PM.
    Ed.

  • #2
    Re: Not a Conspiracy–A System

    EJ,

    I've been perusing this site for a short while now, thinking there was much in common with your site and the anti-NSS/FTD movement. I've been studying this issue for about 3-4years, and have been trying to figure out how to bring this topic up here without seeming too far off the reservation with gleaming tinfoil hat (all due respect to bart, of course).

    This issue is slowly gaining momentum and I'm confident will eventually break into the general stream of consiousness. And it plays so well into your ka-poom theory!

    At any rate, I knew sooner or later, our paths would cross and am glad that you found this topic on your own. There is plenty more information at the www.thesanitycheck.com. Some of the content there can be a little too populist for my taste, but all in all they cover the issue very well.

    As I mentioned, I've studied this issue for some time and am in the industry. I hope I can be a resource on these boards in further articulating the importance of this topic.

    Comment


    • #3
      Re: Not a Conspiracy–A System

      just watched the presentation and came away convinced there is something there. i want to caution people, though, that genuinely junky companies often claim they are the target of illegal short-selling, witness overstock.com suing people with such claims. iirc enron issued such statements on the way down.

      http://www.chron.com/disp/story.mpl/...y/3632720.html

      Feb. 2, 2006, 9:30PM
      Don't blame the vultures for devouring what's dead

      By LOREN STEFFY
      Copyright 2006 Houston Chronicle
      BLAME it on the "vultures." That was part of the defense outlined by attorneys for Ken Lay and Jeff Skilling during opening statements of their trial Tuesday.
      The vultures in this case are short sellers. To hear defense attorney Mike Ramsey tell it, short sellers destroyed Enron for a quick profit.

      The short sellers themselves, of course, see it differently.
      "In the Enron drama, one of the few players who were wearing white hats were the short sellers," says Jim Chanos, president of New York-based Kynikos Associates. Chanos began selling Enron's stock short in November 2000 after he scoured its financials and grew suspicious of its low rate of return on capital.
      So, who are these shadowy villains who lurk in the recesses of the market?
      In simple terms, they're contrarians. They invest in a stock because they believe it will fall. They borrow shares and sell them at the current market price. They later buy new shares to replace the ones they borrowed, hoping the price has fallen in the interim. The difference between the borrowed price and the payback price is their profit.
      They are, in other words, people who make money betting against the inherent optimism of business. As such, they are not well liked by executives and even many other investors. That makes them easy scapegoats for management failure.
      It was another short seller, Richard Grubman of Highfields Capital Management, who drew the infamous expletive from Jeff Skilling during a conference call in April 2001. That call was replayed in court on Thursday afternoon.
      Skilling attorney Daniel Petrocelli objected to prosecutors identifying Grubman as an investor.
      Being a short seller means "you're not investing in Enron. It means you're investing against them."
      Not exactly.
      Both "longs" and shorts invest in companies. Longs invest with management, and shorts invest against management. But both have money at risk in the stock.

      The other side

      Successful short sellers do extensive research before placing their bets. Often, their best source is a company's own financial statements.
      In other words, shorts can provide the other side of the story, the counter to the company's public relations machine.
      During the Enron salad days of 2000, most Wall Street research was written to win investment banking business, not to enlighten investors. That gave executives like Lay and Skilling control over what the Street told investors.
      "No one moved a muscle on Wall Street without checking with Jeff Skilling," Chanos says. "He had the analyst community cowed."
      There is, of course, a sleazy element among short sellers, just as there is among PR people. But claims of shorts "driving down" stocks are overblown. Short selling is subject to stock manipulation laws just like any other investing activity.
      These days, many short sellers work for hedge funds, the new darlings of Wall Street. The "hedge" refers to the fact that the funds go both long and short on stocks.

      Not obvious target

      One short I spoke to Wednesday afternoon, whose firm would not allow him to be quoted by name, helps manage about $4 billion in assets. "We are investors like anybody else," he says. "It is not our job to drive companies out of business. It is our job to allow our investors to take advantage of a market hedge by going short stocks."
      So did short sellers take Enron down?
      The one I talked to on Wednesday called the idea absurd. The ascent of Enron's stock was seen as a sure thing, both inside the company and on Wall Street.
      That's not an attractive target for short selling, which is an extremely risky investing strategy under any circumstances. Enron was what the shorts call a "hydra." Its divergent businesses added to the risk of shorting it. If one piece of the company foundered, other segments could, in theory, keep the stock rising.
      Few shorts were willing to bet that all the businesses were crumbling at the same time.
      "The short interest was never a factor in Enron," Chanos says.

      The right risk to take

      The few who did take the risk, though, turned out to be right. More importantly, though, on Enron, the short sellers were right. Chanos and Grubman aren't on the witness list for the trial, so it's unclear if the prosecution will challenge Ramsey's claims. But they're ridiculous on their face. If short sellers can bring down an otherwise thriving $100 billion company, how does, say, General Motors stay in business?
      That's the thing about vultures. They don't kill their prey. They circle what's already dying.

      Comment


      • #4
        Re: Not a Conspiracy–A System

        Originally posted by jk
        i want to caution people, though, that genuinely junky companies often claim they are the target of illegal short-selling, witness overstock.com suing people with such claims.

        I don't own overstock.com stock, so don't really have a dog in that fight, but their suit does not claim NSS by hedge funds rather, they claim collusion between a short-selling hedge fund, a sham analyst firm(Camelback/Gradient) and certain journalists. Yes, Patrick Byrne is the CEO of Overstock and gave the presentation above about NSS. There is some FOIA data that shows however, a substantial number of failed shares in OSTK. I don't know, and am not aware of any knowledge on Byrne's part either, where those fails came from. My own hunch is that they came from the options market makers without necessarily any direct collusion between the short selling fund and the options MM.

        Comment


        • #5
          Get your hands on those certificates, grandmother!

          The last slide in the technical annexe did not mention one "Thing You Can Do"
          and that's to ask your Broker-Dealer for physical delivery (to you) of your share certificates.

          I guess that's a dangerous thing to suggest to the public. If there are a lot of FTDs out there then what would happen if everyone asked for a real share certificate? It would be a calamity.

          But then, as Yossarian would say, if everyone might do it, I'd be mad not to do it myself.

          Hmmmm..

          Comment


          • #6
            Re: Not a Conspiracy–A System

            The last slide in the technical annexe did not mention one "Thing You Can Do"
            and that's to ask your Broker-Dealer for physical delivery (to you) of your share certificates.


            Great idea, but "they" made it cost prohibitive for anyone to request physical delivery of shares by charging a fee to do so, and "they" started with the brokers by convincing them to tell their buyers how safe book-entry is, with insurance, no cost of storage, potentially lost, etc.

            It's all good, until it isn't.
            It's all fun and games until someone loses an eye!

            Comment


            • #7
              Fractional Reserve Settlement System

              Well, I'm going to find out what the fee is for taking delivery of those shares I intend to hold on to for a few years.

              The way I see this theory, the banks have been running a kind of fractional reserve system for stock certificates. The SEC are trying to prevent a run on the bank.

              I'm going to poke around and see if there are flaws in the arguments before I ask for stock certs, but ...

              Comment


              • #8
                Re: Fractional Reserve Settlement System

                qwerty,

                I have been waiting for almost four years for some articulate, erudite person to knock this thing out of the park with their counter-argument. The flaws in the argument only stem from the things we don't know and aren't allowed to know.

                And yes, you hit it on the head with the fractional reserve analogy.

                Comment


                • #9
                  Legitimate shorting

                  Am I missing something? The clear implication to me is that there has been so much illegitimate shorting that a gigantic short squeeze is possible which would take out ALL shorts. :eek:

                  Comment


                  • #10
                    Re: Not a Conspiracy–A System

                    I'm not saying taking actual delivery of your certificated shares IS cost prohibitive, usually something in the neighborhood of $25/per, but that the book-entry system is being sold as a way to save the coin, keep your shares safe, etc. I was a part of that machine for some years, so I'm familiar with the argument that mom-and-pop get to keep their shares in the system.
                    It's all fun and games until someone loses an eye!

                    Comment


                    • #11
                      Re: Legitimate shorting

                      walenk,

                      on the contrary, a gigantic short squeeze is precisely what will not happen. The scope and scale of the FTD problem is likely to be so massive that the system would collapse.

                      In this sense, it is very similar to the problem the US has with all of the outstanding gov't debt (funded and unfunded). They can only hope to contain it by flooding the system with money, massively devaluing the dollar, sorry, bonar.

                      With the liabilities created by the FTD problem, banks can only hope to contain them by increasing the number of FTDs in the system to devalue the stock price.

                      Think of the implications this has for property rights.

                      Comment


                      • #12
                        Re: Not a Conspiracy–A System

                        I can assure readers that iTulip's record of accuracy in forecasting does not arise from analysis of publically available information alone. The timing of the March 2000 warning about the collapse of the stock market bubble was influenced by information only available, as far as I know, to iTulip. The June 2005 call of the top of the housing bubble, however, was concluded purely from a proprietary analysis of publically available information.

                        iTulip has been helped by dozens of anon contributors over the years, without whom the site would not have as much of interest to report: managing general partners of venture capital firms, partners in private equity firms, investment banking analysts and bankers, bond traders, equity fund managers, ex-central bankers (some US, some outside the US), government employees (including the SEC, by the way), CEOs of public and private companies, and so on. Sometimes we do not know their real names–and don't want to know them–but can always verify that they hold or held the position they claim, and that they are providing accurate information to the best of their knowledge. iTulip, Inc. cannot be legally compelled to reveal its sources, and the company has access to resources sufficient to defend its right to source confidentiality.

                        This note is to thank Pervilis and others here for their perspectives, and to encourage those of you who are lurking out there who know something about this subject to participate in the discussion, either on this forum or contact us directly. If you can provide evidence that the theory put forward in "The Dark Side of the Looking Glass" is fantasy, we want to hear from you. Just as helpful is information that further supports it, and answers some of the questions it leaves open.

                        As for the rest of our readers, I commend qwerty for taking the lead on testing part of the theory, looking to see what is required to take possession of stock certificates for company shares he owns and intends to keep for a while. I plan to do likewise. I trust the iTulip community can come up with other "tests" of the "The Dark Side of the Looking Glass" theory as well, and we can all compare notes here.
                        Last edited by EJ; 11-01-06, 01:19 PM.

                        Comment


                        • #13
                          Re: Not a Conspiracy–A System

                          EJ,

                          Regarding the stock certificate issue, the fee certainly varies from broker to broker. It is hard to discuss the cert. issue without also talking about the push for dematerialization http://www.watersonline.com/public/s...ml?page=129815

                          I am anectdotally aware of one brokerage firm that raised its fee for cert requests to $75 thereby cutting the number of requests by something like 80%. Brokers, of course, hate cert requests.

                          An alternate route is the Direct Registration System (DRS) whereby you send your certs to the transfer agent and they maintain your ownership interest directly on the company books. However, DRS is not that popular yet, and mostly only large caps use the system.

                          For example, I have some Procter & Gamble held directly (PG is its own transfer agent). They also allow me to DRIP the dividends.

                          Comment


                          • #14
                            Squeeze

                            I don't disagree that the powers that be will seize-up markets rather than allow "volatility". But if you are a legitimate short, as I am, it would mean your assets would be in limbo until the crooks are digested. And who knows what "value" your short will be allowed. Me no likee. :mad:

                            Comment


                            • #15
                              Flush

                              [QUOTE=Pervilis Spurius]walenk,



                              With the liabilities created by the FTD problem, banks can only hope to contain them by increasing the number of FTDs in the system to devalue the stock price.

                              Oh-oh. The inflation/deflation debate has morphed. :cool:

                              Comment

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