We remain sidelined in Australia until next week or so. Suggestions are being put forward to subscribers but formal recommendations with trade management are not until we’re comfortable. Sure, opportunities are being missed, but we’re taking the cautious line.

Gerry Harvey has come out today having a whinge about short sellers, quote, “…all short sellers should be shot…“. What a ridiculous comment. It seems that nobody had an issue with short sellers whilst the market belted higher through to end of 2007. It seems that many have forgotten that hedge and private equity funds were heavily responsible for driving up share and commodity prices in the first place, benefiting many including old mate Gerry himself. A lot or people made a lot of money from these guys and many attributed these gains to their own brilliance. Now the market has turned, so have the hedge funds yet the brilliance of the followers seems to have fallen short of the mark – no pun intended.¬† Short selling has been an integral part of US market for 100-years and in that time one could argue that the US economy has become an economic powerhouse during that time and in turn argue that the impact of short sellers has been minimal,¬† even if the US is under immense pressure at present.

But apparently its okay to make money when its easy, but when the tide turns these people cry foul. The markets work both ways chaps but it seems the only people to really get this is the hedge funds who adapted accordingly.

Don’t get me wrong, I don’t approve of a hedge fund targeting a company in order to run it into the ground either, but exactly how much short selling is really going on? Where are the facts on this? It appears that if a company comes under pressure then it can only be short sellers…what bollocks. Get a grip and get some facts. Since short selling has been banned in Australia we have seen unprecedented volatility and a reversion to the mean after 5-years of glorious bullish conditions. There is no institutional support in the market because investors are still redeeming funds and will continue to do so until confidence returns. An institution will only buy stocks when they have cash available to do so and then its a matter of them deciding when the time is right. Clearly they lack cash or are unwilling to step up to the plate or they both. In the interim the market meanders lower and retail investors, sucked into the stock market by the June 2007 SMSF changes are copping margin calls with many sustaining forced sales. We’re in a spiral without the short sellers anyway.

My opinion is that if ASIC are truly convinced hedge funds are damaging the market, then limits should be imposed on each account rather than a straight ban. Perhaps an account, institutional or retail, can have a short sale limitation of $100,000 per symbol. This will enable the average retail trader to particpate on the short side yet disuade hedge funds from piling in with their billions and causing the alleged damage.

We need to remember that there are plenty of companies built on thin air. It’s happened before and no doubt it will happen again. Every bull market brings in the sucker play to ride the coat tails of the mania. The resource boom is no different to the Tech boom, just a different sector with different players, but same outcome. It seems that the blame for that same outcome is incorrectly based on the short sellers this time around.

Nick Radge
November 2008