Ridiculous Short Selling Ban Is Over, Alleluia
Financial stocks are higher this morning even as the SEC's temporary ban on shorting financial stocks has ended. The XLF (AMEX: XLF) is up 4.3% this AM.
The plan was a complete failure, as it did nothing to stop the slide. This proves that short sellers were not the reason behind the fall in the stock values --- it was simply one thing "fundamentals" which are terrible.
Whether you agree with short selling or not, it does bring liquidity to the market and also provides support on the 'bid to cover' from the shorts. In addition, hedge funds often use shorts to hedge other positions. In a pairs trade, one might go long one stock in the sector, while going short another - like long Goldman Sachs (NYSE: GS) and short Morgan Stanley (NYSE: MS).
The plan was also a failure because traders need to have confidence that the government is not going to change the rules on a whim in the middle of the game. Doing this decreases confidence in the entire system.
In a recent interview at the Value Investing Congress, Pershing Square's Bill Akman said he thinks the ban on short selling has really hurt the public markets. Ackman thinks the ban on short selling did more to hurt investor confidence than any other thing the SEC has done. Ackman invests in US markets because consistent rules exist and typically do not change at moments notice. He said because the SEC instituted the short selling ban funds can no longer able to hedge or buy insurance on their holdings. Therefore, one of the results of enacting this policy, hedge funds like Ackman are forced to sell some of their long positions (lack of insurance or a hedge).
Here are how some financial stocks are trading this morning:
Citigroup, Inc. (NYSE: C) 5% HIGHER
GE (NYSE: GE) 2.6% HIGHER
JPMorgan Chase & Co (NYSE: JPM) 7.6% HIGHER
Wells Fargo & Company (NYSE: WFC) 5% LOWER
National City Corporation (NYSE: NCC) 16% HIGHER
Bank of America Corporation (NYSE: BAC) 6% HIGHER
Goldman Sachs Group Inc. (NYSE: GS) 3% HIGHER
Morgan Stanley (NYSE: MS) FLAT
Fifth Third Bancorp (Nasdaq: FITB) 6% LOWER
State Street Corp. (NYSE: STT) 5% HIGHER
US Bancorp (NYSE: USB) 1% HIGHER
UltraShort Financials ProShares (AMEX: SKF) 3% LOWER
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- William Ackman
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