Tuesday, February 10, 2009
(Cont'd from above)...

Jim (cont'd):


Jim:     Only Mary Shapiro can put a stop to the endless naked short selling, and short selling without upticks, the pro bear ultra ETF’s mass destruction weapons that bring down entire sectors… the rampant, horrible bear raids… all things that we saw today… by the way, in the Madoff style fraudsters, who are probably still out there… because the SEC’s enforcement arm has become a joke… how can she undo all the damage and make the people believe that the market is something other than a rigged game… where the corrupt dealers take home millions… while the rest of us all end up poor… well Shapiro can start by reversing many of the bone headed things Chris Cox did.

First and foremost she needs to reinstate the uptick rule… this was a regulation put in place during the depression after the great crash of 29... to prevent history from repeating itself… which it is obviously doing now… the uptick rule forced short sellers to wait for a buyer to come in and pay more for a stock than the previous trade… an uptick… before they could bang it down with their short selling… the uptick rule was… think of it like a fire break, you could stop the flames of panic from spreading because it forced the shorts to hold off…. the market could catch its breath… but in his infinite wisdom in 2007, Chris Cox eliminated the uptick rule… it was based on a study done in 2005 when the market was still in the land of the 1000 bull dances… that showed, well it didn’t matter… we need the uptick rule to prevent sell offs from becoming huge sell offs… to make it so the Yogis, and the BooBoos can’t run rampant thru the campsite during a bear market… chewing off an arm here or a leg there… getting into the jugular.

Just by restoring this rule Shapiro will go a long way toward evening the playing field… she will bring back investors who are tired of being put thru the short selling chipper spreader… Shapiro also needs to crack down on naked short selling… selling a stock short without actually finding and borrowing a stock first…. when I was at my hedge fund everybody was pretty clear about this, you had to do it… it was illegal… but under Cox’s watch it just sort of happened over time… they let it happen… the lack of an uptick rule combined with the fact that the shorts don’t need to find stocks before they sell it… as allowed them to hit the stocks with constant machine gun like selling…. and fire, to put millions of holes thru any bull dumb enough to stick his head up… she needs to actually investigate and take on the bear raiders who relentlessly destroyed the stocks of the banks with short selling Kesselschlacht… German for decisive battle for encirclement and annihilation… I used a German word because it sounds more frightening… and it should be frightening… this was how the bears took down Lehman Brothers.

Cox did ban the naked short selling practice… but he didn’t enforce the ban so it really didn’t matter… and I know that I am like a broken record on this point… but our new SEC chairwoman needs to role back the rules that have allowed these ridiculous pro-bear ultra short ETF’s to totally dominate the market… as they did today… now I have talked about these ETF’s before… but they do not work the way people think they are supposed to… they need a cancer label warning on the side of their labels… they are basically just a way for traders to get around margin rules or manipulate the market… or both… the SKF the ultra short financials wreaked havoc today… as the bears mulled all financials and they used this ETF to wreck them all… the good and the bad… the SKF takes down healthy banks with the bad ones… it is a great instrument if you want to be able to manipulate the market lower… everyone knows that… but none of the double short ETF’s do what they are supposed to… such as the SKF… it is true for all of them… you put together a portfolio of the SKF, the SRS that is the ultra short real estate ETF, the FXB ultra short China, ETF the DOUG the ultra short oil and gas ETF in 2008 thinking you were betting against financials, real estate, oil and China… these were unbelievable bets… right, you made a fortune.. you would have actually have had a 30% loss betting against these over the course of a year… a loss… even though if you simply shorted the enticies and didn’t use these ridiculous power… with double the fire power…you would have a 48% gain… now if doubly shorted them which is what these products are supposed to do…you should have been up 97%… those would have been career making, life changing wins… but these ETF’s turned a call that should have almost doubled you money into a 30% loss… it is like you picked up a gun, pointed it at someone else, pulled the trigger, and the bullet came out the wrong side and shot you thru the hand… to quote Cramer fave Jack Bower… with all due respect, Madam Chairwoman, ask around.. I mean you will find out I am dead right about this… these ETF’s hurt the investor who believes that they do something that they don’t… and they hurt the market by letting hedge funds beat entire sectors down… with more fire power than anyone should have… these exist only for savvy short sellers to get around the margin rules… and destroy the market… what kind of Leninist imperative is that… we want to preserve and grow capital… not destroy it.

Finally, the SEC new dear leader… needs to get serious about enforcement… we need to put an end to the lamo inspections and self clearing investigations…. start issuing some real subpoenas… when a guy like Larry Markopolos comes over the transom and tells you over and over again… even offering to go under cover to investigate someone like Madoff… I have always wanted to wear a wire… you should listen to him… there should be an internal affairs division at the SEC… to investigate the investigators who let this guy slip thru their fingers… and their should be a rule that no one at SEC’s enforce arm can leave for a cushy high paying job on Wall Street… because that is what people do… I knew it from when I was at law school… it is the career path you go into a big job in the SEC legal… so then you get a real cushy job at general counsel at one of the major firms… and if you have limited resources start one… stop pouring all of them on the marked Cubans and the Martha Stewarts and go after the crimes of the centuries.

Here is the bottom line...

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