NYSE President: Why Markets Should Be Rigged More

Targeting Short Sellers: what they do is “icky and un-American.”

Short sellers like Andrew Left, founder of Citron Research, serve a real purpose in the markets and in society. His analysis helped reveal what’s going on at Valeant Pharmaceuticals and brought media focus on how the company conspired not only to manipulate up its reported sales and earnings but also drug prices for consumers. But short sellers are nuts.

Short sellers are fighting a system that is totally rigged in every way against them. They’ve chosen to make money when share prices fall. They’ve chosen to make money in the most painful way possible. Self-flagellation comes to mind. Because the entire system is rigged to make share prices rise, no matter what. And when they rise, short sellers get their heads handed to them.

NYSE Group President Tom Farley, who should be neutral about share prices and should be primarily concerned about the functioning of the market, hammered home just how rigged that fight is.

“It feels kind of icky and un-American, betting against a company,” he told lawmakers in Washington yesterday. Even those engaging in rampant hype, lies, and worse, I presume. According to Bloomberg:

He added that because short-selling can actually improve markets, public companies don’t necessarily want to ban it outright – instead they want to see more stringent disclosure. “They say, ‘Let’s have a little more transparency,”’ said Farley.

This urge for “transparency” is ironic. No one complains how Warren Buffett does it.

Through Berkshire Hathaway, he quietly buys enough shares of a company to gain ownership in the single-digit percentage range. This buying activity drives up the price. His brokerage firm knows, word spreads, and those in the know also buy the shares. Then the stake is disclosed in an SEC filing. Instantly, shares jump further. “Buffett Buys x% of…” the media scream. With his avuncular face on CNBC and other TV shows, he gets to promote what a great company this is, how he believes in the management, yada-yada-yada. Shares jump further.

Then he quietly buys some more shares, a small amount this time. When the SEC filing becomes public, the whole media circus starts all over again, and shares jump some more.

No one complains about that. Spreading hype to drive up share prices is standard practice. No one sues an author or publication for pointing out the five reasons why the share price should double – even if all five reasons are fabricated nonsense. In fact, companies love it, market participants love it, and analysts on Wall Street are very good at it.

But if a website with enough clout gives one fundamental reason why shares should fall, and that reason cannot be proven in a rock-solid manner, the company often goes aggressively after the author or the publication. Even if the analysis is based on rock-solid evidence, the disclosure attracts cubic acres of vitriol. And the mere threat of a lawsuit can shut down an honest voice.

The NYSE serves the companies that list their shares on its exchanges, and it makes money from investors who trade these shares. Without these companies, it would have no business. So it needs to attract companies to list on its exchanges. And these companies do everything in the book to get their share prices to rise – see Valeant.

Short sellers make money by selling shares that they borrowed from the broker, and by buying them back later at a lower price to return them to the broker. They get to keep the price difference minus fees. Their gains are limited to less than 100% even if shares go to zero (there are expenses involved). Their losses however are theoretically unlimited when shares skyrocket.

The Nasdaq had a similar beef with short sellers.

“The company should be aware of who holds the long and short positions,” Nasdaq CEO Adena Friedman told Bloomberg Television in May. Currently, “investors have an advantage over the company,” she said. In a report, the Nasdaq argued that short sellers don’t have to publicly reveal their bets, and that they therefore can use strategies to drive prices down in stealth.

Short sellers blame the exchanges. Jon Carnes, president of Eos Global Holdings and famous for betting against Chinese companies, told Bloomberg in an email:

“If the exchanges support disclosure of short seller identities and holdings then they should also support the disclosure of the names of the exchange staff who approved the listing of each fraud as well as how much money the exchange profited from the listing of each fraud.”

Buffett doesn’t disclose his share purchases either when he undertakes them (unless he buys the whole company or a very large portion of it). He discloses his position and reasoning afterwards, with the goal of driving up the price after he bought the shares.

Short sellers with a big megaphone do the same. They disclose their position and their reasoning afterwards to drive down the price. Their reasoning is usually some fundamental problem that the company has not disclosed and that investors should know about but were kept in the dark about because it would have hurt share prices.

Buffett and short sellers, both, hope to make money as markets react to their disclosures. The public disclosure of their bets is what makes their bets successful.

The “icky and un-American” comment by NYSE president Farley didn’t sit well with short sellers, and should cause a bout of indignation among regular investors who want balanced markets where both positive and negative news have an equal chance of surfacing, instead of one being incessantly and institutionally hyped while the other is vigorously suppressed to keep investors in the dark. If short sellers are further handicapped – or arrested, as they might be in China during market downturns – the last vestige of market discipline goes up in smoke.

In a “severely adverse scenario” of the Fed’s stress test, projected losses at the largest 34 US banks – not counting the 4,997 other US banks – show that credit card debt is once again hot. Read…  Credit-Card Debt Slaves Move to Top of Fed’s Bank Worries

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  59 comments for “NYSE President: Why Markets Should Be Rigged More

  1. Yancey Ward says:

    I have long predicted that when the crisis become large enough, all selling will be banned, not just short selling.

  2. Justme says:

    A market that is rigged against short sellers is not a functioning market. A market where a CORRECT price cannot be established is not a functioning market.

    I propose a new rule: The DOWNTICK rule: Anyone that wants to buy on margin can only do so on a downtick (i.e when the last price transacted is lower than the previous price transacted). We do after all have an UPTICK rule against short sales. Therefore there should be an analogous DOWNTICK rule against margin buyers. Margin buying is after all the logical dual of short selling.

  3. Duane Snyder says:

    God bless anyone who can short stocks successfully on a consistent basis. I found it the hardest thing to do and gave up.
    Warren Buffett, king of “phony folksy”.

    • chip javert says:

      Interesting ad hominem – got any data/logic to back it up?

    • Short very small cap stocks. Sometimes the best stocks to short are the ones with the least amount of daily volume. I’ve been basically short stocks since 2010 and will continue to trade short unless the major market indexes drop over 75 percent. Right now I have a huge short on Canlan Ice Sports Corporation.

    • d says:

      Try Shorting the Index. with some good indicators.

      Unless you have good insider info, individual stocks are a minefield.

  4. jb says:

    Well i wonder what Mr Farley is worried about ? biased opinion on the upside is not conducive towards a “free market system” . Although the article addresses shorting an individual stock what about the plethora of “short” etf’s ?
    My pet peeve is “naked shorts”.

  5. Kent says:

    Great article Wolf. I know nothing about short selling. Does anyone know when you borrow shares is it usually done for some time frame? IOW, can I borrow for a month only or is it indefinite?

    • Yancey Ward says:

      You can borrow the shares indefinitely as long as your broker believes in your ability to cover the interest costs and the losses- these are defined by your brokerage agreement. Breach those restrictions and your position will be closed if you don’t make good on them when called upon.

      • chip javert says:

        Short selling has exactly zero to do with “your broker believes in your ability to cover the interest costs and the losses”.

        Short sales are subject to the same margin requirements (and liquidation) as long sales.

    • Wolf Richter says:

      Indefinite, if you can stand the pain.

      • chip javert says:

        Bill Ackerman is our current paster-child for pain (Herbalife)

      • Wolf……

        Excellent Post….And quite Timely…….

        Good work……

        As I have said, when the Ride Ends, the “Longs” will come to learn the very Hard Way that the absence of Short Sellers is akin to a Building Missing Many Floors………

        And as to the other comments above, a bit of Good Advice:

        Certain Stocks are So Big that Short Selling cannot be banned as a Practical Matter, for Perception is Equal to Action, and if done Correctly, are actually Very Safe Stocks to Short………

        You Need Brains and Balls to Short, and Real Control over Your Emotions……..

        Above all, You Need to Be Clear to YOURSELF BEFORE you open the First Position, what your Parameters are……

        And Most Importantly, NEVER EVER Short a Stock with a small Float……….

        Since 2009 the SPX is up over 250 % yet I have beat that Benchmark PURELY on the Short Side…….

        Not as much as could be made on the Long Side on specific plays, but then I never have to worry when the bad break does arrive….

        And indeed it will arrive……

        Most Unexpectedly and Unannounced…..

        You See in the End, the Long Side is a Loser because you did nothing for the Money, and the so-called “Gains” won´t be Kept…….

        Whereas on the Short Side you really have to Earn the Money………

        That is what keeps you Strong, and Most Critically, able to Earn Money Consistently over time……..

        You Rely on YOURSELF and No Others…..

        The very Best Position you could be in when Engaging in Markets…….

        Ultimately Short Selling is an Art, Not a Hobby…….

        So unless you are willing to dedicate FULL TIME to the Markets, don´t do it…….

        It is the Hardest Way to play the Game…….

  6. nick kelly says:

    RE: Buffet. He bought a lot of shares in Home Capital the troubled alternate
    lender and THEN announced he was giving it a big, well secured loan.

    • chip javert says:

      Nick kelly

      And your point is?

      If he had don it the other way round, you’d be belly-aching about stock manipulation.

      • Wilbur58 says:

        I understand that Buffet could have shorted shares instead of buying them. But how could he do the opposite of lending to them?

        • chip javert says:

          Opposite of lending: uhhh…not lending?

          Buffet has two things companies in financial trouble desperately want:

          1) Cold, hard cash (and lots of it)
          2) Reputation

          Over the years Buffet has mastered identifying firms in trouble – but not over the edge. He then lends money/reputation in exchange for HUGE fees. Believing this will rehabilitate the floundering company, buying some (currently underpriced) stock is another way to profit. This transaction has not been done out of the kindness of his heart.

          I’ve owned BRK for 35 years and seen this time and time again. I’m sure he’s lost a bet somewhere along the line, but I can’t remember it.

          I think the last time this happened was BRK lending BofA $5B at 10% interest + warrants right after the 2008-9 financial melt-down.

        • Wolf Richter says:

          Buffett admitted later that he knew from his top-level buddies at Goldman that Goldman would get bailed out by the NY Fed. With that insider knowledge – also figuring that BofA and the other banks would get bailed out – he made the loans and got warrants along with them. He was well-connected and had insider information that he traded on with money from his insurance customers. Other people didn’t know about the coming Fed bailouts at the time. It was a typical Buffett operation.

          Sure, you admire the results, but look how they’ve been obtained!!

          Oh, and his finance and insurance empire might have collapsed (along with your shares in it) if it hadn’t been bailed out by the New York Fed. He was the single biggest beneficiaries of the Fed’s bailouts. You admire the wrong entity. You should admire the NY Fed, not Buffett


        • Chavez says:

          I can second Wolf’s comment re. WB knowing about the upcoming bailout — I was trading prop for GS at the time, and we were informed ahead of time (not much, but still) both about the Fed bailout and Buffet’s ‘intervention’.

  7. Rates says:

    Market rigging is unnecessary. We’ve been guaranteed a winner:

    No more crisis in our lifetime guys!!! Time to party!!

  8. Petunia says:

    This is probably to identify insiders or associated persons from benefiting from short sales. Some company is really worried about being outed and it most be a big one. Otherwise, the exchange wouldn’t be going to all this trouble to run interference for them.

    They always have a reason for what they do and it’s not protecting you.

  9. Mike R. says:

    The reason they are saying this publicly is to reinforce the reality that shorts will continue to get clobbered.

    The US stock markets are totally controlled by the Fed. The only way they cannot prop it up is if there is a massive sell off spurred by some out of the blue event. Otherwise, they have all the tools and resources in place to hold it up.

    Just look at the results and not the talk. There are few really functioning markets now.

    • chip javert says:

      Mike R

      I’m interested – just exactly what is your definition of a “really functioning market” and please give an example of one. (mine: thousands/millions of reasonably transparent & independent buying decisions establish a price for an asset)

      I agree Fed moves like QE, etc bias the market with excess liquidity (tends to increase prices), but thinking the Fed totally controls the market is nuts. As long as that portion of the economy represented by public firms is profitable & expanding, markets will trend up (or vice versa).

  10. Robert says:

    ” the Nasdaq argued that short sellers don’t have to publicly reveal their bets, and that they therefore can use strategies to drive prices down in stealth.”
    No one gets to short shares anonymously: you have to provide everything except your great-grandmother’s birthdate to open an account and trade shares. But what IS outrageous is naked short selling, which is strictly illegal- except for “market makers.” This means that entities which may be subsidiaries, including hedge funds, of the very banks that own the Fed and the other central banks can selectively depresss the shares of companies- or commodities- and manipulate the market with impunity.
    And the best part is, after taking massive naked short positions, they can simply declare bankruptcy if their own position is no longer tenable, or convenient.

    • Wilbur58 says:

      Amen, Robert. I was going to post something similar had no one voiced the same opinion.

      Shorting = Good and Healthy
      Naked Shorting = Should lead to a guillotine

      That’s my take.

  11. Meme Imfurst says:

    Boy Wolf, I had a big argument at a party this weekend about what Buffett does, or should I say Mr. fat, sugar and salt, automatic credit card, mortgage grantor of last resort, choo choo train with no oil loaded or unloaded crossing the Canadian border on a tax payer funded subsidy and much more. Well, the young’in didn’t care one bit the ‘Oxengenerian” was enticing them to follow his lead and pony up to his investments. When I BROUGHT UP THE NO SO NICE SIDE, they had no ears, no interest.
    This is why everything is in so much trouble, most don’t care and actually want to participate in the take down.

    So let the very few own the multitudes lock, stock, and barrel, why the blazes do I even care. Why do you care Wolf?

    To the spelling police, ‘Oxengenerian” is not an accident.

    • Wolf Richter says:

      I hafta admit – I don’t bring this stuff up at a party. I stay out of it. That, politics, and religion. Most people really don’t care.

      In the same vein, most educated people (people with degrees) have no idea what the Federal Reserve really is, who owns much of it, and how it functions. They think it’s this handful of people, headed by a professorial looking man or woman, that are appointed by the President and that have our best interest in mind. Even when I got my MBA in finance (decades ago), I learned NOTHING about the Fed. It’s just not taught, it’s not part of the curriculum.

      But I learned, and I’m still learning, and I have a passion for trying to think these things through (for some unknown reason) and sharing my thoughts. And given how my readership has ballooned (THANK YOU!!!), it seems there’s quite a bit of interest within a small portion of the population. And for me, that’s a huge reward.

      • Petunia says:

        I have an undergraduate major in Economics and Money and Banking was a required course. We had to read the entire charter of the FED. Most of us couldn’t believe it was formed as a private corporation.

        However, Marx was never required reading because it was a communist book. Really.

      • economicminor says:

        And THANK you for your service! I really appreciate you and all the commenters here.

        You are one in a very few who can actually do critical thinking.

        Amazing that so few can think critically..

        This is a very nice group who mostly have that talent.. You, Mr Wolf, have the rarest ability to not only think critically but be able to communicate it to us..

    • r cohn says:

      Mr Buffet has had more money than he could ever spend decades ago,but he still wants more and more and more
      He took over Kraft 2 years ago in partnership with a Brazilian company.the result was lower costs ,more money for Mr Buffet and many people losing their jobs.
      No disrespect to Mr Richter,but Mr Buffet is the proverbial wolf in wolf’s clothing.He epitomizes the greed that pervades the upper echelons of American capitalism.He is a capital allocator ,but not a product creator.
      He is the prime beneficiary of our corrupt tax laws .

  12. rob in london says:

    Without naive and gullible short sellers to steal from how’s the rigged Casino going to make any money? Oh wait a minute, what was I thinking, there’s all those naive and gullible longs left to pillage.

  13. walter map says:

    I’ve surmised before that there may be no stock market crash because the markets are rigged to prevent it.

    Free markets => freely rigged.

    For various reasons stocks seem to be more or less completely disconnected from the actual performance of the corporations whose value they purport to represent. It may not be much of an exaggeration to say the real economy could go up in flames and those stocks would still fly high, making them simply an equity version of fiat currency, supported by nothing of intrinsic value.

  14. Lee says:

    The problems I have with short selling are:

    1. No broker should allowed to be able to loan your shares out without your express written permission and then you should be paid for those shares being loaned out. The current system where the broker automatically gets that right under a margin account and you (the ordinary sap) gets nothing for your shares being loaned out is just another example of the lower end getting screwed.

    Brokers that loan out shares held in cash accounts should have their brokerage licenses revoked.

    2. Naked short selling is a con game game and again any broker that allows it to be done should be shut down. Those that do it should be in jail.

    In the past I shorted some shares and made a few bucks during the market meltdown. I could have made more, but jumped the gun in covering. I’ll never do it again.

    Rigged markets?

    I used to think that Japan had the most rigged share market in the world and then I moved to Australia. IMO Australia is the worst rigged market of all the developed countries.

    We have ‘nominee’ share holdings so nobody knows who own what and how much. All you get is that xx nominees hold xx number of shares which could be owned by 1 or 500 shareholders with single or multiple related owners. Of course, people are supposed to voluntarily disclose ownership of of over 5% in total, but under the system who knows.

    Second, way back when, trades here used to be identified in real time by which broker was making the trade. You could see that broker xyz was buying up company x. Those were done away with.

    Then the exchange allowed HFT for institutions and excluded individuals. I’ll give a good example of how this works to the detriment of companies and ordinary shareholders.

    Here in Oz we have many companies with large numbers of shares on issue that trade for low prices, but unlike many penny stocks in the USA these are real companies.

    Company x has a share price of 10 cents and is not very liquid with around 5000 shares or so stacked in the buy order book from 10 cents down to 7 cents.

    A sell program is initiated by an entity that periodically sells a number of shares ranging from 10 shares to 1000 shares at varying times. It hits the order stack and wipes out each one of the orders in the stack.

    So on around 5000 shares sold into the market with a value of less than A$500 the sell program wipes out 30% of the company’s market value. This particular company had a market value of around $A25 million at the time.

    When i saw this I tried to sell a small lot of 15 shares as an experiment. The order was rejected. I then tried to buy the same amount and that order was rejected.

    Another example of how the market is rigged here is when companies raise funds through selling shares.

    In many cases the offers are two part offers where the big institutions get first crack at the shares and then later the ordinary shareholder get his/her chance.

    Company xyz wants to raise xx million and offers the big boys shares at a 20% discount under the market. The share price falls to reflect the new offering. Say the share price is at $2.00 before the offering and the offer price is A$1.60. The share price falls to A$1.85.

    The big boys get their shares at A$1.60 and then sell out at A$1.85 – an instant profit. The selling continues and the share price falls to A$1.65.

    The offer is then opened to ordinary shareholders at the same price of A$1.60. However, the ordinary shareholder has to fill out the form, transfer the funds, and then wait for the shares.

    You have no idea what the share price will be when you get your shares and the company has your funds for the month or so until then.

    In most cases you have been diluted as your allocation is not the same as the % holding you had and the share price has fallen.

    Tough luck. What is even worse is when the capital raising is undertaken as above and the ordinary shareholder is not included at all. You have not only seen the value of shares tank, but been diluted as well.

    Happened time after time here during the mining boom.

    Finally, to cater to the big boys, the exchange introduced ‘insider’ buy and sell price points for them. Big boys can buy and sell inside the bid and ask prices whereas the ordinary sap can not.

    And I haven’t even given examples of other nefarious, but “legal” actions taken by insiders here either.

    IMO the markets here now are nothing more than a con game.

  15. Gershon says:

    Anyone shorting these rigged, broken, manipulated markets needs their head examined.

    • blackspots@sundontshine.com says:

      When the cartels finally decide to take-down the market, it will be rigged on the way down too. Most likely controlled demolition of sorts. perhaps they decide to move retails down by closing 1000 brick and mortar stores and replace it with their other internet retailer which has 500 PE ratio and no earnings for over a dozen years. what a terrible time in history for free markets. you got to be blind, death, and dumb to believe the stock market is a freely traded capitalistic instrument. the only purpose these ponzi schemes serve are the creeps that pull the strings. Everyone else watches their wealth evaporate through inflation, staggering taxes, and debt ridden assets with intrinsic values equal to hyper-inflationary events in bubbles and QE. We are witnessing major economies around the world move their populations into third world country status. Can’t believe nobody will stop this crap. perhaps it is to far gone to do anything about – what the hell do i know anyway…

  16. raxadian says:

    Fun fact, only caring about making money is “American”because the spanish expression “Hacerse la America.” that means going to the American continent to get rich, predates the US existence. Also wasn’t the US main reason for independence not paying taxes? Hence paying taxes is “un-American.”

    And I could go on like this all day.

  17. John says:

    Yup, its fine and dandy for the PPT to BUY without intent of ownership, but damn, don’t you dare sell something that you haven’t owned for a good long while. Sure does make sense to hypocrites I guess. The sewage coming from this Farley’s cock holster reminds me of the same from Fuld a few years ago.

  18. mvojy says:

    The world would be a better place if derivatives and short selling was prohibited

    • cdnguy says:

      Agreed. Short selling is actually fraudulent in nature, as the short seller takes something that isn’t their own and sells it against genuine owners, always without their knowledge. Imagine if someone gained access to the titles of peoples houses and sold them in the same manner. They’d go to jail for fraud. Yet, this immoral behavior is somehow ‘ok’ in the stock market? Bullshit! It’s especially bad when naked short selling is done, as it’s 2 layer of fraud. (yet it happens all the time)
      None of the excuses supporting short selling hold any water & are all of them are just plain garbage.

      • The Difference between Ignorance and Stupidity, is the Former is a State that Can be Cured, while the latter is a Condition, rarely Cured.

        Your “Arguments” and those of many like you fail on these FACTS, Not Opinions:

        When one signs any account agreement in Markets, they AGREE that any Shares “held” can be Lent Out and otherwise Hypothecated, ad infinitum.

        In fact, you don´t actually even Own the Shares.

        The Broker does, NOT YOU.

        All you really have is an Unsecured Claim against your Broker, quite similar to your Deposits at the Bank.

        “Account Holder” and “Bond Holder” are two entirely different legal positions.

        Since YOU AGREED to this there can be no “FRAUD”.

        Claims of Fraud are therefore unfounded and based on Pure Ignorance of the Facts and the Law.

        This is the way the Game is Structured, DISCLOSED and AGREED to by You BEFORE you are even allowed to Play.

        If you don’t like that, don´t play the game. Don´t agree to it, and you are not allowed to Play.

        Children always want to changes Rules of a Game that they don´t like.

        Further, I, as the Short Seller am REQUIRED to Maintain a CASH BALANCE sufficient AT ALL TIMES to pay you the FULL VALUE of your Shares.

        I must also PAY YOU RENT, as I, Not the Company must Pay Your Dividend, if there is one.

        These requirements are the HIGHEST STANDARD of Collateral that exists in Markets.

        A far cry from the Quadruple + Hypothecation and ZERO COLLATERAL practices permeating ALL MARKETS Worldwide.

        When the Stock declines I, Not the Federal Reserve or any other Party am a GUARANTEED BUYER of the Shares which protects YOUR HOLDINGS against further decline.

        What you and many like you fail to understand is that when a Stock is going up NO SHORT SELLER in the world can stop it.

        Likewise, when a stock is going Down, No Short Seller in the World can cause it to go down any further than it will go on its own.

        In this regard, Long and Short are EXACTLY the SAME:

        You can only Ride the Stock in the Direction it is Going, No More, No Less.

        Finally, when you look at the TOTAL Shares Sold Short in the World versus those held “Long” PLUS those “Long” through Hypothecation in various Financial Vehicles, you will see that the Short Side is NOT EVEN 1 %.

        So Mathematically, SHORT SELLING is NON-FACTOR.

        Merely an Illusion and Delusion of Harm by Individuals such as yourself, and a clever tool to Manipulate the Intellectually Weak.

        Giving you the Benefit of the Doubt, let this “Cure” the “State” you and other like you are in.

        • Wolf Richter says:

          It’s welcome here to disagree and to correct. But there is no need to attack another commenter personally. Thanks for your understanding.

        • Indeed……

          “Fraud” is a Crime under various State and Federal Statutes.

          Punishable by both Imprisonment and Fines.

          Thus when one accuses other Individuals of Committing a Crime, when in fact No Crime has been committed, it is indeed at BEST Ignorance, or at Worse, intentionally Defamatory, which itself is a civil tort, i.e., a violation of law itself.

          In fact, the US Supreme Court in Matal v Tam 582 US ____ (2017) recently held that “Hate Speech” itself is indeed PROTECTED under the First Amendment.

          Whereas, the Defamatory claims that another has committed a crime, is not so Protected under the First Amendment.

          Case Law is well settled in the latter regard.

          It is your Site and you certainly Free to Run it as you please, and I certainly respect your Right to do so.

          But it is No “Attack” in addressing the “Ignorance” of those who Falsely Claim that others have Committed Crimes, and otherwise have harmed them.

          One should be more circumspect in making such Accusations of Crimes, prior to posting them if they are sensitive to a Fair Characterization of their False Claims.

          I rarely comment, so there is no issue.

          This rare comment is because you chose to address an Important and Timely issue of Short Selling.

          So I chose this Opportunity to put down to ashes these frequent Baseless and Defamatory Claims against Short Sellers, who like all other Participants, are acting fully within their Legal Rights to so engage Markets.

          And make no mistake, accusing someone of a crime, when no crime has actually occurred is in fact “Defamatory” Speech, and NOT PROTECTED under the First Amendment.

        • One last comment on this Matter, and Food for Thought for you Wolf:

          The point in the MATAL decision is of vital importance to the First Amendment and actually of far more import than Short Selling, most especially in this Age of “Political Correctness”:

          People do NOT have the Right to NOT BE OFFENDED.

          That RIGHT doesn’t exist in America, and hopefully never will.

          For if such a Subjective Basis were applied, that would effectively end “Free Speech”.

          Further, the Government does NOT have the Right to define what is “Offensive”.

          Thus if the Government does NOT have the Right to determine what is “Offensive” then it perforce follows a Private Party in a Public Forum does not either.

          This decision once again shows the Greatness of the American Legal System.

          Contrast this with the recent Canadian Supreme Court decision in EQUUSTEK.

          The First Amendment gives you the Right to say what you think, even if it is Hateful or Offensive to others.

          The line is drawn only at Defamation.

          This goes to the very essence of Liberty and Free Speech.

          Many people decry the Federal Reserve.

          Since No Participant is Forced to take any Position in Markets, and “Boom” and “Bust” predate and will out date the Federal Reserve, how can they be Responsible for any Choice I make in the Market ?

          Imagine though the Federal Reserve “felt” that your comments Wolf, in this post and others, were “Offensive” to them.

          Should they have the “Right” to Decide if you or others could post it or Not ?

          Should they have the “Right” to remove your Website or others from the Google Search Engine ?

          You wouldn’t support that would you ?

          Fortunately, contrary to the claims of its death the US Constitution is Alive and Well.

          Like probably many others here and yourself included, I visit Zero Hedge from time to time.

          There are many comments on that site, racial, ethnic, sexual, etc., etc., that I find are VERY OFFENSIVE.

          Yet I am a Libertarian and I do believe in Our Constitution.

          Therefore, I must by Force of those very Beliefs, recognize that I have NO RIGHT NOT TO BE OFFENDED.

          Because those “Rights” cannot coexist !

          It is either or:

          Either I have the Right to Freedom of Speech or the Right Not to Be Offended.

          If I don´t like the comments, I can leave the page, the site altogether, and never return.

          Read the Matal decision and others like it.

          It will serve you well and serve your site well.

          People do NOT have any “Right” NOT to be Offended.

          And those who do not wish to be “Offended” should not engage in Public Forums, as that is indeed their “Right”.

          I appreciate the Opportunity to Share these views with you.

        • Petunia says:


          I happen to agree with you that short selling is a perfectly acceptable function of the markets. I think the idea of fraud comes in when you consider that markets are sold as a medium for “investments” when all of it is merely speculation. This deliberate obfuscation is what leads the “average investor” to feel put upon and defrauded when things go wrong, as they do.

          In respect to censorship, I agree with you.

        • Petunia:

          I appreciate your Comments.

          Your Point though is an Excellent One, and is actually a steadfast Point I have made in much of my work:

          The Concept of “Investing” is a basic Lie.

          It is indeed ALL “Speculation”.

          I have put a Stake in the Heart of “The Bible” in my work “False Prophet”.

          Though I wrote it solely to advance My Ambitions, it will Prove to be the most important work written in Our Times in Markets as it foretells the Outcome and Why, as I say “ex-ante”:

          The “Intelligent Investor” will not make it to the Real Bottom intact.

          “Most Important”, because Trillions, not Billions, are following it.


          And as you correctly see, this is and will be the Source of much of the feeling by many that they have been “Defrauded” when it goes South, as it always does.

          Then the “Bull Market” will be in Blame, not Valuation.

          In this regard, Ben Graham is Right “Today’s Free Lunches will be Paid For Doubly Tomorrow”.

          But the Crux of the problem is as in the Martin Scorsese film “Wolf of Wall Street”, channeling Jesse Livermore´s words the people are “Suckers” because they want “Something for Nothing”.

          Indeed that is exactly what it is.

          Have the Original owners of Apple at $ 7 really “Earned” 100 + times their Money ?

          And before this is all over, those “Suckers” will Prove to be not only Ordinary Participants, but also those as the True Master says ” Not at all in the Sucker Class”…..

          In other Words many of the Richest Men.

          This is True of Men such as Carlos Slim who have already reached their Lifetime Peak and have begun the Secular Downward Spiral.

          You See this in other aspects plain to see, yet nobody sees it:

          Gold, Silver, Copper, Oil, Slim, Japanese Stock Market, China Stock Market, etc., etc.

          This is truly the “Boiled Frog Syndrome”.

          It is as a result as I say in much of My Work, the result of “Ignorance, Arrogance and Extraordinary Popular Delusions”.

          People really believe they are entitled to make money in Markets, for doing absolutely nothing.

          And as you see in recent Litigation’s, even when People actually come out ahead, they still feel “violated” because they didn’t make as much as pleased them.

          This is Why I do not believe in the SEC or that there should be any “Protection” by the Government in any way of Participants in the Market.

          If one wants to Play such a Game, there is only One Rule:

          Caveat Emptor.

          At the Real Bottom we will be in the “Disgust” Stage, most of these Blogs will be gone along with the Capital of Participants, Great Men will have Fallen, Arrogance will be in Ashes, and Humility the Order of the Day.

          From there it will all begin again – that is if we can overcome that pesky little problem called EROEI.

      • Beard681 says:

        You can get a mortgage on a house (i.e. you don’t own it free and clear) and sell it when it goes up, and bonds are purchased on the repo all the time. Short sellers stabilize markets by selling into rising markets and buying on market declines. They also provide a shortstop to all the BS out there that pumps up the value of stocks.

        If you leave your shares with the investment house you know they can be loaned out, just like when you put your money in the bank. If you don’t want your shares loaned out get the certificates and put them under you mattress.

        Naked selling is illegal, just as is banks loaning on fraudulent collateral.

      • Are you guys for real? The major market indexes are about quad what they should be and someone comes out and says Short selling is actually fraudulent in nature. If everyone took your advice they’d have to shut down the stock exchange due to no traders.

  19. r cohn says:

    The NYSE pays brokerage companies(among them HFT) a KICKBACK for placing orders on its exchange.This totaled in the hundreds of millions last year .In any other types of business ,this would be considered a bribe and the NYSE would be criminally prosecuted.The ultimate example of the pot calling the kettle black

    Most trading is done in dark polls,which is the opposite of transparency.

    The amount of manipulation by longs far,far ,far,far outweigh that done by short sellers.Just look at the Shkreli manipulated short squeeze in KaloBios in 2015 or the far bigger manipulation of VW in 2008.

    Short selling can not be done in crytocurrencies. Look at the result.

    And for those “investors” who trade puts and calls,do you understand that there is someone taking the opposite side of your trade.A process called conversion/reverse is involved to hedge their trade.And in many instances short selling is a requisite part of this process.Without short selling ,liquidity in the option market would collapse

    And for those “investors” who like to invest via puts and calls.

    • scambaker says:

      HFT is a spin cover story. can’t be that gullible. the rig is the algo with fake bid and asks that never execute. much worse than indept HFT. more like insiders and the phony wizard of oz machines creating phony markets every day. give me a break. these people aren’t geniuses – their scam is to make the public believe they are geniuses. think al capone had an Iq of 80 and still ran the largest bootleg operation in the country at one time. what is the difference here? these people make their own money and pay programmers to come up with the algos to run the market. end of story. they are all BS con-artists. every last piece of garbage walking around there. total BS and the rest of the people have their savings eaten away by pump masters.

  20. Kraut says:

    woah woah woah, stop the clock. Wolf, how did you not bring up the short selling ban in 2008? Complete hogwash.

  21. a.hall says:

    Buying enough shares ,less than 10% to trigger alarm in the company is what Murdoch used to do; scare the owners to buy him off. This used to be called “Ramping” and was illegal. Back in the day, the Market used to Correct itself. Now, Seismic Corrections are Verboten , `cause the Market is Rigged with 0% Interest Rates and Money Printing; ZIRP and NIRP. There Will be a Correction; the Share Bubble is going to Burst. Infinite Debt/Greed Is Not Good.

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