http://www.telegraph.co.uk/money/mai...cnshort119.xml
What a joke. If the authorities were so sure about the strength of the financial institutions then why is the Bank of England not happy to take virtually unlimited bank debt obligations in exchange for funding?
There must be enormous sums of four or more year old mortgage debt/corporate debt/quasi supra national debt which could be taken as collateral by the Treasury against cash which would see the banks through this little spat.
Obviously the authorities are not as sure as their public utterances would seem to suggest.
But no! The knee jerk reaction of politicians to find a scapegoat (short-sellers) and to try to stamp on it is just mind-blowingly stupid.
Obvious pressure has been applied on the FSA (apparently an independent regulator) to be seen to be doing something and they have come up with this little gem. It might be timely to remind people that the ban a few months ago on short-selling of financial instruments in the States did not seem to do much good for them.
Liquidity will now dry up in these stocks so that any buying or selling of the affected companies will have massive ramifications on the prices of the companies concerned as dealers and Market Makers just pass the risk on immediately down the line, generating swathes of price action on limited business.
With limited ability to borrow stock, Market Makers will widen prices to reflect the increased risk and costs of transaction.
The problem in the markets is nothing to do with short-selling, it is to do with liquidity between banks.
Quite how this action is supposed to improve matters is not clear.
With bank share prices now propped up artificially, it makes it even more difficult to decide on where to place funds as the information provided by share price movements is no longer available.
Anyway, our clients had what will probably turn out to be their best day ever yesterday as they stuck grimly to long positions through the thick of the sell off in European trading session to emerge butterfly-like into the bright evening session as the FSA announced the shorting ban and the central banks added some $240bln liquidity to desperate banks.
The ensuing rally was something to see.
The Dow is now over 700 points higher than the lows at six yesterday evening which means that we are back where we were at the start of the week.
Anyone nursing a short position will have been blown away and, on the open of the FTSE this morning, we witnessed an almost 300 point rally to open at around 5160.
Banking stock is likely to be the big gainer but traders will find it difficult to take advantage of it as only those with positions over night will be able to do anything.
The huge injection of liquidity may be the final shot from the Central Bank armoury as it is difficult to see what else they can now do aside from forced nationalisation of stricken banks.
What is very worrying is that we have reached this scenario before anything very bad has actually happened in the wider economy.
Yes, the financial sector has been shot to pieces but in the wider economy retail sales are still up over 3pc year on year, unemployment is rising but still low by historical standards and house prices, whilst weak, have only dropped around 10pc.
Currency markets seem to have looked around and decide that a flight to the dollar is warranted once more and the greenback has gained quite a bit overnight.
I can imagine that the other majors will not want to give up their recent gains without a fight so we can look for a nice battle around the 1.4150 level in the euro, 1.8000 against sterling and 107.00 against the yen.
On the commodity front your guess is a good as mine. Trading in gold yesterday was absolutely ridiculous as the price shot up in just a few minutes from $875 to $922 in the minutes up to the Fed and FSA announcements only to slump down to $840 by the close of business.
Huge sums across the globe must have been made and lost in just a few minutes. Trading systems remained open across the futures exchanges throughout the action which shows remarkable robustness considering the volumes going across the wires. The LSE should take note!
As mentioned many times over the past months it is not a time for the unwary to be getting involved in financial markets and I would continue to advise all clients to be extra cautious.
It has often been said that 'the markets' take no prisoners. But at the moment it is not only doing this but is following you home and shooting the family pet as well.
What a joke. If the authorities were so sure about the strength of the financial institutions then why is the Bank of England not happy to take virtually unlimited bank debt obligations in exchange for funding?
There must be enormous sums of four or more year old mortgage debt/corporate debt/quasi supra national debt which could be taken as collateral by the Treasury against cash which would see the banks through this little spat.
Obviously the authorities are not as sure as their public utterances would seem to suggest.
But no! The knee jerk reaction of politicians to find a scapegoat (short-sellers) and to try to stamp on it is just mind-blowingly stupid.
Obvious pressure has been applied on the FSA (apparently an independent regulator) to be seen to be doing something and they have come up with this little gem. It might be timely to remind people that the ban a few months ago on short-selling of financial instruments in the States did not seem to do much good for them.
Liquidity will now dry up in these stocks so that any buying or selling of the affected companies will have massive ramifications on the prices of the companies concerned as dealers and Market Makers just pass the risk on immediately down the line, generating swathes of price action on limited business.
With limited ability to borrow stock, Market Makers will widen prices to reflect the increased risk and costs of transaction.
The problem in the markets is nothing to do with short-selling, it is to do with liquidity between banks.
Quite how this action is supposed to improve matters is not clear.
With bank share prices now propped up artificially, it makes it even more difficult to decide on where to place funds as the information provided by share price movements is no longer available.
Anyway, our clients had what will probably turn out to be their best day ever yesterday as they stuck grimly to long positions through the thick of the sell off in European trading session to emerge butterfly-like into the bright evening session as the FSA announced the shorting ban and the central banks added some $240bln liquidity to desperate banks.
The ensuing rally was something to see.
The Dow is now over 700 points higher than the lows at six yesterday evening which means that we are back where we were at the start of the week.
Anyone nursing a short position will have been blown away and, on the open of the FTSE this morning, we witnessed an almost 300 point rally to open at around 5160.
Banking stock is likely to be the big gainer but traders will find it difficult to take advantage of it as only those with positions over night will be able to do anything.
The huge injection of liquidity may be the final shot from the Central Bank armoury as it is difficult to see what else they can now do aside from forced nationalisation of stricken banks.
What is very worrying is that we have reached this scenario before anything very bad has actually happened in the wider economy.
Yes, the financial sector has been shot to pieces but in the wider economy retail sales are still up over 3pc year on year, unemployment is rising but still low by historical standards and house prices, whilst weak, have only dropped around 10pc.
Currency markets seem to have looked around and decide that a flight to the dollar is warranted once more and the greenback has gained quite a bit overnight.
I can imagine that the other majors will not want to give up their recent gains without a fight so we can look for a nice battle around the 1.4150 level in the euro, 1.8000 against sterling and 107.00 against the yen.
On the commodity front your guess is a good as mine. Trading in gold yesterday was absolutely ridiculous as the price shot up in just a few minutes from $875 to $922 in the minutes up to the Fed and FSA announcements only to slump down to $840 by the close of business.
Huge sums across the globe must have been made and lost in just a few minutes. Trading systems remained open across the futures exchanges throughout the action which shows remarkable robustness considering the volumes going across the wires. The LSE should take note!
As mentioned many times over the past months it is not a time for the unwary to be getting involved in financial markets and I would continue to advise all clients to be extra cautious.
It has often been said that 'the markets' take no prisoners. But at the moment it is not only doing this but is following you home and shooting the family pet as well.
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