An outsider's primer on shorts:
1. Go read the 15 chapter story about naked shorting written by Overstock CEO Byrne. I believe the Deepcapture site is still up and the story involves trading in DNDN (Dendreon). I introduced this to a Yahoo Chatroom for a stock called AVNR (Avanir Pharmacueticals) that was being shorted by the exact same players at the exact same time. Until you read the articles YOU DO NOT UNDERSTAND. No matter how smart you are.
2. I believe that the market rules require shorts to do one of two things within 3 days of shorting a stock. A. Cover by buying equivalent shares and delivering or B. Locating a valid "borrow" which generally means that the short has to pay for the service.
3. Just as AlanC has posited on this board, I do not believe that all of our shorts follow the rules stated in #2 above.
4. I don't think rule-following is violated only on the pink sheets. I think it is just easier here. After all, we are all investing in a company with no audited financials. I was describing pink sheet investing to my daughter and I reminded her of the Star Wars bar scene with Han Solo, Luke and the tall furry guy - the one where Jabba the Hut is holding court. I said this is worse.
5. Shorts that do not follow the rules are called Naked Shorts.
6. There was a lot of hot air out of Washington several years ago about closing these opportunities, and I think they did do a lot of good; but I think there was still hot air. The player most at risk is the brokerage that facilitates Naked Shorts and a group of brokers that they used to call Prime Brokerages. The Naked being serviced by the brokerage is assumed to be a criminal that doesn't care. He walks.
7. Brokerages go bankrupt, and the Primes are all companies like Goldman Sachs that are all too big too fail, which means that they have way too many government employees walking through their revolving doors for the government to ever rain on their parade.
8. We are on our own
9. Every time a short sells a share they are writing a fiction. They write a check on someone elses account for cash and they put the free unencumbered cash into their own bank account. If they can drive the company into bankruptcy they never have to buy shares back which means they never have to give any of the money back, and if they never have to close a short transaction by buying cover shares then they never have to close a transaction, and that means that they never have to pay tax - ever.
10. You need to read the Deepcapture series to understand the criminality in our markets. You also need to understand the criminal. I'm talking about people who will kill to resolve a problem. Think a real life Jabba the Hut.
11. They can be beaten. Netflix beat them.
12. Performance and profits will beat them, but you need to understand that this is WAR. They understand it. IHUB is one of their Special Force organizations. The battle is intellectual, and I really like this board. You are willing.
13. Certain transactions can flush them. The NTGL transaction looks like a partial flush to me. Buyouts should be a full flush, but you never know. Who are the bad actors working for? If they are working for the company that closes the buyout there is no flush. A flush is something that causes the shorts (all of them) to buy shares on the market to close their positions. In the past the transactions between the original Naked and all of the brokerages in the middle was so murky and unenforced that i think the Nakeds just walked. What do you do to a Naked position formed 10 years ago with a broker that went broke 8 years ago with a Prime like Lehmann that went broke 7 years ago????
I know there is stuff I am not expressing correctly. Read Deepcapture and you will understand why.
14. Most of your gamble comes down to Management. How tough are they. How intense is their desire to be billionaires. NTEK can do it for them.
15. I don't think the Prime Brokerages are as lazy as they used to be, and I think that Brokerages are policed more aggressively than before. I think it is better than it was for DNDN and AVNR. The bad guys are still bad and Byrne still fights his lonely war.
16. You are all now invested in the war. May the Force be With You. And yes, I am encouraging my kids to take small positions in NTEK.
Paul
1. Go read the 15 chapter story about naked shorting written by Overstock CEO Byrne. I believe the Deepcapture site is still up and the story involves trading in DNDN (Dendreon). I introduced this to a Yahoo Chatroom for a stock called AVNR (Avanir Pharmacueticals) that was being shorted by the exact same players at the exact same time. Until you read the articles YOU DO NOT UNDERSTAND. No matter how smart you are.
2. I believe that the market rules require shorts to do one of two things within 3 days of shorting a stock. A. Cover by buying equivalent shares and delivering or B. Locating a valid "borrow" which generally means that the short has to pay for the service.
3. Just as AlanC has posited on this board, I do not believe that all of our shorts follow the rules stated in #2 above.
4. I don't think rule-following is violated only on the pink sheets. I think it is just easier here. After all, we are all investing in a company with no audited financials. I was describing pink sheet investing to my daughter and I reminded her of the Star Wars bar scene with Han Solo, Luke and the tall furry guy - the one where Jabba the Hut is holding court. I said this is worse.
5. Shorts that do not follow the rules are called Naked Shorts.
6. There was a lot of hot air out of Washington several years ago about closing these opportunities, and I think they did do a lot of good; but I think there was still hot air. The player most at risk is the brokerage that facilitates Naked Shorts and a group of brokers that they used to call Prime Brokerages. The Naked being serviced by the brokerage is assumed to be a criminal that doesn't care. He walks.
7. Brokerages go bankrupt, and the Primes are all companies like Goldman Sachs that are all too big too fail, which means that they have way too many government employees walking through their revolving doors for the government to ever rain on their parade.
8. We are on our own
9. Every time a short sells a share they are writing a fiction. They write a check on someone elses account for cash and they put the free unencumbered cash into their own bank account. If they can drive the company into bankruptcy they never have to buy shares back which means they never have to give any of the money back, and if they never have to close a short transaction by buying cover shares then they never have to close a transaction, and that means that they never have to pay tax - ever.
10. You need to read the Deepcapture series to understand the criminality in our markets. You also need to understand the criminal. I'm talking about people who will kill to resolve a problem. Think a real life Jabba the Hut.
11. They can be beaten. Netflix beat them.
12. Performance and profits will beat them, but you need to understand that this is WAR. They understand it. IHUB is one of their Special Force organizations. The battle is intellectual, and I really like this board. You are willing.
13. Certain transactions can flush them. The NTGL transaction looks like a partial flush to me. Buyouts should be a full flush, but you never know. Who are the bad actors working for? If they are working for the company that closes the buyout there is no flush. A flush is something that causes the shorts (all of them) to buy shares on the market to close their positions. In the past the transactions between the original Naked and all of the brokerages in the middle was so murky and unenforced that i think the Nakeds just walked. What do you do to a Naked position formed 10 years ago with a broker that went broke 8 years ago with a Prime like Lehmann that went broke 7 years ago????
I know there is stuff I am not expressing correctly. Read Deepcapture and you will understand why.
14. Most of your gamble comes down to Management. How tough are they. How intense is their desire to be billionaires. NTEK can do it for them.
15. I don't think the Prime Brokerages are as lazy as they used to be, and I think that Brokerages are policed more aggressively than before. I think it is better than it was for DNDN and AVNR. The bad guys are still bad and Byrne still fights his lonely war.
16. You are all now invested in the war. May the Force be With You. And yes, I am encouraging my kids to take small positions in NTEK.
Paul
