In one of their usual BAD ideas, Frau Merkel and a bunch of European politicians now seem considering banning naked short selling and, all in all, because their private and profitable game is sunk. We all remember how Volkswagen massacred short sellers; well … we all … but Merkel’s team .
ABC for dummies in general and Eurocrats in particular:
a) Naked Short Sellers are obeyed to buy at a certain moment. If you ban them let see who will buy when prices go freefall.
b) All these obstructions to Bears only make bubbles bigger and busts awful.
c) Big fishes insure their acquisitions (similar to the Madoff instrument in his ponzy scheme) when they artificially sustain their share prices (see VIX index calculation), this way they can make Distribution and sale their inflated shares to ordinary people. As soon as Bears detect it they use NSs to dismantle their house of cards, creating a fair price.
To react properly and on time to the manipulation described on c) you only can use NS selling, plain and simple. Clearly, Merkel’s Team does not understand how healthy NS shorts are and how Bulls and Bears fight in the Markets. NS selling is probably the most difficult trading way of speculation and a strong correction to bad management (public or private); add that short sellers, naked or not, have to pay the dividends of these shares.
Another case of Idiocy (like this of: only Naked Long Buying is permitted because we live in La-la-la World) in policy making and Eurocrazy is the case of Euro that, even when it is oversold (see chart below where RSI in a weekly basis is at record lows), it could not be defended for the simple reason that ECB morons do not want to sell Dollars (I doubt they now how) because they do not want to fight a war they have not enough ammunition: the Central Bank dreamed by speculators.
When the Euro was clearly overvalued ECB did not bought Dollars because they thought “we were right, the Euro is great, it will substitute Dollar as Global Reserve Currency and our policy is the best credible in the world and Euroland is La-la-la World”.
And, as now it seems impossible to get a Euro correction in an orderly way, Eurcrats have the great idea of banning “speculation”. O yeah, wolfs are coming, we will protect our people (read cattle)and so on. Sure, close Europe and isolate her form reality and you will see how bad it all ends.
There is nothing better for a Speculator than a Populist Political Class and their moronic market interventions.
© Luis Riestra Delgado
For an excellent study check this paper: http://www.newyorkfed.org/research/current_issues/ci18-5.pdf
(It is amazing how this article has been copied – specially in Spain – with no proper attribution or respect to copyrights)
Disclaimer: This Paper is just an exercise to base a Debate on Euro Market Patterns and Policy Makers Actions. The Charts are from an application of ww.worldspreads.com. LRD 05/19/2010.