corysub
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ORIGINAL: Real_Trouble
quote:
ORIGINAL: corysub
Together with the possible creation of a Resolution Trust type institution that was utilized to work out of the S&L crisis could be the beginning of lights coming on at the end of a dark tunnel.
I would suggest that if you dig a bit into the expect earnings projections for the majority of companies with major sell-side analyst coverage right now, and look at how high they are compared to our current economic conditions, that light might be an oncoming train. There's no way the "E" portion of P/E ratios holds up, and when that hits the fan and stocks in several sectors suddenly look extremely overpriced again, you are going to see another round of butchering.
Short selling is frequently blamed for all kinds of things. However, it's not a causal item in and of itself, much of the time. Shorts can exacerbate price swings, but they don't cause them. For instance, Lehman didn't go under because someone shorted it (much as some people would like to say about Einhorn), Lehman went under because they were holding a truckload of illiquid paper on their books that was devaluing by the day.
Of course, minus mark-to-market on things intended to be held to maturity, that might not be such a problem, but it is what it is.
Either way, nothing can eliminate the fact that a lot of firms made a lot of very poor loans to very poor borrowers; there's bound to be more carnage, and the reality is that the losses are going to be pretty spectacular because it was downright stupid to do most of these things in the first place. I find it hard to blame NINJA loans on short sellers, for instance, or recombining to CDO tranches to inadvertently create highly correlated loan pools that generate major valuation swings and losses to be because someone took a naked short out on AIG.
More sound and fury signifying absolutely nothing.
You raise a lot of valid questions. No question the auto companies are in deep trouble alongside the real estate sector. Concerns about CDO valuations, the rise in foreclosure rates from sub-prime buyers, etc, have had a significant impact on the market in general with the averages down about 20% this year. It wasn't just the weak financials that were impacted but even companies with strong cash flows, for example, like General Electric hit significant lows in the midst of the "sound and fury". The expectation by investors was that there was a good possiblity the entire system was collapsing. It was that seem extreme fear that gripped financials during the S&L crisis, the poor market environement of the early 70's,(when Lehman was saved from bankruptcy only by an infustion of capital from...guess... The Bank of Napoli). You can go back further to the ealy 1960's when the general comments were that the market was dead for a generation! Used to be a company run by a fellow named Romney...yep, Mitt Romney's dad. EVERY participant in the American Motors initial public offering, well over a hundred major bracket and selling group participants went bankrupt or were forced to merge. Difficult times to be sure, and it took a few years to start to see any meaningful growth...but it was an opportune time for investors to accumulate positions.
Are this weeks actions going to "part the seas" and give the market a clear road to the other side..of course not! But like the creation of the Resolution Trust, it's possibly the "game changing event" as Morgan Stanley noted.
The market has always been a market of stocks and, your right, we all have to do our homework to try to eliminate the losers and try to find the winners in this environment.
With respect to short sellers. They obviously don't make the trend in the price of a stock...fundamentals do that.
However, given weak fundamentals, given negative psychology, naked shorts swim like sharks in bloody waters,
beating down shares, touchiing off stop loss orders, and panicking trading desks into selling shares at prices that are being taken down. Many institutions measure their traders based on how their sales measure up against that days average volume/price average. If a real owner was working a sell order, naked shorts only push these traders to "participate"..to go along with the market at a time when bids have not even had a chance to come on the floor.
No thank you...I have nothing against short selling on plus ticks...but naked shorts with no plus tick requirement is insane.
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S.E.C. bans "short selling"...Stocks look up ... - 
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