I am going to stick my neck out and tell you why the 200,000 shares of Cube owned by our mutual fund is loaned out to the shorts.
It's a source of additional income to us which becomes even greater whenever the price of Cube rises in the market and the shorts have to send us additional money in order to mark their stock borrowings to market. Furthermore, Cube stock is in such short supply to be loaned out, that we receive a handsome premium for our Cube stock loan. I look upon it as a dividend which we receive from C-Cube, which the itself company isn't paying for. I don't go short and I don't particularly care for the practice, but there are various legitimate non-threatening short strategies, such as in arbitraging or shorting against the box. I don't mind a begnign short interest in a stock I own, as long as they don't go around telling people why the company is no good or trying to influence others to sell their stock because they have a vested interest in seeing the price go down. But I strongly object when a short interest becomes abusive, and unfortunately that is what we have often seen in C-Cube in recent months. The shorts tend to become abusive when the price rises against them and they have to put up more money to maintain their position and as their investment performance suffers in the eyes of their clients. Somehow, I don't see or hear the vitriol against Cube here or on other Webb sites, that I did earlier on when the stock was much higher.
Nevertheless, I expect to be an investor in C-Cube for several years, while waiting for this new consumer product revolution to unfold Therefore, I may have a different time frame from other shorter term investors in C-Cube stock. I see no need to squeeze the shorts, nor do I think that some of us withholding shares from being loaned out is a stategy that is going to work. It certainly hasn't so far. I keep hearing from major stock loan departments how Cube stock can't be borrowed for shorting purposes, but somehow that doesn't seem to keep the short interest from rising? I can never figure how shorts get the stock to borrow when I couldn't do it, if I wanted to. I would rather leave as large a short interest out there as possible, and hope that if and when natural market forces move the price of Cube to higher levels, it becomes painfully expensive for those who are short, and more profitable for me as a lender of Cube shares. I am afraid that the Cube shorts will only be squeezed when they become convinced that their investment premise for being short is wrong and they finally become worried over the danger of their overcrowded position. In the meantime, the insatiable speculation in tech stocks has abated, and this factor, along with large selling in Cube stock by mutual funds and other large investors, has been working in their favor, as has the sudden and unexpected appearance on the VCD scene by an erstwhile competitor. That is what has put the price of Cube stock down, and for the moment keeps it under pressue. The shorts, by their additional selling in the marketplace, and other activities many of us know about, may have influenced the price, but, in my opinion, have not manipulated it down.
Normally, smaller holders of Cube stock cannot lend out their shares as we have, because you have to sign a special loan agreement and be prepared to hold rather than trade your stock. Most brokerage firms won't be bothered with this. Nor do they want to lose the lucrative income they make from lending out your shares. However,if you can't profit from lending out your shares, there is no reason for you not to transfer your shares from a margin to a cash account, if your account can stand it. But as has been suggested here, be sure the brokerage firm actually follows your instructions and actually does it. Some of the Cube holders here have positions of 5,000-10,0000 shares, or more, and with Cube stock loan so tight, that should be enough leverage with a brokerage firm to enable you to profit from lending out your shares.
I hope I don't appear to some of you as some kind of traitor, but you do have to be realistic in business and I am convinced that if I don't lend out my shares, someone else will. Apparantly, there are some 11 million other shares out there, whose owners have come to the same conclusion.
Needless to say, there is a market risk in owning Cube shares, but there is a business risk as well, because any number of things could go wrong to disappoint us. But there is a tremendous opportunity as well, and that is what I am betting on. That is what investing in equities is supposed to be about. I have no doubt but what by Christmas 1998, if not before, the proof will be in the pudding and it will all have been sorted out for investors.
A hearty - Go Cube! |
