Printing Money The Wall Street Way Posted by:bobo 11/2/2006 8:10:00 AM
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So, you run a short-biased hedge fund, and you need to raise an extra $150 million this year to pay redemptions, and to create big bonuses for yourself?
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It's never been easier to print money on Wall Street.
Really.
We've come a long way from last year, where dolts like Jeff Mathews got on CNBC with a straight face and said. "I don't know how to naked short, and nobody I know does."
This from the ex-Rocker suck-up and quisling.
Let me explain how to get your own hockey rink, or Gulfstream, or small island off the Amalfi coast.
First, forget everything you ever thought about buying low, and selling high, or about shorting, and covering lower than you sold.
That's for little girlie men.
Just naked short a bunch of stock, with the help of your good friend, the prime broker, or a compliant offshore clearing firm.
Here's what you do.
Sell 10 million shares of OSTK when it is in the $60 to $40 range.
What, you say? How can you do that when you don't have adequate collateral to cover all those shares? Not to worry, the cash the buyers come up with to buy your non-existent shares will serve as 100% collateralization. You might need to cover an additional 20% collateral for a brief time (like until the price has gone low enough for the 100% the buyers paid to serve as that 120%) - depending upon what you have worked out with your offshore banking buddies, who scorn Reg T and couldn't care less about it. 50%, 20%, 10% - the point is, you are playing with house money in a few months anyway, so you don't have to be price sensitive.
But, back up. You naked short like mad, creating panic, as the waves of selling just keep coming. A month goes by with relentless selling, and now the price is at $30. Your average short is at $40, the mark-to-market is at $30, so now you get the difference between that $30 and the $40, minus the overcollateralization piece. Call it $60 million.
The next few months your buddies get the price down to $20. Now we're talking. You now have $160 million, including the 20% OC piece on $20 mark-to-market. Again, 50%, 20%, mice nuts in the scheme of things - you want to put up 50% domestically when you can go to Malaysia and put up 5%, that's your business - I'm not going to tell you how to run it.
The point is, you just printed money.
Big money.
The funny part is that you have created nothing of value. You didn't build anything, or invent anything, or cure anything. You didn't labor for that cash. All you did was break some rules the SEC isn't interested in enforcing anyway, and printed cash for you to use as you like.
It's even easier and better with penny stocks, as you can take them in your pump phase to $20, and then crash them down to 10 cents. Do the math on that, times, say, 100 million shares.
The beauty is that your bankers, prime brokers, and indeed the whole system, understand that you can just keep printing shares to meet virtually any demand, and that your brokers and your cronies are all going to help out if the price ever shows any danger of rising.
The SEC will even help out, with a well-timed investigation, or an exemption for your broker buddies to act as market makers, thereby giving them carte blanche to print shares. And if all else fails, you can go to your wise-guy buddies in Chicago, and do a deal for options, wherein you rent the options MM's exemption to naked short to your heart's content via the put hedging synthetic short gimmick.
So you see, the notion that you have to pick stocks carefully and research their fundamentals and their sector is sheer nonsense. All you have to do is be connected, and you can print cash.
Some will argue that is impossible, but those are the same ones that were arguing a year ago that there was no naked shorting going on, or that if there was, that it was a tiny problem. Now we know from the FOIA data that it is huge, and our understanding of netting gives us insight into the possibility that much of the market is a scam, wherein your hard dollars are going to purchase a big fat bag of nothing, which your broker will lie to you about being the genuine product you paid for.
It's not just hedge funds that can do this. Brokers can, and do, all the time.
There is literally nothing to stop them.
Fortunately, through the power of the Web, we have been able to show that the SEC was lying when they misrepresented Reg SHO as "working." We have been able to get insights into the comment period for that completely ineffective rule being a smokescreen for yet another at least 8 month delay - how would you like to be the Utah governor, who was convinced to wait for big changes by the SIA, only to have them argue against any...and then find out that any implementation will be closer to Summer, 07, than Summer, 06?
What dolts all these peons are, who think that the SEC or the industry has any interest other than stealing investor money. Where do they come from? Is there some factory somewhere that churns them out, wearing overalls and chewing on hay, ready to hand over their cash to some crook in NY who has been fined (without admitting any guilt, of course...he he he...) countless times for stealing everything that isn't bolted down?
I've just explained, in a nutshell, how to print money, Wall Street style.
If you are still dumb enough to believe that you need to work for a living, or build anything, or try to improve something, or deliver value (or even deliver what you were paid for), you have missed the point. We are now living in an era of massive theft, where your only limitation is your pedigree and your willingness to steal. If you are busy, competing, working your ass off, trying to make enough to have a decent retirement, you are a moron. I've just told you how to print cash. Now go to Harvard, get a good education and join some secret societies, and then hit Wall Street for some easy money. Maybe you can run the government once you've made a few billion - assuming you get bored. Maybe a top gig in the Treasury? How about the CIA? Whatever. You can have it all.
That the ants keep toiling so they can afford the ill-crafted sheetrock and stucco walls of their little boxes should charm you, and convince you of your superiority. Imagine spending your whole life doing that, when you, due to your opportunity and genetic superiority, only have to push a few buttons and turn on the money machine.
People are so funny. If they start to flag, you can convince them they need a Humvee or a Rolex or something. Or that they should hand over their life's work to your friends in the market, to watch it disappear the next time you decide to shake the money tree for some of that free cash.
It's really their fault.
Shame on them for being so gullible.
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There's a lot of hubub about the large hedge fund that received a Wells notice for allegedly naked short selling ahead of a merger.
I'm not going to belabor this, but think about something here. Who allowed them to do that? Who actually placed the trades, and then failed to deliver the shares?
Their broker(s).
And yet nobody is going after them. Tut tut. No siree.
Wonder who that fund pissed off, that they are getting the shaft? You don't see the funds that are being sued by multiple companies getting any grief. Nope. You know, the ones short much of the Reg SHO list?
No, instead you get this sanitized case which is clearly an exception, and which explains nothing about how an NFI or OSTK or HANS or NAVR or KKD or MSO or NFLX or TTWO or FFH or any of the others can be on the SHO list for extended periods.
One of the posters on the NFI board actually brought up a good point - that the amount of DRIP shares in NFI has gone up bigtime over the last year - which is easily explained by tens of millions more naked shares being sold, and many of those reinvesting their dividends into more shares. If the outstanding shares have roughly doubled due to illegal naked shorting, then one would expect the number of DRIP shares to increase roughly the same amount.
Which is precisely what we are seeing.
So why would a company that pays out a rock-solid $5.60 per year in dividends, and which has pushed so much revenue forward that they are paying out 2006's dividend 100% from accumulated 2005 earnings, sell for $30 per share?
Uh....maybe someone has sold tens of millions of shares to keep the price depressed, for as long as it takes, so they can continue making huge bonuses from their other positions?
Figure it out. |
