I don't short because of the unlimited loss potential, but I have nothing against a shorter. They are needed in the marketplace. Stocks sometimes run up way higher than their fundamentals can justify, and if you do good DD and conclude that, why not make money by shorting? If a stock price is driven by fair market forces, as listed stock are, then longs and shorts balance each other out and the stock reached a fair valuation. However, shorting of BB issues that are thinly traded and whose price is controlled by MMs leads to major abuses. That is why it is illegal for US citizens to short BB issues. However, violators still short by setting up accounts in Canada, for example, and shorting that way. MMs also make a bundle by abusing their legal shorting ability, meant to create liquidity, and shorting stocks as a way of making lots of money. Not only do they make 1/8 here and there on the spread, but they can make dollars per share by shorting. To do this, they play momentum against fear. The SEC is well aware of this, and has been attemting to get the NASD to police itself rather than to come in with more regulations. There are some articles in recent Business Week that talk about this.
Bottom line, I don't mind shorters, since on listed stocks they are useful. I don't mind shroters on BB issues, even if illegal, if they are up front about what they are doing -- which is rare. But I hate the lying, the shills, the trojan horses, who will be paid in full for their efforts, if not in this life then in the next. |
