Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Skeeter Bug who wrote (73917)	4/2/2001 6:56:24 PM
From: Herschel Rubin	Read Replies (6) \| Respond to of 99985

Regarding selling to raise cash to pay capital gains: I'd like to throw out a question to all of you people who are still financially solvent in this market. I keep debating both sides of this question and can argue both sides without a satisfactory resolution. I'm sure some of you here will have something to add. HERE IS THE QUESTION: Last year on April 4, 2000 and again on April 14, 2000, the major market indices swooned as many investors sold off shares to raise cash to pay their State & Federal Taxes, most of which had been inflated by the gargantuan 89% Nasdaq bull run in 1999. Will there be any sort of selloff this year to pay tax liabilities???? On the YES side of the argument (there WILL be a selloff): 1. Some individuals DO have net capital gains to pay, for example, from funds that sold during the meteoric climb up to March 10, 2000 and during the counter-trend rally to August 30, 2000. 2. Shorts made a lot of capital gains in Tax Year 2000 betting the markets would go down. They'll have large capital gains on their Schedule D for which they'll need to pay large tax bills. On the NO side of the argument (there WILL NOT be a selloff): 1. The Nasdaq suffered a 39% loss for CY2000, so very few taxpayers will be selling stocks to raise cash to pay capital gains taxes. 2. I've heard the statistic thrown about that shorts normally represent only about 3% of deployed cash in the market (can anyone confirm this?). If that is the case, although shorts in Tax Year 2000 made hefty profits and will have large tax bills, any selling to raise funds to pay tax bills will not be substantial enough to cause the markets to decline. 3. When shorts cover to raise cash to pay tax liabilities, they BUY shares to cover their positions, so assuming many of these same shorts who prospered in Tax Year 2000 are still playing short positions in April 2001, the opposite effect should occur: Their buying to cover will provide support for the markets. 4. Last but not least, because many investors have stock holdings that are way underwater (unlike in March 2000), they may opt to raise cash via other methods, such as credit card debt, rather than sell at a loss here. COMMENTS ANYONE?