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Politics : America Under Siege: The End of Innocence -- Ignore unavailable to you. Want to Upgrade?

To: joseph krinsky who wrote (5866)	10/2/2001 11:04:59 AM
From: Patrick Slevin	Read Replies (1) \| Respond to of 27666

Have the commodity markets ever operated without short selling? Not in this century at least. The best example I can recall of a market without short selling was the tulip bulb bubble of the 1600s, although the South Sea Bubble of the 1700s would be another good example. However, if I recall at the end South Sea certificates were sold short. Without a speculator in a commodity market there would only be two players, the producer and the user. That is why I hypothesize that the market would dry up. There are hundreds upon hundreds of commodity markets but you never hear about most because there are no speculators. I believe there are several kinds of Japanese frozen fish commodity markets for example. Trading in Lumber Futures is a well known market but most speculators stay away from it so there is no "real" market for the off-the-floor trader to work. When the speculators go away the market becomes stagnant. A parallel may be the US stock market over the past ten years; the influx of trading through home or office based computers certainly added to speculation and liquidity. Go back to the 1970s and there was zero interest in the markets, and as a result it took over ten years for the market to recover to the 1000 level on the DJIA and finally move significantly past it. Certainly that example is a bit of a stretch but if you were to look at the DJIA over the 1970s and compare it to the 1990s and consider the speculative nature of individuals in both decades and you might consider that speculation drove the stock market. So when I say that if you remove it from a commodity market you would have stagnation. ---- Anyway, dropping commodities for the sake of isolating the stock market, I think the rules of the early, mid 1930s were designed to hinder Short Selling. Even at that time, there were many who felt the rules went too far. I used to know the rules fairly well because I needed to get a Series 7 license but I do not recall song and verse exactly any longer. However, books about business and trading from that time show both sides of the opinion about selling short. One good book was about the Morgans, called the House of Morgan, by Chernov. I notice that there is at least one popular thread on SI crusading against short selling but I see no reason to read it. If one really wants to understand the rules and why or they should or should not be tightened I think the answer is to go to the records and opinions of the time around 1935, particularly Bernard Baruch who wrote a small treatise on the art of selling short. I think an opinion may be better formed through understanding the history of it.