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Pastimes : The Naked Truth - Big Kahuna a Myth -- Ignore unavailable to you. Want to Upgrade?

To: Cynic 2005 who wrote (3988)	8/18/1998 1:27:00 PM
From: Joseph G.	Respond to of 86076

<<To begin with, only a tiny fraction of short sales are bets on the direction of stocks. The vast majority--perhaps 98% by one informed estimate--are merely efforts to hedge stock holdings or take advantage of arbitrage opportunities with other forms of investment. Traders who exclusively short-sell are but a tiny cadre of market players--a handful of partnerships and small brokerage firms. Despite their raptor-like image, they are often victims--not perpetrators--of stock manipulation. And though they can certainly put a dent in stocks by leaking stories to the media, the image of ''stock-busters'' who can drive down share prices is overblown. Exchange and NASDAQ rules ban short sales while a stock is declining. This ''uptick rule,'' which allows shorting only when the most recent price change was positive, makes it tough to beat down stocks by short-selling alone. To be sure, there are instances of questionable practices by shorts, such as the aggressive short-selling that allegedly led to the demise of the Adler Coleman & Co. penny-stock trade-clearing firm last year. Regulators are investigating charges by Mishkin, the court-appointed trustee, that shorts engaged in such nefarious practices as ''naked'' short-selling--shorting stocks that haven't been borrowed. Federal authorities are investigating the short-selling of Organogenesis Inc., a biotechnology company, because of allegations that false information was spread about the company (BW--Apr. 22). But the overwhelmingly negative publicity overshadows the contributions shorts make to the market--particularly in raging bull markets, when Wall Street hype runs rampant. Because of their contrarian stance and the liquidity they bring to bear, short-sellers have an overwhelmingly positive impact on the market. They are often the market's first line of defense against financial fraud--frequently alerting regulators to scams and accounting irregularities, as was the case with now defunct ZZZZ-Best and College Bound. And short-selling abuses have often been exaggerated. Naked short-selling certainly happens, but vastly more commonplace is the ''short squeeze,'' a chain of events that can be a blatant effort to punish short-sellers by forcing them to buy stocks when they are artificially high (illustration below).>> Also, taking into account abundant splits and options issues, short interest has not kept up with shares outstanding.