Monday, September 22, 2008

Lessons From Pakistan on Banning Short Selling

The chart above (click to enlarge) of Pakistan's Karachi SE-100 Index (data from Global Financial Data) shows what happened when short selling was banned on June 23: a huge but brief 1,300 point rally for three days, followed by a slow 3,250 point market collapse, a drop of more than 26% in less than three months.

HT: James Reynolds

See related article in today's WSJ "Short Sellers Keep the Market Honest" and see a similar chart on Dealbreaker

Update:
Banning short-selling is a way of buying time -- but if the mooted RTC II isn't up and running very quickly, the stocks which went up today are liable to go straight back down to where they were -- and, probably, further, given that each successive stock-market low is lower than the last.

It's surely no coincidence that the short-selling ban was unveiled at exactly the same time as politicians started talking in public about a huge government bailout fund. The problem with the fund is that it will require time-consuming legislation to set up, and time was the one thing which Morgan Stanley, in particular, didn't have.

And so the short-selling ban is a stopgap measure, designed to artificially boost stock prices until Congress can get its act together and throw a few hundred billion dollars at the market in a more substantive attempt to stop it from imploding.

10 Comments:

At 9/22/2008 12:01 PM, Anonymous Anonymous said...

They were in a free fall before the ban, and were in a free fall after the ban... The graph almost looks like a straight line. What is there to see?

 
At 9/22/2008 12:01 PM, Anonymous Anonymous said...

Mark Perry is becoming a BEAR?

Maybe it's finally time to buy stocks!

ps Whatever happened to the "no recession" thing? hahahaha

 
At 9/22/2008 12:39 PM, Anonymous Kevin said...

This is utter nonsense. The timing of the Pakistan ban is the issue here - not that it won't stop a decline! Note that the article's author - Chanos - has a vested interest in arguing for shorting and likely has shorts he needs to cover.

 
At 9/22/2008 1:15 PM, Anonymous QT said...

One also has to consider that the stock market performance also reflects foreign direct investment being pulled out of Pakistan not just shorting activity.

The SEC is only considering banning shortselling on a limited # of stocks...not a ban on short selling.

Where one could make a case for a ban is in the area of naked shorts which are used to drive down small cap stocks to the detriment of small investors and the impairment of companies to raise future capital investment.

 
At 9/22/2008 1:51 PM, Anonymous Anonymous said...

FYI - the WSJ piece is NOT an ARTICLE but an OPINION piece. The writer manages a SHORT ONLY hedge fund so CLEARLY has an agenda

 
At 9/22/2008 2:12 PM, Anonymous RebelRenegade said...

What's the point of continously posting on a blog under an anonymous tag? You're just as anonymous as if you had made up a name and stuck with it.

And it's not like we can't pick up on the fact that you're still the same guy who used to spout the same nonsense and got run out of here previously.

 
At 9/22/2008 2:35 PM, Blogger juandos said...

anon @ 12:01 PM whines: "ps Whatever happened to the "no recession" thing? hahahaha"...

Hmmm, being the dense lad you've proven to be in the past maybe Uncle Sam can explain it to you in 'socialize':
GROSS DOMESTIC PRODUCT AND CORPORATE PROFITS: Second Quarter 2008 (Preliminary)

 
At 9/22/2008 2:49 PM, Anonymous Anonymous said...

Using this article as a parallel comparison, it makes it sound like a bottom is quite possibly not reached in the U.S. market (i.e., confidence in economic growth)

http://southasiainvestor.blogspot.com/2008/06/karachi-stocks-rally-after-ban-on-short.html

 
At 9/22/2008 5:40 PM, Blogger OBloodyHell said...

> You're just as anonymous as if you had made up a name and stuck with it.

He's too lazy to type a name in each time, and we're supposed to believe he's not too lazy to actually verify his sources worth a crap.

Yeah, I'll buy *that* for a dollar....

This, of course, is why he's such an obvious moron. Is that you, sophist?

I don't think so, though -- sophist usually wasn't THAT consistently stupid.

 
At 9/22/2008 5:46 PM, Anonymous Kevin said...

I also noticed in the WSJ opinion piece that Chanos is also listed as the head of the "Coalition of Private Investment Companies."

Google them and you won't find a web site but you will find them bombarding the SEC with long winded memos commenting on deregulation. Look at the contact information at the bottom of their letterhead and call the phone number listed. It's for a lobbying firm! Linkage confirmed through the website www.muckety.com.

WSJ should be ashamed in publishing such biased crap without adequate disclosure!

 

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