Can Shorters Push a Company out of Business?

Riz

Experienced member
1,266 5
Article in Evening Standard makes interesting reading in this regard, saying the short position on MONI is estimated on 850m shares, some 30% of the company's equity, meaning all the shares that can be borrowed to short MONI already borrowed...

I wonder if they are going for the kill this time, making a profit by collapsing MONI share price...

The following paragraph makes sense in this case:
"The Stock Exchange was never meant to work like this and it will cease to work if the practice is not brought under control. Transparency is vital if market abuse is to be avoided. At the very least, hedge funds need to be forced out into the open and their short positions published on a minute-by-minute basis so that market participants can see how share prices are being manipulated. It is not something the Financial Services Authority can afford to ignore."

Riz


by Anthony Hilton, Evening Standard

MASSIVE short selling by hedge funds is believed to lie behind the collapse of Marconi's shares from 50p at the beginning of this week to less that 30p today. More than 160m shares went through the market on Thursday, and the short position is estimated at close on 850m shares, some 30% of the company's equity. Every share that can possibly be borrowed to cover short positions has been borrowed.

The market has never seen anything like it. One of Britain's biggest and most important companies has been reduced to the status of a gaming chip in the Stock Exchange casino. Were it only the boys in red braces having a bit of fun, it might not be too harmful but it has gone way beyond that. This short-selling, which is designed to engineer a collapse in the company's share price and then to profit from it, seriously undermines Marconi's ability to survive.

We saw with Marks & Spencer how a collapsing share price not only destroyed internal morale but also prompted customers and suppliers to have second thoughts about whether they wanted to continue to do business with the company. The same thing could happen with Marconi. Staff morale has probably already been shredded, but if customers and suppliers decide to move their business elsewhere, sales will collapse even further and the company ultimately will run out of cash. The short selling will have been seen to have killed off the company.

This underlines how speculative capital has too much firepower, and how there is now a huge mismatch between the resources of those running the companies and those who have the power to take investment decisions. Hedge fund managers pursuing ruthless strategies for their own gain are creating huge costs elsewhere in the system, costs which ultimately will destroy public confidence in the stock market as a place where the process of price formation is transparent and honest.

The Stock Exchange was never meant to work like this and it will cease to work if the practice is not brought under control. Transparency is vital if market abuse is to be avoided. At the very least, hedge funds need to be forced out into the open and their short positions published on a minute-by-minute basis so that market participants can see how share prices are being manipulated. It is not something the Financial Services Authority can afford to ignore.

Shares flaw


WHEN the FTSE 100 index is revised later this month, it is expected to see the final laying of the ghost of the dotcom boom. Marconi will drop out, of course - and may be the first company on exiting to go straight out of the bottom of the FTSE 250, too.

Marconi, as GEC, was one of the original constituents of the FTSE 100 15 years ago. When it goes, only 24 of those 100 will be left. This underlines the superficiality of claims that equities are the best long- term investment. Such claims are almost always based on the performance of an index, which paints an upwardly biased picture of overall share performance because any company that fails in the index gets turfed out.

People claim that real returns on shares for the past 100 years have averaged 5% a year, but less than 2% of this is attributable to capital gain and there is no allowance for tax. The 5% figure also assumes all dividend income has been reinvested but takes no account of the fact that, so far as an individual is concerned, the dividend would be taxed so there would be much less available to invest. It means that 5% would be impossible to achieve.




© Associated Newspapers Ltd., 07 September 2001
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ChartMan

Legendary member
5,580 46
From that, one can presume, at one's peril, that because there is no more stock to "borrow", there are only shares to BUY. If there are no wiling buyers at 30p, then the MM's will drop the price to attract buyers......some where around 0p - 30p, there has to be a huge turnaround doesn't there? This isn't a loss making dot.com, it's ( presumably) a profitable company with "sound" balance sheets... Alternatively, if there are 850 mil shares shorted, at some time they have to be covered. Thing is, they already belong to somebody ( who purchased them at some unfortunate price £1- £12) so will there really be shares to buy?
Complicated isn't it. Maybe we'll end up in the UK being only able to short on an-up tick as in the USA.
 

Riz

Experienced member
1,266 5
Well with shorters being short of stocks to short, and the different pattern formed on Friday intraday chart, it looks like MONI may finally have a bounce here...inraday bottom at 27 looks quite strong, but the 2 top at 34/5 also looks as strong, this may suggest where the trading range could be for a short while till things get clearer about the company and shorters attitude towards it...

Riz
 

shelman

1
439 1
Just closed MONI for 7.25 gain ; bought yesterday @ 31.
If my record is anything to go by this means it should go up further unless of course those wonderful hedge funds decide otherwise.... please.
Hehe
Steve
 

Riz

Experienced member
1,266 5
Well normally you were unlucky to have closed since it was hitting 40 obviously going further up as financing concerns eased after Barclays said that lenders had no plan to renegotiate the credit lines and that the banks were committed to support MONI through its restructuring... making Charterhouse Securities to raise their recommendation to ``strong buy'' from ``hold''...

Then again you turned out to be lucky since the tragic event in US started a sell off all over the world...how can you trade without that ball now under these circumstances? Glad I stopped holding positions long time ago..

Riz
 

henry766

Well-known member
433 17
totally agree with chartman , short sales have to be bought back , and for every short seller there's someone else (or institution) prepared to go long !!
 

LION63

Established member
746 33
When shares go up, you do not hear any complaints, instead, everyone tells you how good the company is and about the prospects going forward. A recent example is Google. In some cases it is all hot air and based more on hope than reality. Very few are called speculators or gamblers and they are not accused of reeking havoc on the economy or financial markets.

We say that we live in free countries and that we have free markets, that should mean that buyers and sellers should be free to do whatever they wish. Selling shares short is much more complex than buying and it requires better knowledge and sound strategies, that said, for those that get it right, it is ....... a land of milk and honey. Majority of those that advocate market transparency in order to curb these practises do so because they are the ones that are busy buying when they should be selling. Creating extra rules or increasing margin requirements will not end short selling.
 

LION63

Established member
746 33
Well said.
 

LION63

Established member
746 33
Donaldduke,

The article is now history but this thread has been brought back to life like Marconi.

It will not be long before more obstacles are placed in the way of short sellers, I doubt if it will make too much difference as they will simply look for alternative ways of achieving the same thing. It is not too difficult when you find companies that have share prices so inflated that my grandson will not be able to collect dividends, which is the reason you invest in shares in the first place.