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Stock Ideas Investors Daily Edge Charles a.k.a. The Musketeer on naked-shorting scam
Stock Ideas Investors Daily Edge Charles a.k.a. The Musketeer on naked-shorting scam 
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By Charles Delvalle Interest rates are a funny thing. If you haven’t noticed, the Fed loves to act like they won’t lower rates. Whether the market believes that or not is a different story altogether. But how can you determine what the market expects future interest rates to be? |
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| Charles a.k.a. The Musketeer on naked-shorting scam |
| Wednesday, 06 August 2008 | ||||||||
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What do you think about goatees and moustaches? I’ve had a goatee or mustache on my face ever since I could grow facial hair. In fact, at one point I decided to grow both of them out. I don’t know if I wanted to look like Fu Manchu or what, but they both got to the point where I could braid them if I wanted. Then – in a fit of pure boredom – I decided it was time to shave it all off. I get bored easily. I grow, shave, then re-grow my mustache and goatee all the time. And so happens that the picture beside my bio on IDE, is of me with a mustache and goatee. Certainly, you’re wondering what the point of all this is. Not much, really. But it gives me a segue into one of the more comical emails I have received from an IDE reader. Ken H. wrote: “Why do you wear the facial hairstyle of a musketeer? Have you ever read up on the history of goatees and such? I personally have reservations when around those who wear such. Maybe it's just a foible with me, but I instinctively immediately do not trust those who wear such. Since projecting trustworthiness is so vital in your business, I would think you might think about it.” I expect Ken wasn’t trying to be funny… but he should be glad to know that at this moment I have no goatee or mustache. Trust me, Ken. I’m clean shaven. The Mystery of Phantom Shares Ken actually began his email with a compliment regarding the interview I held with Patrick Byrne, the CEO of Overstock.com. Patrick is one of the most approachable people I’ve ever met. He’s extremely friendly and sat down with me much longer than I expected he would. I’m glad he did, because he opened my eyes, as well those of many of our readers, as to the evils of naked shorting (not to be confused with legitimate shorting of stocks).
“That was a very eye opening interview between Patrick and Charles. Thank you!” – Darlene T. “Thanks for a very interesting, and unsettling article.” – Bob W. “Excellent interview exposing the practice that has ruined me and millions of others during the last few years.” – Jim B. Of course, the whole naked-shorting scam is very controversial. Many people think it’s not nearly as bad as others make it out to be. I still wonder why in the world ANYONE is allowed to do it. It is illegal, after all, and terribly destructive to our capital markets. One reader wrote in with… “Your recent ramblings (and you are not the only one guilty of this) about naked short selling is just ridiculous. People are claiming large numbers of companies driven out of business by this. I'll make it easy, just prove one solitary company that was actually shut down and I will shut up. Most of the executives screaming about naked shorts are running companies that are unprofitable, poorly managed and looking for excuses. A prime example is Overstock.com. What a shock, Patrick Byrne is the CEO. One concrete example is all I need.” - Don The truth is I haven’t looked into naked shorting as much as people like Patrick Byrne have. But Patrick did give one story of a company that produces armored vehicles for the army. Their products help soldiers survive roadside attacks. As you might imagine, there was heavy demand for their products. Sales were brisk and growing, and in order to increase manufacturing capacity, the company decided to make a share offering to raise capital. Even though the financing was to fund the company’s growth, it was dilutive to existing shareholders. Often, there can be a negative reaction to new shares coming on the market. But these declines are usually contained as investors sort out the new value of the shares and the prospects for what the company will do with the money. However, in this case, the naked short sellers saw an opportunity. The piled on and hammered the stock relentlessly. Of course as existing shareholders saw the floor fall out from under the stock, they sold too. It got so bad the company had to cancel the share offering. And the result? Today people are getting hurt in Iraq, because some greedy hedge fund (or group of funds) wanted to boost their investment returns. It’s horrible, really. If you want more information about naked shorting, I suggest you check out the website www.deepcapture.com. Or Google the phrase “Phantom Shares” and look for an excellent Bloomberg report on the subject. Of America, the Dollar and Oil… Since the Fourth of July I’ve been feeling patriotic. You might have noticed it in my writing. I’ve been trying to talk up the things we could do as a nation to help ourselves and others to a better financial future. One of those articles laid out a six-step solution for helping to strengthen the dollar. I figured I’d get more than a few responses. James L. from Australia wrote in with… “I think you should add one more point to your list of solutions for Congress as follows: 7. Genetically modify pigs so that they can grow wings and fly. “Congress is selling the farm and bleeding your nation dry. I pity the poor folks who are suffering because the rich and greedy have lined and are still lining their pockets at their expense.” Sadly, I couldn’t agree more with you. Another reader wrote: “The reason the dolts in Washington won't do what it takes to actually fix the situation with our fuel is that there is NO political gain to be had by doing so! Your solutions, along with utilizing all of our natural resources in a responsible way, is the only way to reduce the prices until economic alternatives come on line. Joe H. You have a very clear understanding of how Washington works. And it’s one of the reasons why we get so many opportunities in the markets. Martin F. told me: “If I have a bacterial infection, I stay away from the doctor and, whatever else I might do, I refuse to take antibiotics. And I always recover no slower and usually much faster than people who go to the doctor and take antibiotics. “Maybe, we should apply that practice to Dr. Congress and tell him to stay out of the way and stop meddling in the markets. Then the body economic might have a chance of its internal regulatory systems curing itself.”. Good for you, Martin. A life with less medicine is a better life. But a life with no medicine could kill you. That’s why I believe there is a role for government in the markets. Because without regulation we’d be worrying about if the bank is going to raise our APR without telling us… or if they haven’t disclosed an annual fee… or how exactly a loan might work. We can’t just remove all regulations and expect the market to perform better. It would just give corporations more incentive to screw you and me. And with that said… I couldn’t be here writing if you weren’t sitting on the other end reading and writing back to me with your thoughts. We have an interesting dialogue that I look forward to continuing each week in our IDE Unplugged series. I’ll leave you with a refreshing final comment from one of our readers, David C… Charles, Our political views often widely diverge but I definitely appreciated your assessment of the source of high oil prices. Whether I agree with you at all times is immaterial. I appreciate people who think and desire to see America restored to its foundational principle of individual liberty. Honest, thoughtful discussion is crucial to good decisions and ultimately, to the preservation of American liberty. God save America from our politicians. Well put David. Submit your comments here: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it Stay free, Charles a.k.a. The Musketeer
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