UPDATE:
"Short selling is not something I like telling people to do. It's a terrible thing."
Herb Greenberg on CNBC today, discussing a paired trade.
Sure thing, Herb.
Never let them see you sweat. Bullets, or rivers, in this case.
Ha ha ha ha ha...
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The Orange County Register had a piece yesterday that decried the “draconian” measure of subpoenaing journalists, and further indicated that OSTK is bad. How did they do so? A novel spin:
“I won't bore you with all the small details, but critics claim Overstock isn't honest with its investors about its financial success. Overstock says the critics have conspired to smear the company's reputation and profit from a stock fall.
Overstock's so miffed, they've sued a pair of these critics. But last week the company said it will restate four years' worth of results due to accounting errors.”
Yes. Yessssss. Bad bad OSTK. They had to restate the last four years, UP, due to using accounting standards that were overly conservative. Those are the kinds of small details that the journalist decided to spare his readers from having to read.
Kinda fun. If you can’t say something bad, at least take a positive and find a way to spin it as bad.
Now, I don’t much care about or address company fundamentals here, but I mention this not so much as a commentary on OSTK’s numbers, but rather on biased, slanted journalism that demonstrates a conspicuous and arrogant disregard for the truth, much less all the facts.
As if we needed further proof. The good news is that Orange County has joined the NY press corps in misreporting this issue. Wonder what the reporter’s background is…he should head East.
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In other fun news, today the ruling by the Marin judge in the case that has sparked all the controversy, became final. OSTK issued a release that highlighted the critical elements of the decision. My favorite piece was Judge Smith’s characterization of the nature of the allegations:
“Additionally, Judge Smith ruled that, "The Anifantis declaration is sufficient prima facie evidence demonstrating Gradient's predecessor (Camelback) published 'special reports' in reckless disregard of the truth (i.e. with actual malice)."
Now, is that bad, when a judge uses terms like, “Reckless disregard of the truth?”
Because it sounds kind of bad to me.
The interesting thing to note is how nobody in the NY press corps is covering this. Everyone is busy beating their breasts and ululating over imagined 1st Amendment challenges, and yet the actual meat of the actual case that has driven this is being largely ignored.
Why is that, I wonder?
Rocker and Gradient have been saying that it is all a stinking lie, and yet the judge in Marin, after reviewing their arguments, declared that OSTK had established “…a probability that it will prevail on the merits of its complaint”, and that this wasn’t about free speech at all, but rather, as I have opined repeatedly, that it was about conduct.
As predicted here, the defendants are going to try to stall discovery as long as possible, and intend to appeal. Of course they aren’t framing it as, “we intend to do everything in our power to delay discovery until the end of time itself.”
No, their spin has the national anthem playing in the background, and our old friend the 1st Amendment in the foreground.
Which ignores that the judge just ruled that was a load of horse dung.
Here’s there bit, which sounds suspiciously like the journalists who received subpoenas’ bit:
“In a statement Tuesday, Gradient said the company plans to immediately appeal the ruling. That action could delay proceedings in the trial court until the appellate process has been exhausted.
Scottsdale, Ariz.-based Gradient said First Amendment case law protects its rights. "If this decision stands, independent financial analysts will become easy prey for the companies they study - and everyone would lose," Gradient said.”
Uh, no, not really. It just won’t be so easy to doctor research reports and let hedge funds front-run them, with impunity.
Because the judge, a serious and somber man, ruled that this is NOT about speech. They just don’t like that, and will do anything, expend any amount of money to avoid having all facts become known.
Guys? If you don’t have anything to be ashamed of or to hide, why not just let the truth out, and win in court?
I have cautioned against jumping to conclusions in this case, but doesn’t it seem suspiciously like Byrne’s position is taking on additional weight as time goes by? Rocker and Gradient sure are acting like they have a lot to hide.
“Reckless disregard of the truth…”
Kinda says it all, no?
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The WSJ "Street Sleuth" column has a great article on Wall Street prime brokers being too liberal in their granting of credit to hedge funds, thereby exposing themselves to huge leverage risk - exactly as this column, featuring the bunny, pointed out about a year ago.
Not only does this expose the brokers to tremendous risk, but it also de fact makes them partners with the hedge funds in their trades - they are far more likely to be alligned with the guys that they have granted indecent leverage to than with investors - so it is easy to see how they can be more inclined to "help" keep a company's tock depressed in order to safeguard their investment in a hedge fund's credit than they would be if they weren't on the hook for their debt if the fund blows up.
S&P is tossing around words like "Systemic Risk" that could have "Global" significance.
Apparently some prime brokers are financing trades without requiring any collateral.
Wouldn't that be a neat way to print money for a hedge fund in trouble? Just naked short like mad, drive the price down, and collect the delta between where the shorts were placed and today's price? Think it isn't going on? Think again.
I've been beating this drum for a year. There is a huge incentive for prime brokers to abuse their market maker privelege and naked short sell companies, in order to better protect their hedge fund clients' bad bets, and dig valuable clients out of the hole on disastrous positions. The old saying from Trump's years of playing fast and loose resonates: If you owe the bank a billion, you have a problem, if you owe the bank a hundred billion, the bank has a problem.
No kidding. Wonder what discovery in OSTK and Biovail and NFI and TASR are going to show in terms of prime brokers misbehaving? The SEC is looking into three of the four, and Biovail is forging ahead with their suit, so my hunch is that the prive brokers have got to be looking at catastrophicly large naked short positions in some of those companies and going, "What the hell were we thinking?"
That this is from the WSJ should alert traders and investors alike that the tiles are coming off the shuttle. This is the first shoe to drop, softly, "breaking" this in a friendly manner.
More will surely follow.
Is the Street getting the feeling that the complicity of some prime brokers in unholy partnerships with prominent hedge funds is going to go balistic soon, and that the whole sham we have been reporting on for so long is going to be exposed?
What happens when it becomes obvious that the $800 million dollar assets of a short selling hedge fund are now being used to collateralize $16 billion worth of short positions, and that the prime brokers are so pregnant with those positions that they have been printing shares ex-clearing for years, in order to keep the prices depressed, and avoid this year's financial meltdown?
I bet that we finally start to see some familiar names rocket, for one thing. I also bet that we see the brokers go into the toilet.
That's my hunch.
Will be interesting to watch this play out...
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In other news, a company is taking yet another tact at fighting illegal naked short selling (isn't it amazing how many companies are having to go to extraordinary lengths to battle stockprivilege manipulation?) - Loftwerks recatastrophicallyvealed that insiders now own more stock than the company has ever issued.
Huh.
Isn't that wild? And yet, per the DTCC and the SEC, there is no smoking gun, and there is no problem.