Mark wrote another one today where all the cliches are advanced - just run your company and eventually you will prevail over the shorts, naked short selling is no big deal, if there were a lot of naked shorts he wouldn't be able to get a borrow - virtually every canard we are accustomed to, all rolled up into one masterpiece. You can view it here.
I had a few minutes, so I posted a response to his blog, which can be found below.
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Mark.
I think I can help you with at least one example:
NFI
We now have the actual level of naked shorted shares from 2004 to 2006, posted at www.TheSanityCheck.com - in my last few blogs.
The data is from the SEC, acquired under a FOIA request.
First, a little background. You flippantly remark that the stock price has stayed flat for the last few years, so what is the big deal? Well, for starters, their earnings have about doubled since April of 04. That is when we first have data.
So we have a company that has consistently posted higher earnings, doubling them from 03 to 05, and yet the stock price is the same. Does that strike anyone as odd?
Let's turn to the FOIA data next. We see in October of 04, that the number of fails had grown from not very many to 12.5% of all issued shares. That doesn't include the legitimate short interest, which that month was 11.3 million shares (around 25 million outstanding) - meaning that more than 50% of all outstanding shares had been shorted legitimately, or failed (3.143 million fails that month).
Mark, do you think 12.5% of the total outstanding shares being undelivered, i.e. frauds, is significant and impactful?
Those are shares for which investor money was taken, and yet no shares were delivered. Well over $100 million that month, in only one stock. Of fake, undelivered shares, where sales transactions were processed, and money was taken, and yet no share were delivered. And the sales had the same depressive impact as though they were genuine.
Do you honestly want to take the position that is no big deal?
If 12.5% of Dell’s computers weren’t shipped for months from payment date, while they waited for the price of DRAM to drop, or OSTK took money and failed to deliver 12.5% of the time, preferring to wait weeks or months for the price of the ordered product to drop, and yet used the money to generate interest, would that be OK with you? Would you write a blog about how it was no big deal to take orders and money for something time sensitive, that the law said had to be delivered within 3 days, and yet which they found they could make an additional 20% on by just breaking the law for a couple or 3 months – would that be contemptible, or savvy business, in your mind? You know, no big deal?
How about we take 12.5% of your net worth and redistribute it to me, and we can chitty chat about how it is no big deal? No? No takers?
With NFI, we see the price rise as the fails decrease, and then bam, big spike back up and the shares drop through the floor again. What a coincidence.
Same pattern in 05 - at one point, while you and I were arguing and you were taking the position that fails weren't a significant problem, over 5% of the company's shares were FTD.
Here's my issue with you. You are smart, and you understand the markets, and yet you claim things that are false - the FOIA proves that, unless you are taking the position that 5-12.5% of a company's shares, essentially counterfeited, is no big deal.
You continue to advance the notion that if a company just delivers good results the shorts will be hosed - Mark, NFI has increased earnings by about a factor of 4 since the shorts got into this, and paid out an additional $15+ per share in dividends, and the stock is below where it was when earnings were 50% of what they are. So your contention, when tested, is provably false, or at least badly flawed.
Let's review the contentions: 1) There is no significant naked short selling problem. Huh. But there is. And the FOIA numbers prove it. 2) Just perform, and the stock price will come up. Wrong. Again, NFI proves it. So does CALM. So do a host of others.
Additionally, you seem to be unclear on the way some NSS works. Try this: Big clearing broker is willing to do a locate, versus an actual borrow, for you, and charge you 25% for the priviledge. You say OK, and then the broker just desks the trade, never borrowing, and simply selling it from trading desk a to b. You are now being charged 25% for the broker to desk the trade.
Option B, the broker fails in the market, and waits for the price to go down further (he knows it is likely to as a number of big hedge funds are working it over). That is what happened to Byrne when he bought 150K shares and it took over 2 months to settle. Those are FTDs - or maybe they aren't, or rather don't show up on the list. Why? Because the broker did an ex-clearing arrangement, where he agrees with the buying broker to go direct between the two houses, bypassing the system - and if it takes a few months to settle, hey, we're all friends. Again, you are still paying 25%, so why wouldn't he?
And that doesn't count the myriad number of other ways you could achieve the same thing. Try calling around in Canada, or Malaysia - if you are a significant hedge fund, you can naked short through those venues literally to your heart's content. Or go read the "Experts Speak Out" section of TheSanityCheck.com, where Dr. Trimbath provides two simple, easy steps to launder money and use the same pool of dollars to move blocks and depress the price, always trading between related parties, so the same dollars and shares are endlessly recycled.
Or if you like, I can get you the web address of a company that will process your trades and allow you to drive the price through the floor using the ECNs, and then allow you to cancel most of the trades after the trading day is done - for a small vig.
Mark, again, this is a complex issue. One thing that everyone understands is that over the last 20 years, Wall Street has demonstrated that every sort of imaginably crookery is not only condoned, but actively pursued.
When you have the former head of the NYSE taking the 5th for fear of incriminating himself when asked about abusive and illegal trading, you have a big problem. When you have everything from exactly the sort of organized network of abuse Byrne is describing exposed in the Drexel/Milken/Boesky days, to the literally dozens of examples of various and sundry Wall Street larcenies since then, how can you take your position with a straight face?
That you take the position that none of these data points matter, or exist, is troubling, and inexplicable using benign reasoning.
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Now folks, I'm not trying to bag on Mark. But it seems like we are one year further down the road, with a ton more data, and guys like Mark are acting as though we haven't learned a thing. That is odd in the extreme. We now KNOW the FTD in NFI has been abusive for long periods, we now KNOW of myriad ways to scam the system and move the FTDs off the books, we KNOW that there are imbalances in OSTK that are egregious, we KNOW that Byrne couldn't get his shares for months due to exactly the mechanism I describe, and yet Mark is arguing as though none of that was known.
Why, is my question.