Don't know where the market is headed? Some people think a full blown crash is possible; some believe this is a good time to buy while others just don't know what to believe. Well, I just don't care and neither should you.
Because if you're like me, you've learned to take everything one high percentage profit trade at a time, whether you're betting on higher or lower prices. That's right, I'm talking about easy individual market inefficiencies like THIS.
As for the markets a whole, it's the same pathetic guessing game it'll always be, filled with plenty of "gurus" with polished-sounding theories where only a few truly brilliant hedge fund managers guess correctly with the rest of us just trying not to pull a Bill Miller (look foolish).
How the mighty have fallen, at least in the stock market. GE (NYSE: GE) trades near a 52-week low at $31.
Now, short sellers have added insult to injury. The short interest in GE has moved up 11 million to 68.7 million between May 15 and May 30. That percent increase is almost as high as the jump in the short interest at US Air (NYSE: LCC).
The fact that so many shares are bet that GE will fall further is extraordinary. The company still holds one of the best credit ratings of any corporation in the US. Its infrastructure business, the firm's largest division, continues to do remarkably well.
But investors are assuming that GE's industrial, medical and financial operations could have more bad quarters ahead of them.
Shares in rival conglomerate United Technologies (NYSE: UTX) have far outperformed GE during the last year.
That says a mouthful.
Douglas A. McIntyre is an editor at 247wallst.com.
Either short sellers don't think a merger between Sirius (NASDAQ: SIRI) and XM Satellite (NASDAQ: XMSR) will happen, or they don't believe that the deal will save the two debt-laden companies. Short interest in Sirius rose 20.2 million shares for the period ending April 15 compared with March 31. Total shares sold short hit 157.9 million. Shares short in XM also pushed up 6.3 million to 22.7 million.
The bets may be smart ones. The delay in approving the deal at the FCC has probably made it less likely that the merger will get the green light. A number of members of Congress have loudly protested that the new company would be a monopoly, They reason that a new entity would eventually raise rates sharply because there will be no competition to dampen prices.
The core problem with the merger may be more profound. Subscriber growth rates at the two companies are slowing. Both also have negative net income. At this point, neither company has predicted when it might make a profit.
The biggest burden that the companies have is their debt. Each has over $1 billion in long-term obligation to repay bonds and loans. In a poor credit environment, it is hard to see that paper getting refinanced at better rates.
A new company, even with some cost savings, could have enough debt to sink it.
Douglas A. McIntyre is an editor at 247wallst.com.
NASDAQ has released its short interest for the end of March, with a March 31, 2008 cut off date. Overall short interest fell by a rate of some 1.2% on NASDAQ for the two-week period to 9,657,092,223. Interestingly enough, there were a few standouts that saw some major gains in short selling.
The percentage terms on Level 3 are not that great, but the raw number of shares is significant.
These were not the only gainers out there, but the bets against some of these rising short interest stocks were staggering. You can check NASDAQ short interest on any of these stocks or others at the NASDAQ Trader site dedicated to short interest.
Twice monthly we peruse short-selling trends in individual stock names and individual sectors. Broad-based short selling is a tool to use as well, although the amount seen in ETFs has been making this trend more difficult to use as ETFs have taken up more and more volume.
We ran the top five names from the NASDAQ 100 and the stocks all saw an increase in short selling. This was taken from NASDAQ data released last night. These were the changes seen from February 29, 2008 to March 14, 2008. This is listed as shares in the short interest and there is a percentage change given as well.
Nobody knows why the market rose 416 points yesterday. But The New York Times reports that the Fed made an extraordinary move yesterday -- it offered banks $200 billion for a month -- letting them use Collateralized Debt Obligations (CDOs) as collateral for the loan. This inflationary move helped drive oil to $109.72, up 357% since 1/19/01 and cut the dollar declined to one Euro to $1.5469, down 68% since 1/19/01.
But beyond the inflationary impact of the move, there's less here than meets the eye. Certainly, the surprise effect might have forced investors who had a short position to cover by buying back shares. That short-covering may have had a snowball effect. But there's also this -- if banks take those $200 billion off their books, there's still $6.1 trillion worth of CDOs on the market. And what will happen to those $200 billion worth of CDOs at the end of the month?
But there is an interesting twist -- the Fed claimed in a conference call with reporters that it was minimizing risk by accepting only securities that still had the highest triple-A ratings and that they would impose a discount, on mortgage bonds that appear to carry additional risk. If there is any meaning in those AAA ratings then the banks will end up pledging their highest quality securities as collateral and retaining more of the dodgy ones.
Although short selling -- the practice of selling borrowed shares with the hope of repaying the loan by buying back the shares at a lower price -- goes against the American belief that stocks always go up, I have long been fascinated with it. Short Stories discusses what works, what doesn't, and what some of the leading lights in shorting stocks think about its opportunities and threats. I describe possible short trades and seek your comments and questions for story ideas. I don't offer any investment advice and I don't trade on any of the posts I write.
BusinessWeek reports that the consumer is tapped out. Can you profit from the combination of a falling market and a cash-starved consumer?
I was scheduled to appear this morning on CNBC's Squawk Box to discuss ways to profit from problems with consumer finance. Last night, my appearance was canceled -- I think it might have had something to do with the global market crash. But CNBC's loss can be your gain. Here's why I think the consumer will be the next shoe to drop in the economy and a few ways to profit.
Unemployment rate rising (to 5% in the most recent report)
Wage growth slower than inflation
Declining value of homes makes home equity borrowing a non-option
Savings rate -0.7% -- the worst since 1929
Consumer installment borrowing at record $2.46 trillion
As Gary Weiss discussed on his blog, Overstock.com (NASDAQ: OSTK) CEO Patrick Byrne issued a press release last night to complain that his company was back on the REG SHO list, a list of stocks experiencing failures to deliver often indicative of naked short selling. Overstock had disappeared from the list for 6 days after 669 consecutive days on the list.
Byrne added that "Here we are on the eve of the third anniversary of Regulation SHO (January 3) and hundreds of companies continue to be manipulated -- right under the SEC's watchful eye."
Here's where it gets interesting. According to a countersuit against Overstock filed by Copper River:
When asked about the December 2003 short squeeze, Byrne replied, "when opportunities come along where we can knee the shorts in the groin, that's always good for fun and amusement."
What did Byrne mean by that? If Patrick Byrne engaged in perpetrating an artificial short squeeze to "knee the shorts in the groin", that would be manipulation!
Short sellers often get a bad rap. After all, these investors seek to make money by identifying stocks that are going lower. That's un-American (sarcasm dripping)!
Well Bill Ackman can hardly be called greedy. He's donating the millions he made shorting MBIA Inc. (NYSE: MBIA) and Ambac Financial Group, Inc. (NYSE: ABK) to charity. Ackman has said that could amount to $400-500 million.
According to Marketwatch, "Ackman isn't the first hedge fund manager to donate subprime-related winnings. Paulson & Co., a $28 billion hedge fund firm that's generated huge returns from the mortgage crisis, is giving $15 million to a new non-profit group that will provide legal help to subprime homeowners facing foreclosure."
It wasn't so long ago that anyone who criticized the valuations being applied to subprime lenders found themselves on the receiving end of vicious criticism. Our own Peter Cohan, a brilliant mind and all-around great guy, had his ethics questioned in comments left on this site, and Herb Greenberg and others were accused of being in the pockets of "naked short sellers".
Hopefully all the short bashers will come rushing to apologize for all the insults they heaped on these investors, some of whom are donating their well-deserved riches to charity.
Universal Express certainly wasn't the biggest promotional pump and dump of all time, but it's definitely one of the most brazen. Much of former CEO Richard Altomare's looting of shareholders through the sale of unregistered securities took place after the SEC had told him to stop and ordered him to resign as CEO. Then there was the company's crusade against the evil naked short sellers, its acquisition of the Jackson family memorabilia collection, and the seemingly endless press releases.
A federal judge called Altomare a "repeated and remorseless" violator of the securities laws. The New York Times' Floyd Norris has been covering this travesty, as has Gary Weiss.
Norris offers some interesting tidbits from the latest receiver's report:
From April 2006 to May 2007 - the latter date after the judge had ordered him to stop running the company - Mr. Altomare had the company spend $558,900 at a retail jewelry store in Boca Raton, Fla. In October, he pawned the jewelry for $500,000 ...
In July - after my column, and after the Securities and Exchange Commission asked a judge to hold him in contempt for failing to obey the earlier order - Universal Express paid $30,000 "to cover Altomare's marker at the Wynn Las Vegas," a casino.
Oh, and Mr. Altomare may have absconded with unreleased Jackson family master tapes.
But amazingly, the naked short selling conspiracy theory Kool-Aid drinkers will not be dissuaded from their belief that Universal Express was the victim of a concerted campaign involving the SEC to destroy the company for blowing the whistle on naked short selling. Check out this comical post from InvestorsHub.
As Peter Cohan discussed earlier, shares of Lululemon Athletica (NASDAQ: LULU) awere down more than 8% [earlier] today. A New York Timesarticle mentioned that the seaweed content of Lululemon products, which are labeled as being made of 24% seaweed, is actually 0%.
According to newspaper, "The Times commissioned its test after an investor who is shorting Lululemon's stock - betting that its price will fall - provided Chemir's test results to The Times."
Short sellers get a lot of grief, but this story provides evidence of why I respect their research so much. Sell-side analysts operate on a research method based on trust; they generally parrot the claims made by management, and have well-deserved reputations for downgrading stocks after they lose most of their value.
Tim has three daring tips for you. Digital content storage provider Isilon Systems (NASDAQ: ISLN) is sitting at an all-time low, more than 70% off its high at the start of the year, and looks priced to buy. Genetics biotech Illumina Inc. (NASDAQ: ILMN) is currently trading around $52; Tim sees ILMN climbing to $60. Sound a little too risky? Tim suggests checking out The Bruce Fund (BRUFX), a mutual fund focusing on domestic common stock, convertible bonds and zero-coupon government bonds.
Considering a short-selling strategy? Tim calls out China Precision Steel (NASDAQ: CPSL), which has jumped more than three-fold in little more than a week and looks set to slide.
Jamba Juice (NASDAQ: JMBA), meanwhile, is giving Tim fits -- revenues are up while same-store sales are slipping. He advises to stay away from JMBA.
Enjoy the clip, and let us know which of your favorite stock gurus you'd like to hear from in the next StockWatch: Between the Bells!
Ok, so Overstock.com, Inc. (NASDAQ: OSTK) can't seem to make any money, and even it's once torrid sales growth has gone negative.
But that didn't stop the company from spending $120,000 lobbying the federal government in the first half of 2007, presumably on behalf of CEO Patrick Byrne's anti-naked short selling jihad. In the past, Byrne has referred to his high profile, highly-delusional campaign against the "scandal" as his "mitzvah".
But now I have to ask:
Mr. Byrne: Since when is paying Washington lobbyists $120,000 of your shareholders' money considered a mitzvah?
If I were a shareholder, I'd be wondering why my money was being used for Patrick Byrne's mitzvah instead of for my practical purposes such as, say, creating a profitable business.
For my coverage of the Overstock freak show, check out Gary Weiss and Sam Antar's blogs
There's a way to make money on falling stocks. It's called "going short" or short selling. But before you put in your order, you need to know exactly what you're doing and the consequences. One of them: You can lose an infinite amount of money when you short a stock. Maybe reading further is a good idea.
We've all had stocks that have dropped dramatically in a day or two or week, sometimes 50% or more. What took months or years to achieve is lost in a matter of hours. Wouldn't it be nice if you could make money that fast, or at least make money from stocks when they go down? You can if you short a stock and understand the total concept.
First, shorting a stock means you sell something you don't own. The process is simple: You put in an order to Sell Short a stock, and your broker executes the order, if the stock can be shorted. Sometimes certain stocks aren't allowed to be shorted but that's another column. Let's deal with the ones that can.
The SEC recently eliminated the 'uptick rule', which was put in place after the Great Crash of 1929 in an effort to prevent bear raids. The rule mandated that stocks could only be shorted on an uptick -- the price of the short-sale had to be higher than the last price.
Some commentators, including Chuck Jaffe, are complaining that the end of the rule has allowed short-sellers to pile into stocks more easily than before. And maybe that's true. They complain that this has increased the volatility of the market, and maybe they're right.
But here's the problem: There's really no particularly intelligent justification for the rule. Short-sellers are already required to go through the cumbersome process of borrowing shares before they short. If we're really concerned about the uptick rule making it too easy to short and drive prices down, shouldn't we also implement a downtick rule? That way it would be harder for pumpers and promoters to drive up the prices of stocks.
Of course we shouldn't do that. That would be insane. But it's really not substantially less crazy than the uptick rule.
We have tons of regulations on short-sellers, and the fewer we have the better it is for America -- effective short-selling keeps things from getting out of hand like they did in the internet bubble. It also provides an incentive for investors to uncover fraud. The market has such a bullish bias, and it's great that people can also make money by looking for signs of trouble. That's what makes a market.
Nobody knows why the market rose 416 points yesterday. But The 
Although short selling -- the practice of selling borrowed shares with the hope of repaying the loan by buying back the shares at a lower price -- goes against the American belief that stocks always go up, I have long been fascinated with it. Short Stories discusses what works, what doesn't, and what some of the leading lights in shorting stocks think about its opportunities and threats. I describe possible short trades and seek your comments and questions for story ideas. I don't offer any investment advice and I don't trade on any of the posts I write.
As Peter Cohan 
Ted Allrich is the founder of 
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