[charliebrownout]

Okay, I've heard a lot about nasty short sellers and people "speculating"

My question, for those learned folks among us, is short selling the same as speculation and IF SO...given there's this temporary ban on short selling...why is oil back up over $100 and (it would seem) going up?

Kick me in the head if this is a stupid question (ie not just because it feels good, please have a valid reason if you'd like to kick me). I didn't take economics--ever. Just wanted to ask.

[Delphis]

There are no stupid questions CBOut and one of the plausible reasons oil was up is that the commodities speculators are skittish about the SEC order. On another, albeit not less important note, the recent "rally" or "rebound" of the entire market could very well be the same impetus.

I think you will see that once the short positions are covered, the smoke will clear, and the madness will begin again. Short selling is a viable hedging mechanism that has helped to stabilize our market as far back as one can remember.

Thanks for the thread, this should be a good one...

Cheers!

[Dreamtwister]

My admittedly unschooled understanding of the process works something like this:

Let's say you know a guy, Larry, who wants to buy 100 shares of "Acme Widgets". He's willing to buy them off of you for $10 each. Unfortunately, you don't actually own any shares in Acme Widgets, so you go to "Monster Investments Inc" and borrow 100 shares of Acme from them (for a small fee, of course), on your promise to return those shares to MII by September 30th.

So you take your borrowed shares, and sell them to Larry and pocket $1000. Now by doing this, you are speculating that the value of Acme Widgets is about to fall. You sell the shares to Larry for $10, knowing damn well that you will have to buy them back next Tuesday. If the price for Acme shares is $11 on the 30th, you've lost money. But if the price is $9, you make money.

I think the reason this is making the price of oil rise (assuming they are related at all), is that since nobody can short any more, there's all kinds of extra money floating around in the system. Naturally, investors hate stationary money, so they invest it in whatever they can. Oil, gold, t-bills, vibrators...whatever.

[charliebrownout]

There are no stupid questions CBOut and one of the plausible reasons oil was up is that the commodities speculators are skittish about the SEC order. On another, albeit not less important note, the recent "rally" or "rebound" of the entire market could very well be the same impetus.

I think you will see that once the short positions are covered, the smoke will clear, and the madness will begin again. Short selling is a viable hedging mechanism that has helped to stabilize our market as far back as one can remember.

Thanks for the thread, this should be a good one...

Cheers!

So, it could be going up because:

1. Speculators are looking for a good bet in a bad time...and/or...
2. Everything is going up, so oil went up a little, too... and/or
3. Peak oil in general (supply/demand issues)

Or just a combination of all the things mentioned above.

Right?

[charliebrownout]

My admittedly unschooled understanding of the process works something like this:

Let's say you know a guy, Larry, who wants to buy 100 shares of "Acme Widgets". He's willing to buy them off of you for $10 each. Unfortunately, you don't actually own any shares in Acme Widgets, so you go to "Monster Investments Inc" and borrow 100 shares of Acme from them (for a small fee, of course), on your promise to return those shares to MII by September 30th.

So you take your borrowed shares, and sell them to Larry and pocket $1000. Now by doing this, you are speculating that the value of Acme Widgets is about to fall. You sell the shares to Larry for $10, knowing damn well that you will have to buy them back next Tuesday. If the price for Acme shares is $11 on the 30th, you've lost money. But if the price is $9, you make money.

I think the reason this is making the price of oil rise (assuming they are related at all), is that since nobody can short any more, there's all kinds of extra money floating around in the system. Naturally, investors hate stationary money, so they invest it in whatever they can. Oil, gold, t-bills, vibrators...whatever.

Wow. And that's all legal?! You're borrowing something from someone to sell it to someone else to buy it back (hoping the other guy lost money in the process) so you can return it to the person you borrowed it from.

No wonder Wall St. is a mess....

[Dreamtwister]

Wow. And that's all legal?! You're borrowing something from someone to sell it to someone else to buy it back (hoping the other guy lost money in the process) so you can return it to the person you borrowed it from.

No wonder Wall St. is a mess....

It shouldn't be legal, and for a long time it wasn't, for obvious reasons.

Just be happy you didn't ask about double-counted gold reserves. It's enough to make you pull your hair out.

[RdSnt]

Ah, but the explanation isn't complete without "naked shorts"

That's when you sell someone shares you don't own at all, but are betting that you can buy them cheaper later.

[charliebrownout]

Wow. And that's all legal?! You're borrowing something from someone to sell it to someone else to buy it back (hoping the other guy lost money in the process) so you can return it to the person you borrowed it from.

No wonder Wall St. is a mess....

It shouldn't be legal, and for a long time it wasn't, for obvious reasons.

Just be happy you didn't ask about double-counted gold reserves. It's enough to make you pull your hair out.

Okay, watching CNBC is making more sense now. No wonder the BS seems ten feet thick. It's just the news of one crooked move after another and everyone playing games to try and screw the other guy.

In all of this, I can't help wondering if we wouldn't just be better off w/o Wall Street or the Central Bank or any form of the two.

I mean, it just seems like institutionalized book cookery to me.

[smallpoxgirl]

Wow. And that's all legal?! You're borrowing something from someone to sell it to someone else to buy it back (hoping the other guy lost money in the process) so you can return it to the person you borrowed it from.

Yes. Short selling has been around for hundreds of years.

The market is a battle between bulls and bears. The bulls try to make money by buying a stock in hopes that it will go up. The bears short the stock in hopes that it will go down. The battle between the two uncovers the value of the company. This is called price-discovery.

"Speculator" basically is an ad hominem that is used by politicians when they don't like the outcomes of the market. It implies that someone is interest in the market only to make money. Clue phone, everyone in the market is there for that basic goal.

Oil is going up, because the government is taking on massive new debt and confidence in the dollar is going down. It's also going up because there is a lot of money fleeing the stock market right now, and some of it undoubtedly is settling in the futures market.

[Dreamtwister]

No wonder the BS seems ten feet thick. It's just the news of one crooked move after another and everyone playing games to try and screw the other guy.

In all of this, I can't help wondering if we wouldn't just be better off w/o Wall Street or the Central Bank or any form of the two.

I mean, it just seems like institutionalized book cookery to me.

I thought you said you didn't understand? Sounds to me like you understand the situation perfectly.

[charliebrownout]

Ah, but the explanation isn't complete without "naked shorts"

That's when you sell someone shares you don't own at all, but are betting that you can buy them cheaper later.

Selling someone something you don't own....

You know, if a person does that with a house or a car that's just called fraud. WTF?

Is it just me or is Wall St jargon just an elaborate play to make really bad, corrupt, stupid things sound better?

Sheesh. And the tax payers are going to bail these idiots out to keep them in business? Why aren't people rioting in the streets?

[smallpoxgirl]

Ah, but the explanation isn't complete without "naked shorts"

Actually I think a better definition of naked shorts would be: Something that almost never happens, would be easy to stop, and isn't really an issue, but SEC prefers not to actually stop it so they can keep passing regulations and making speeches about cracking down on it to appear like they're doing something.

[seldom_seen]

The problem here is not short selling...the problem is that the SEC is rigging the market to protect Goldman Sachs. Their stock by the way closed up 20% today.

Imagine if you were one of the insiders that knew about this? You probably had pretty good day today.

The house always wins.

[Dreamtwister]

Why aren't people rioting in the streets?

Because people are cattle. As long as they are well-fed, the risk of revolt is greater than the risk of inaction.

[charliebrownout]

I thought you said you didn't understand? Sounds to me like you understand the situation perfectly.

I still don't understand the lingo, but the actions are pretty clear. There are probably a thousand people sitting in jail this very moment for less underhanded actions.

Crazy.

[Cashmere]

Speculation is investment to make profit. Pure and simple. The thing in which you invest - tullip bulbs, houses, stocks, oil - is irrelevant.

In the oil markets, there are 2 types of players - hedgers and speculators.

Hedgers are businesses that use oil. They buy futures contracts and options to protect themselves against volatility. If you're a petrochemical company, you might want to buy future contracts going forward 2 years so that you know exactly what your oil is going to cost. Southwest famously did this right before the first run up in oil. If you're an oil producer, like the KSA, you might sell futures contracts to protect yourself against a drop in price of oil.


Speculators in oil invest to make money. Period. They are not protecting themselves against a run up in price or a fall in price.

[Concerned]

Short and Long are opposite ends of the same trade.

It's called FUTURES because you buy or sell today at a FUTURE price.

1. Short is selling. I am selling e.g oil at an agreed price today for some time in the future.

1.A. If oil goes up, I have made a loss and have to cover the difference between what I agreed to sell the oil 3 months ago and what it's price is today.

1.B If oil goes down, I have made a profit on the difference between what I agreed to sell oil at 3 months ago and its current lower price today. (Because 2 below agreed to buy the same oil from me 3 months ago)

2. Long is buying. I am buying e.g. oil at an agreed price today for some time in the future.

2.A. If oil goes up, I have made a profit on the difference between what I agreed to buy the oil at 3 months ago and it's current price today.

2.B. If oil goes down, I have made a loss and have to pay the original contract price I agreed to 3 months ago even though it might be cheaper to buy on the spot market today at reduced prices.

1 & 2 are opposite ends of the same trade. It is a Zero sum game. These instruments can be used as insurance to protect an investment portfolio or airline fuel purchases. It is used for example by companies buying large capital items. Say you want to buy 100 million dollars of capital machinery from Germany in six months time, you can go into the futures market and buy currency (Euro) Today and know exactly how much Euro dollars you will be paying for that purchase, irrespective if the currency exchange rates go up or down.

[Cashmere]

Short and Long are opposite ends of the same trade.

It's called FUTURES because you buy or sell today at a FUTURE price.

It's called futures because the contract is for future delivery, not a future price.

Silly goose.

If you buy a futures contract for oil today for X dollars, you own the oil, with delivery on whatever date in the future the contract is for.

The price is not going to change. You own it.

But it's like anything else. If oil gets more scarce in the future, your contract gains in value.

So if you want to sell your contract, you can, and make a buck.

So, one more time.

It's a FUTURES contract because you are entering a contract whereby you pay another party a fixed sum NOW, and the other party agrees to deliver oil to you at some point in the FUTURE.

[Concerned]

Short and Long are opposite ends of the same trade.

It's called FUTURES because you buy or sell today at a FUTURE price.

It's called futures because the contract is for future delivery, not a future price.

Silly goose.

Read the example I think it pretty much clarifies it. If I wanted to argue semantics on that snippet of a sentence I could but why bother.

So what is it Cashmere 1 Concerned 0

[Delphis]

I thought you said you didn't understand? Sounds to me like you understand the situation perfectly.

I still don't understand the lingo, but the actions are pretty clear. There are probably a thousand people sitting in jail this very moment for less underhanded actions.

Crazy.

CBOut, I agree wholeheartedly. The Short selling in our markets has become a criminal offense and the statement that it it one crooked move after another to screw the other guy is absolutely true. The only caveat I will add is that time and time again the few screw the many, in our current situation, the spider got caught in it's own web (the FRB Cartel showed the many how to make money like the few) when too many people did what GS, JPM, and the likes have been doing for (what would seem like) ever, they showed us how easily they can manipulate the game. Hey look the financial market is collapsing, sell everything short...ah, ah, ah young padawan, the Force is not with you...

I second the phrase, the house always wins...eventually.

The good news is we have all weekend to glean which scenario really is playing out...

SSlers covering in light of the SEC order? And/ or the Broker dealers trying to avoid penalties for non-compliance to the new rule...same scenario really.

The Cattle/ Sheep really believing the Fed will do "something" e.g. something positive?

There are more but those seem to be the most plausible...we'll see how the SS "ban" in the UK fairs come next week, meanwhile we can watch with anticipation until October, 1 when the order expires, we all know what has happened following the last SS order on the FRB's cronies not very long ago...things that make you go hmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm!