Want To Ban Short-Selling? How About A Buy-And-Hold Ban?

I am rather annoyed (to say the least) to see some report like this one, which says some blokes are asking the Hong Kong government and regulators to ban short-selling.  While I believe that the Hong Kong government will not do anything about it (in the name of free market principles, or whatever), I have something to say in defencing the shorts.

Short-selling ban simply doesn’t work.  Look at Europe right now: France and other countries have short-selling bans on financial stocks, and that do not stop those financial shares prices from falling.  It may very well reduce liquidity as well, so on the whole there is nothing particularly useful about that.  In 2008, the short-selling bans in the US and others only slowed the drop in the short-term, but only in short-term.

And why these people are so concerned about short-selling?  Probably because these people on the long-side are losing money in the unusually violent Hong Kong market (which have always been able to multiply the losses in the US market by a factor of two for the past month or two), and they blame big institutional investors for shorting shares, etc.  Seriously, don’t they realise that they have just got the market wrong?

It isn’t about short-selling, it is just about the consensus’ previous over-optimism on the Chinese economy, which made these people all-in the market on the long side.  That makes the market expensive, and attracts speculators to the other side of your all-in long.  Speculators have been sitting on the short-side (I am slightly short China via puts on Hong Kong equities) because we think the consensus is wrong.  The reality just proves that these people on the long side have got it really very wrong, and now they hope somebody can save them, and look for some convenient scapegoats?  Please!

Next time if I am playing on the short side and the market goes up and up, should I call for a buy-and-hold ban so that people on the long side can’t own shares for more than a week?  Of course not, because that’s idiotic.

And by the way, don’t say that we on the short side did not remind you.  Jim Chanos, Hugh Hendry, and people like myself have been talking about shorting China for almost a year now, just that you did not believe us.

This article originally appeared here: Want to Ban Short-Selling? How About A Buy-And-Hold Ban?
Also sprach Analyst – World & China Economy, Global Finance, Real Estate

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