https://institutional.vanguard.com/iam/pdf/ICRSL.pdf?cbdForceDomain=true
Extremely important document outlining Vanguards intentions to loan out the most scarce stocks to borrow that yield the highest "negative rebate" ... in other words the very stocks that short sellers think are most likely to go down Vanguard is the most eager to lend out ... in other words the higher the bribe the more likely Vanguard will consent to the assassination of your stock. Seriously? Yes really... if its just any old stock they may ignore it... but the more short sellers want it ... the more likely they lend it out... what didn't they mention...the risk that the short seller that borrowed your Apple in exchange for the highest negative rebate are hell bent on eating as much of your Apple as they can before returning it... and they paid your mutual fund manager a bribe to look the other way... To get Vanguard to look the other way you'll have to pay up... so essentially Vanguard is holding out for the highest bribe among other funds who may settle for less earlier... wow thanks! So that makes Vanguard the greediest of all the accomplices to murdering our stock.. that makes them so much more ethical ... NOT. So they are the most conservative among a den of thieves still makes them a thief for handing the crooks our capital... IMHO they still violate our trust and breach prudent man rules regarding fiduciary duty to their investors. Investors should demand an end to Securities Lending at any negative rebate. This should not be left to some manager to decide if the "risks" justify the negative rebate. They are socializing the loses(of the stock going down in aggregate after funds flood short sellers with supply to short ) and privatizing the gains... by the negative rebates. So happens that Vanguard by holding out for the highest negative rebates are good and maximizing the private gains but they are not stopping the socializing of the losses... If the short sellers succeed in taking out the stock to the woodshed high negative rebates will NOT be enough to compensate for the loss. Say you own 1000 stocks each worth 10$ and short sellers offer to pay you $2 to borrow 100 of them they think will go down in value... I presume Vanguards assumption is that all of the stocks they agree to the bribe will not go down at the same time... such that the amount they get for the ones that don't go down will offset the fact they let the short sellers have a field day with the ones that did go down... of course we all know what happens in black swan market crashes they all go down at the same time... and that negative rebate they collected will in no way be enough to compensate for the fact the short sellers cleaned house by V selling your stock down the river for a song (but they only sell the most expensive songs)...
notice they don't give us a histogram of the range of income across the stocks they lend...
just how high on average is this so called maximized negative rebate...
Are they willing to tell shareholders..
Hats of to V for trying to be ethical in regards to safe collateral and all the other strategies but at the end of the day they still lent the stock out to Charles Hayes of Pacific Heights hell bent on destroying the stock I don't care how much they bribe you stop lending out our stock!
Thursday, July 26, 2012
Wednesday, July 25, 2012
How an apple can explain short-selling
one of the best analogies yet
How an apple can explain short-selling
http://www.bbc.co.uk/news/business-14510946
The small fee is no where near enough to compensate for the damage done by short sellers. The Securities Lending industry is a crock built on pittance bribes and deception/lack of transparency to shareholders whose managers have sold their customers assets down the river for a song. The regulations permit funds to lend out 30% of the fund to short sellers. Unfortunately, due to the nature of relative performance comparisons by Rating agencies like Morningstar, the managers are caught in a prisoner's dilemma of privatizing the gains and socializing the losses and most accept this as industry best practice. Is it any wonder the market has trouble going up over the long run now with the huge overhang of recursively short sold stock without an uptick rule in place to stop or at least significantly slow the process as more and more 120/20 or short ETF's come on board. Well gee at least we got rid of the FTD naked shorts only to see them hide behind ever increasingly sophisticated option trades that create synthetic short positions expanding the stock supply. Charles Hayes of Pacific Heights is winning the battle for control of your assets.
Contact your mutual/pension fund and ask them if they lend your stock to short sellers and if they do ...tell them to stop...and if they don't ... find a fund who doesn't sell your assets down the river for a song.
Sadly some of the biggest names in the mutual fund industry are also the biggest names in the securities lending industry.. Yes Mr. Bogle Enough is Enough...but your fund company is responsible for violating its fiduciary duty and my trust by doing something as imprudent as lending my stock out to trained assassins.
How an apple can explain short-selling
http://www.bbc.co.uk/news/business-14510946
The small fee is no where near enough to compensate for the damage done by short sellers. The Securities Lending industry is a crock built on pittance bribes and deception/lack of transparency to shareholders whose managers have sold their customers assets down the river for a song. The regulations permit funds to lend out 30% of the fund to short sellers. Unfortunately, due to the nature of relative performance comparisons by Rating agencies like Morningstar, the managers are caught in a prisoner's dilemma of privatizing the gains and socializing the losses and most accept this as industry best practice. Is it any wonder the market has trouble going up over the long run now with the huge overhang of recursively short sold stock without an uptick rule in place to stop or at least significantly slow the process as more and more 120/20 or short ETF's come on board. Well gee at least we got rid of the FTD naked shorts only to see them hide behind ever increasingly sophisticated option trades that create synthetic short positions expanding the stock supply. Charles Hayes of Pacific Heights is winning the battle for control of your assets.
Contact your mutual/pension fund and ask them if they lend your stock to short sellers and if they do ...tell them to stop...and if they don't ... find a fund who doesn't sell your assets down the river for a song.
Sadly some of the biggest names in the mutual fund industry are also the biggest names in the securities lending industry.. Yes Mr. Bogle Enough is Enough...but your fund company is responsible for violating its fiduciary duty and my trust by doing something as imprudent as lending my stock out to trained assassins.
Thursday, June 21, 2012
Securities Lending: What Fund Directors Should Consider - June 2008
http://production.mfgovern.com/content/view/78/63/
"A common concern for many is that loaning shares to be shorted may exert downward pressure on their portfolio’s positions. However market wisdom would hold that securities lending promotes market efficiency and liquidity, and that short sellers are critical to efficient market theory. Given the long term hold strategy held by most mutual funds, this should not be a factor over time."
market wisdom is wrong...
short selling causes stock prices to go down...
efficiency and liquidity arguments are just deceptive ways of justifying the extortion of institutions to lend stock away from customers hands into those hell bent on destroying their capital..
The take away here is also funds of small stocks play dangerous games whereby they gamble whether the damage down by loaning out small stocks is offset by the incremental income... I highly doubt they win that game...
and quite frankly that same game's impact on the big funds retail brokerage arm has undue nasty impacts on customers in those accounts who hold those stocks directly...
if they were looking out for ALL their long customers interest they would not loan ANY stock out at ANY rate.
The Effect of Short Selling on Bubbles and Crashes in Experimental Spot Asset Markets
www.afajof.org/afa/forthcoming/1395.pdf
Great research into negating the notion that short selling is simply a price discovery mechanism
Great research into negating the notion that short selling is simply a price discovery mechanism
ICI on securities lending at mutual funds
Just another link about mutual funds and securities lending:
http://www.ici.org/viewpoints/view_11_securities_lending
"Doing so allows mutual funds to generate incremental income and improve total returns with a reasonable amount of additional risk. Securities lending also provides liquidity to the market by enabling brokers to cover failed trades or short positions."
Reasonable amount of additional risk? Really? By lending out the stock mutual funds socialize the losses and privatize the relative performance gains by incrementally generating income(feds fund rate .5-1%? avg?). Yet on an aggregate basis the funds increase the supply of stock driving prices down. If they overall are increasing the supply of stock by 30% the net effect is way worse than this incremental income...
As a mutual fund investor I have to say I fee sold down the river by my fund looking for incremental income in exchange for giving my stock a new owner that is hell bent to destroy my capital.
http://en.wiktionary.org/wiki/sell_down_the_river
I also want to say why is it in the interest of a mutual fund to "provide liquidity" to a market... if your shareholder wants the value of their investments to go up... I don't want liquidity I want a shortage of stock driving up the price of a new investor has to pay to get the stock... loaning out stock keeps prices the same or lower by "providing liquidity" ... the idea that providing liquidity is in the best interest of shareholders is patently absurd.
see :
The Effect of Short Selling on Bubbles and Crashes in Experimental Spot Asset Markets
the new owner (Mr. Short seller or Naked short seller if they sold first and begged for stock later)
is by no means as friendly to my stock as the original owner the "mutual " fund... where did we lose the "mutual" concept... there is nothing mutual about a short seller owning my stock and selling , trashing it with FUD (Fear, Uncertainty, and Doubt) and then giving it back to me after its been through the ringer.
No thanks mutual funds... stop securities lending now
PS. notice how the authors even call out mutual funds complicity in getting naked short sellers off the hook by helping them cover FTDs after the fact. Mutual funds have been "captured" by thieves...
but as I've said before its a prisoner's dilemma that fund mangers who don't participate face higher banking fees for not accepting the extortion and have lower relative returns by experiencing the share declines without the incremental income.
How to stop it?
Shareholder proposals? New regs? Morningstar shame rating perhaps an indicator on how much of the fund is sold down the river for incremental income...
I favor the shareholder propsoals
but also I think the IRS can take care of the whole thing with a constructive sale definition change that says if you trade X for Y plus interest that you've constructively sold since X<> Y 100%...
http://www.ici.org/viewpoints/view_11_securities_lending
"Doing so allows mutual funds to generate incremental income and improve total returns with a reasonable amount of additional risk. Securities lending also provides liquidity to the market by enabling brokers to cover failed trades or short positions."
Reasonable amount of additional risk? Really? By lending out the stock mutual funds socialize the losses and privatize the relative performance gains by incrementally generating income(feds fund rate .5-1%? avg?). Yet on an aggregate basis the funds increase the supply of stock driving prices down. If they overall are increasing the supply of stock by 30% the net effect is way worse than this incremental income...
As a mutual fund investor I have to say I fee sold down the river by my fund looking for incremental income in exchange for giving my stock a new owner that is hell bent to destroy my capital.
http://en.wiktionary.org/wiki/sell_down_the_river
I also want to say why is it in the interest of a mutual fund to "provide liquidity" to a market... if your shareholder wants the value of their investments to go up... I don't want liquidity I want a shortage of stock driving up the price of a new investor has to pay to get the stock... loaning out stock keeps prices the same or lower by "providing liquidity" ... the idea that providing liquidity is in the best interest of shareholders is patently absurd.
see :
The Effect of Short Selling on Bubbles and Crashes in Experimental Spot Asset Markets
the new owner (Mr. Short seller or Naked short seller if they sold first and begged for stock later)
is by no means as friendly to my stock as the original owner the "mutual " fund... where did we lose the "mutual" concept... there is nothing mutual about a short seller owning my stock and selling , trashing it with FUD (Fear, Uncertainty, and Doubt) and then giving it back to me after its been through the ringer.
No thanks mutual funds... stop securities lending now
PS. notice how the authors even call out mutual funds complicity in getting naked short sellers off the hook by helping them cover FTDs after the fact. Mutual funds have been "captured" by thieves...
but as I've said before its a prisoner's dilemma that fund mangers who don't participate face higher banking fees for not accepting the extortion and have lower relative returns by experiencing the share declines without the incremental income.
How to stop it?
Shareholder proposals? New regs? Morningstar shame rating perhaps an indicator on how much of the fund is sold down the river for incremental income...
I favor the shareholder propsoals
but also I think the IRS can take care of the whole thing with a constructive sale definition change that says if you trade X for Y plus interest that you've constructively sold since X<> Y 100%...
Saturday, March 10, 2012
Monday, February 13, 2012
Getting to the naked truth
"The Wolfsons’ alleged scheme involved a thicket of complex transactions, according to the SEC. One type of trade, a “reverse conversion”, involved taking out options that appeared to offset the short position, making naked shorting look like bona fide marketmaking. Another stock-and-option combination, the “reset”, created the illusion that trades had been settled by having an entity buy the same type and quantity of shares that had been sold short. But the shares were always sold back within days, often in trades between the brothers, which the SEC claims were “sham”. The reset trades meant they could roll over naked-short positions indefinitely."
A bit more complicated than I first thought but I think the above is what the SEC refers to as "cycling".
"The Wolfsons’ alleged scheme involved a thicket of complex transactions, according to the SEC. One type of trade, a “reverse conversion”, involved taking out options that appeared to offset the short position, making naked shorting look like bona fide marketmaking. Another stock-and-option combination, the “reset”, created the illusion that trades had been settled by having an entity buy the same type and quantity of shares that had been sold short. But the shares were always sold back within days, often in trades between the brothers, which the SEC claims were “sham”. The reset trades meant they could roll over naked-short positions indefinitely."
A bit more complicated than I first thought but I think the above is what the SEC refers to as "cycling".
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