Bailout News CNBC Videos: Congressman Barney Frank On The Uptick Rule And Mark To Market
Less than 2-minute clip from Barney Frank.
The uptick rule change will NOT work because trading happens too quickly on too many independent exchanges. I can't even imagine how it will be implemented and enforced. Does an uptick on ARCA satisfy the requirement if I'm trading on a different exchange?
I'll find the link later, but the reason this rule was overturned in 2007 was the problem I mentioned above. Modern stock trading occurs electronically on several large exchanges that operate independently of one another. In a nutshell, there is ALWAYS an uptick somehwere.
I suppose it's natural to look for a scapegoat when stocks are falling and 401Ks are shrinking, but focusing on short sellers is a mistake. Stock prices mirror profits and profits are falling. The S&P 500 combined earnings for 2009 will come in between $40-50 this year. Slap an appropriate recession PE of 10 onto those numbers and you'll see why the market has much further to fall.
I'm sorry to say it, but too many professional and retail investors are clueless. From Bill Miller and Ken Fisher to the guy down the street. Not enough people understand the massive destruction of corporate profits we are seeing and how this automatically translates into lower equity prices.
Do not fight the tape and do not under-estimate the trend of falling earnings. And most definitely, do not blame short sellers for our market declines. It's profits, people. And nothing else.
It's my birthday, so cut me some slack on posting today. Happy birthday to David Faber as well.
After the jump, we have a Fast Money market-close clip from CNBC with Dylan Ratigan and Jon Najarian.
DailyBail
Updated with additional commentary and links.
Reader Comments (21)
That would be funny.
The best thing about growing older is that all your friends do it with you.
Celebrate tonight and don't think about all of this for at least a few hours.
Were you aware that March 10th 2000 was the top of the NAZ, a level likely never to be seen again until 2025 or thereabouts?
An ominous day in market history.
Thanks Steve for trying to make a difference with your work.
From your writing, I never would have guessed. Though it does explain your sensitivity to some things.
I belong to the pragmatic school. Rules don't have to seem fair to everyone or satisfy every possible objection. I think taming short sales is worthwhile.
The instant uptick rule won't work. But why not have a daily or weekly one? i.e. You can't short if the average sale price was down the previous day or week. The electronic information systems of today can easily produce the statistics needed.
Or devise some other variation which would avoid the instant uptick while making shorts subject to facts that can't be manipulated. The smartest guys in the room should be able to figure one out. Or don't they do such work anymore?
Thanks for the birthday wishes.
Here is some discussion of the uptick rule.
http://www.businessinsider.com/barney-frank-promises-to-bring-back-uptick-rule-within-1-month-2009-3
http://www.businessinsider.com/2008/11/bring-back-the-uptick-rule-
http://www.businessinsider.com/2009/1/the-uptick-rule-returns-on-capitol-hill
I am NOT against the concept of making things fair, I just understand that this will not help. Perhaps, once it is implemented, and the market keeps falling, people will understand that the lack of an uptick rule has nothing to do with the market decline.
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Hari_Seldon said:
Mar. 10, 1:49 PM
I can't wait for this loser to come back in a month and say he realized that, without changing the mechanisms of the market, such a rule could not be implemented.
Am I allowed to short a stock on the NASDAQ if it upticks on NYSE or ARCA but not on NASDAQ?
If something gets sold on the ARCA as a result of an uptick before I can execute on the ISEG am I still allowed to short?
What is an "uptick"? Can I put in a sham bid for 100 shares into NASDAQ at $0.0001 more in price and then short 100,000 shares at NYSE because the last trade was "up"? "
Hari_Seldon said:
Mar. 10, 5:15 PM
Assassin: There have been a lot of changes transitioning to electronic since 2007. It isn't going to be an easy task to "re-implement the uptick rule". When the three questions I mentioned in my post are addressed, I'll change my mind.
By forcing sellers of puts to wait for an uptick the liquidity of the market is greatly reduced. If I am not certain that I can hedge out the risk, I'm going to widen up the bid ask spread to a point that compensates me for the additional risk. How is this good for anyone?
I personally am betting this doesn't happen "in a month" once they get into the nitty gritty. It is great for grandstanding but not much else. "
The Dow is headed to 5000 and the SPOOS are on their way to 500.
It's simple. We are in a recession. A PE of 10 is great for a recession. And the S&P 500 is going to earn a combined $45-50 per share this year.
So slap a 10 multiple onto those earning and you have a SPOOS of 500.
http://www.bloomberg.com/apps/news?pid=20601103&sid=aCKfYbeZV1DY&refer=news
http://www.reuters.com/article/ousiv/idUSTRE5295YC20090310