AIBU to wonder why there isn't a single thread about the stock market ?

[MrGin]

there are threads about knickers, threads about politeness ( or not ) , lots of threads about riots, threads about lunch venues, threads about holiday wardrobes.

But not a single one about the fact the global stock market is currently dropping like a stone.

Is this not an important issue ? Do mums not get involved in these discussion. Or is there a financial section of MN I' missing. Is no one worried ?

Actually there is one thread on chat about banks, but that turned into a personal attack on a personal issue.

I'm by no means a financial wizz ( far from it ) but even when I see stock markets falling 6% , 5% in a day on consecutive days I can't help but thing something rather bad is happening right now.....

Can anyone explain exactly what it means to 'short' a stock, and how money is made doing that?

Announcement has just been made that France and Italy likely will impose a ban on short selling tonight. How will that help the situation?

Earlybird...

My vague understanding is this.

Company A ownes 1000 stocks in shoe shops ( or whatever )

Company B says to company A, lend us your 1000 stocks for a week and we'll pay you some money. company A give stocks to company B.

Company B sell stocks. One week later the price of stocks in shoe shops have fallen. Company B buy back 1000 shares in shoe shops at a lower price than they sold them for. Thus making a profit.

Company B gives the shares back to company A, plus a fee for borrowing them.

stocks / shares

Hmm - thanks for that MrGin. I'm going to have to ponder it (and research it) a bit more in order to feel I have a basic grasp.

My sense is that some hedge funds/investors try to manipulate the market to make a profit on shorting a stock - hence the need for a ban. And if Italy and France are banning short sales, wouldn't that be to keep their banks stocks from being manipulated and causing a panic?

This stuff is so complicated - and much of it seems unethical/immoral, even if it is strictly legal.

Because it's boring.

So - do people attack the stability of the banks/economy by spreading rumours/causing a panic in order to cause a reaction (manipulation) which they can then profit from (if they have shorted the stock)?

It appears so from this news story excerpt:

"People are shorting these bank stocks and pushing them down because of fear about the broader macro issues," Chris Wheeler, analyst at Mediobanca said Thursday.

The share price of Societe Generale fell by 15 percent Wednesday and was down as much as 8 percent on Thursday, despite the bank insisting that its exposure to struggling economies elsewhere in the euro zone did not threaten its stability.

In an interview, chief executive Frederic Oudea insisted that Societe Generale has "limited exposure" to banks in Spain and Italy and is on pace to have enough capital set aside to meet Basel III solvency requirements by the end of 2013.

The bank has asked France's stock market regulator AMF to open an investigation into the source of the rumors, which hit its share price yesterday.

Meanwhile, France's top banker firmly defended the country's banks following a two-day sell-off that has wiped billions of euros from their market value as investors fear over their exposure to European government debt.

The renewed bout of jitters Thursday have come despite assurances from policymakers and credit rating agencies and highlights the anxiety among investors over Europe's attempts to deal with its debt crisis.

The head of France's central bank Christian Noyer blamed "unfounded rumors" for the plunge in shares of the country's top banks, including Societe Generale and BNP Paribas, and said the country's financial institutions were sound. ''

To ask a silly question - if the markets are down 2%, say, 2 % of what? Yesterdays figures? Some baseline somewhere? I'm sure if I knew enough to panic, I would be, but ignorance is bliss.

For something that's so complex and important and history making it seems so subjective and cosy and depending on someone's mood this morning and so on. You'd expect more objectivity than that, but then it's all predictions innit? So all subjective assessments and mood catching.

Perhaps it would help to explain why people "short" stocks/ assets/ currencies: it is because they believe the price will fall. If enough short-selling goes on, that can actually be a price-signal to the market - that something is wrong with a certain asset - and cause price-falls (delighting the short sellers who get to buy at a lower price, as they wanted). Hence the abuse sometimes dished out to "short sellers" (as speculators, spivs, unpatriotic bastards, etc.)

By contrast, going long is an expression of confidence that prices will rise, and that you will have a guaranteed buyer for your asset.

Going long needn't be done with contracts and leverage, though: you can simply buy and hold whatever asset you believe will appreciate.

Good thread, MrGin. I had noticed the lack of debate on the debt crisis, too, but hadn't thought of starting a thread on it! D'oh.

Earlybird, I cross-posted, but, yes, short-selling can be used to force a price correction. The language used in that passage you quoted shows how vested interests react to this sort of thing: with fury! George Soros is credited with/damned for having broken the Bank of England through short-selling the pound sterling.

However, that is not to say that short-selling is evil. Sometimes stocks and shares and currencies and UK property are unreasonably overpriced, and distort the market. Everyone, including pension funds are buying at those inflated prices, and those prices are sucking money away from other areas of investment, where the money could be more productive. If the prices are unjustified, short-selling could pop the bubble and bring those prices back down, freeing up money for other investments.

and much of it seems unethical/immoral, even if it is strictly legal.

< nods >

Earlybird. Take a look at the BBC news front page, you'll notice the share information is noted to be delayed by 15 minutes. Which in market terms may as well be three weeks late.

If you want market date that is a nano second fresh to react to market shifts you have to pay mega bucks for it. The average d.i.y. investor doesn't stand a chance.

date = data

Plupervert and MrGin - thanks for explantions.

Is short selling mainly done by the professionals, or can an individual investor do it (not that I want to)?

How would the French and Italian banks benefit from a short ban?

And how is it determined that a price for a stock is inflated and could do with a correction?

Sorry for all the questions.....But, as long as you're answering, I might as well keep asking!

plupervert - and speaking of George Soros, this story from today might give you a chuckle:

'' The former girlfriend of billionaire financier George Soros has accused him of reneging on a promise to buy her an apartment in New York City and has filed at $50 million lawsuit.

Adriana Ferreyr filed the suit in Manhattan court on Wednesday. The 28-year-old Brazilian soap opera star alleges that the 80-year-old Soros gave the $1.9 million apartment on the Upper East Side of Manhattan to a new girlfriend.

Soros' lawyer William Zabel tells the New York Post the lawsuit is frivolous, without merit and an attempt to extract money from his client.

Ferreyr's lawyer Robert Hantman says it will be up to the court to decide.

Ferreyr is attending Columbia University. The couple met in 2006. ''

I'm sure they had a lot in common, despite the 52 year age gap!

I wonder what Adriana Ferreyr saw in Billionaire Soros in the first place .

(old but apt)

@SinicalSal. It's 2% of the previous day's value. It matters because a lot of things are connected to stock market values. On a personal level, if you have a pension that it is invested in funds which are stock/share related. If the market drops just as you're retiring, the value of your pension pot drops so your eventual pension is lower. More widely a drop in share prices means there's a lot less money going around, investors are cashing up rather than putting money up for companies to expand and there's a general feeling of nervousness and uncertainty.... which isn't good for business.... which isn't good for the economy... which perpetuates the growth/unemployment/tax cashflow problems.

shorting was banned for a couple of months in the UK, Germany etc. after lots of hedge funds went crazy and drove down the value of a number of banks.

It does have legitimate uses, which is why a complete ban has been unpopular.

It's mostly done by professionals/very enthusiastic amateurs. In general, it can be expensive for retail investors (so normal people) to try and do trading on the stock markets, or get involved in complex trades, as you generally need large volumes and brokers (who actually carry out the trades on exchanges) charge a fee for every trade executed (so it costs every time. Voice of bitter experience).

Though, I read an article a couple of years ago about woman in Japan who were heavily involved in FX trading. Apparently it's very popular over there.

in the meantime, I stick to fake trading on investopedia.com (and I'm rubbish)

My brother shorts the US dollar against the euro and the euro against the US dollar in turn, which he does through ETFs (Exchange-Traded Funds), but I suppose you could just use euros to buy dollars, then when the dollar gains in value against the euro, use your dollars to buy more euros until they gain in value against the dollar, then use your euros to buy dollars again... Basically, he's just noticed that when the dollar is up, the euro is down, but they always correct against one another. I haven't investigated this myself, but he seems to be making something on this trade.

Exchange Traded Funds allow you to "buy into" various assets without having to buy in great volume. For example, as I write, gold is over $1,700 an ounce, and you might only have $500 to invest. With an ETF, you could put in as much/little as you wanted, and your fund would do the bulk buying.

Another investment wheeze is the "carry trade", in which you borrow money in some very low-interest currency (traditionally the yen, but these days you can take your pick of a lot more currencies), and invest that somewhere for a higher return, then pay back the loan and pocket the difference minus the measly interest you had to pay. This one would probably be impossible for amateur investors because borrowing money for the very low rate means borrowing in "the money markets", not from Ye Bradford and Binglie (whose rate will be BoE plus their margin).

And how is it determined that a price for a stock is inflated and could do with a correction? Well, whatever the source of the belief, the investor is risking having to "buy back" the share/asset at a higher price, so s/he has to believe in it to a certain extent. Perhaps s/he believes that the company has been manipulating the market and is actually over-valued. Perhaps there is some inside information. Perhaps s/he wants to test how far the bank's national government will go to support the company by buying the shares - that's the cynical view of this short of speculation. But it's really putting one's money where one's mouth is.

Sorry if I am simplifying or leaving out steps; I'm just trying to give a picture of the sort of "market inefficiencies" which investors take advantage of... and how dramatic it can be.

(reelingintheyears, can't believe you think this sort of double-crossing and manipulative behaviour is boring!)

Earlybird, I've really been trying to get the Soros/Ferreyr dispute to fit into business behaviour, but I just can't twist it enough to make it shortselling, or else you could have had a beautiful headline along the lines of: "Brazilian Beauty grabs for shortseller's curlies".

Sadly, her grounds are a bit more like "breach of contract", which is not nearly as funny, or poetic!

News channels do a really bad job of explaining business issues. I have a friend who is a TV presenter and I have told her many times that really good presenters of business news are worth their weigtht in gold and wil; always have a job. She told me that most (female?) TV presenters just want to get into celebrity TV or their own daytime TV show as soon as possible and business is seen as boring.

It does not really matter to most people that the FTSE and Dow Jones have moved in a near 5% range throughout the day. The real issue is that the stock market reflects the serious danger that global financial markets and the world economy are at severe risk of a major contraction. In real life, that means jobs, the ability of people to pay their mortgage, get a pension, inflation rates, house prices, interest rates, petrol prices, cost of food and utilies, the exchange rate when going on holiday.

That is the stuff that really matters. That is what TV business news needs to explain better to people who are not closely involved in stockmarket trading. Its all linked together and people need to understand how that affects their real life.

The fact that some 'spiv' sells a share in the City is of no consequence. The reason he/she is selling is very important.

Agree plupervert - I find the markets and everything fascinating (which is useful, as it relates to my job), but family (and especially my mother) are at a complete loss as to why I'm such a geek about it.

Abs, just stress the worst-of-human-nature aspect of it, and they may come around.

I also find business news a more pleasant moral universe than that of human interest stories about emotional cheating, lies and duplicity! It doesn't feel like voyeurism to see business wrongdoing exposed, and this really is "in the public interest", whereas "interest" in the doings of this or that cheating bastard/bitch isn't interest, but prurience. Tabloid/glossy style "goss" is also an insatiable and vicious news dynamic, which we saw get as far as hacking Milly Dowler's phone after she was dead.

By contrast, in business, the human stakes are lower, and money really can "make it all better"!

Finally - a quiet few days in the markets.......what caused things to calm down, in your opinion? Short sellling ban? Holiday season? Raising the required margin on gold? Something else completely?

And how are you all positioning yourselves now that we're no longer in free-fall?

I sold a few things into the strength of the past few days, and now will sit with cash for a while. I'm thinking i'll go more defensive/high dividend paying when I'm ready to buy again.

Hahahaha

I don't actually do anything myself on the stock market. But I like looking at the business pages to see who's trying to shaft whom.

In one of my jobs, I was forbidden to own anything I might be reporting on. We weren't even allowed to buy one share in a company to get a prospectus which would have given us useful information. It seemed so overdone, but then again, the Daily Mirror's City Slickers were bastards and show what can be done...