hedge funds manipulate stock in secret, page-94

Hi folks,

The Sydney Morning Herald article which has sparked so much comment here is a very curious article. It seems to me to have some serious conceptual and evidential problems.

Take for example the writer's definition of short selling:

" ... a process known as short selling. This is where traders sell stocks if they think the share price will fall in the future. Then they buy them back at a lower price later on. It is perfectly legal and even encouraged as it can add liquidity to markets."

This is not short selling - this is selling shares you own and then buying them back in at a lower price.

Short selling involves the borrowing of shares to sell and then hopefully buy them back at a lower price.

The writer then goes on to say:

'But the hedge funds have found a legal loophole here that has allowed them to keep their trades secret. They get around the rule by "borrowing" shares.'

hmmmmm - seems to me that this writer doesn't understand the concept of "short selling".

If the hedge funds have found a legal loophole that allows them to keep their trades secret - then it is not by "borrowing" shares. This is the time honoured method - by definition - of short selling.

If the hedge funds have been short selling by the traditional method - then their short sales will have been registered. The writer of the article does not explain how the hedge funds are avoiding the short sale registration procedure. It is not simply by the process of "borrowing" shares.

This is just an accusation made by the writer - who apparently doesn't understand the terms he is using.

Further, where is the evidence to support the writer's allegations (which are based on misconceptions). I can't any find any evidence in the article to show that hedge funds are selling short in secret - other than the rather large conceptual leap that the writer makes by comparing the fall in bank stocks in Australia with the lesser fall in bank stocks in America and, therefore, (according to the writer) there must be some dastardly deeds being perpetrated, i.e., short selling in secret by (evil) overseas hedge funds.

Let's look further at another part of this article, for example, the following sentence:

"In recent months, the traders have stepped up the pressure. On top of the selling, they add in a nasty rumour to drive the price even lower. Given the sudden collapse in Centro Properties and Allco, these have been surprisingly effective."

hmmmm. I thought Centro's sudden collapse (from 5.70 to 42 cents) was due to Centro's announcemnt regarding their financing problems. This was not a "nasty rumour".

Really - this article has severe difficulties regarding its credibility.

It seems to me that the writer may possibly also be spreading "nasty rumours".

Cheers
Red