15 Jul 2008

Wipe out Fannie Mae Equity and profit handsomely!

Anyone who still has doubts about the ability of the authorities to deal with the fall-out from the sub-prime credit crisis would have been convinced otherwise if he had the chance to watch Bill Ackman pontificating about his proposal to 'recapitalise' Fannie Mae.
It is amazing that CNBC gives a fund manager who happily admits that he is short the common stock and subordinated bonds the platform on which to promote his financial self-interest at a time when the American Banking System (and British?) experiences a severe crisis of confidence.
At least the FSA in the United Kingdom has made a first step towards the restoration of fair play in the markets by making the practice of short selling shares in companies that are in the process of a rights issue subject to (very weak and ineffective) disclosure rules.

Short Selling is a valid practice - but like any good thing it becomes a danger if carried to extremes. Temple Associates is a fervent proponent of Free Markets but this practice can now be turned into a 'weapon of financial mass destruction'. Short Selling in the good old days was confined to market professionals (Jobbers or Specialists) and maybe a few savvy speculators who had very small amounts of money to play with. Now Short Sellers can muster billions, even tens of billions and as a consequence the practice has to be seen in a fresh light.
Short Sellers can initiate a vicious cycle and cause a downward spiral in confidence which is very difficult to reverse. Of course, where there is smoke there is fire. But that does not mean that a business that can be nursed back to health should be pushed over the brink just to satisfy the greed of a few market players.

9 Jul 2008

Does the FSA have the right priorities?

We were recently trying to find the site where the FSA publishes the Disclosure Reports about Short Positions in the shares of companies that are staging a capital increase. The keyword 'disclosure' returns a staggering amount of entries from its website, more than a mere mortal can digest in a lifetime. But one item caught our attention. It is named 'Disclosure Requirements for the Accounts of Working Men's Clubs' (dated 4 July 2008) and runs to a full seven pages.
We did not know whether to cry or laugh about this gem that was penned by a faceless Civil Servant. With the whole structure of British Banking teetering on the brink, - do the regulators really have nothing better to do than concern themselves with the affairs of Working Men's Clubs? (by the way, we never met anyone who was a member of such a club and never heard that any such Club was causing major problems for the financial structure of the Kingdom).
Anyone who suffers too much stress in the markets and wants to relax for a moment can read the details on the FSA Website, Ref R/FS/AR 41D (and lest I forget, there are Notes attached!)