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Zach Bass (a.k.a Ernie Varitimos) is Chief Bloviator of Investor in the Wilderness. He has 30 years experience as a Tech Maven, Investor and Consultant. Zach has been using Macs since their introduction in 1984, and investing in the markets just as long. His mission is to help guide all level of investors through the Apple Ecosphere and make sense of the markets. Zach's take on Apple, the markets, and life pursuits, will keep your mind tuned.

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Apple Investors are Shorts to Blame for this Mess?

September 20th, 2008 • Related • Filed Under
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I’ve had several members write me about the evil things inherent with shorting stocks, that the shorts would have run us into the ground given the opportunity, because they are evil and greed driven monsters. And that we need to ban shorts and castrate those that practiced the evil art, so that it may never happen again.

Well, let me say this, at this point in time it does absolutely no good trying to find blame in one class of investor over another. We have much bigger problems at hand. One thing is for sure, as we go forward, we need to restructure our financial house. But first, we must deal with all the bad debt by swallowing a very large pill.

The next thing we need to do is get a macro understanding of how we got here in the first place. Was it shorts that brought us to this untenable position, or was it bad debt that got us here? This is a rhetorical question, because we all know it wasn’t the shorts, that activity was merely a symptom of the bigger problem.

So, what was the problem? Let’s start with the source, the SEC. In their infinite wisdom a few years back, they decided to go on this open the flood gates tour, and irreverently reduce or eliminate regulation. For example, in 2004 the SEC changed the rules for loan leverage that the five biggest banks could employ. It went from 12 to 1, to 30/40 to 1. And which of these banks were granted this privilege? Would you believe Bear Sterns, Lehman Bros, Merrill Lynch, Morgan Stanley, and Goldman Sachs? What a coincidence!

The other thing the SEC did was they decided not to enforce the rules against naked shorts, and eliminated the uptick rule. They basically enabled the most predatory behavior possible. And now that we’re in crisis, who do they blame? They certainly don’t blame themselves.

I believe it’s clear, if you want someone to blame it’s the SEC and the meanderings of the Fed, and the irresponsible drunken sailor spending of the current administration, which I shamefully voted for. Um, not that there was a better alternative mind you. Both Dems and the GOP totally suck in my humble opinion. We need the mindset of a libertarian (small “L”), like a Ron Paul, but someone with more charisma.

So, what do we do now? Can we trust the markets? Is there any way to trade or invest with the froth that has been stirred up? Well, the answer is that there are strategies that we can employ, but they’re mostly defensive, hedged and short term. The other thing we can do is hunker down, blindly dollar cost average at least 80 percent of our capital into a well diversified portfolio of index funds, bonds and gold. The other 20 percent we trade with Capital Preservation as our first priority.

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Who's to Blame?
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More on this topic (What's this?)
What’s going on at Apple? (Part I) (The Curious Investor, 12/17/08)
7 Great Lessons to Learn From Apple in the Last Year (Stock Trading To Go, 9/29/08)
The End of Steve Jobs ™ (The Curious Investor, 12/18/08)
Apple (AAPL) at Make or Break Point (market folly, 9/8/08)
Read more on Apple at Wikinvest

Viewing 27 Comments

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    For the last time, Zach pls shut up! Just go back to whatever it is you do when you are not talkin shit. Thanks!
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    If don't agree with zach's point of you just unsubscride instead of waisting your time.
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    I'm curious macfan, why don't you go back to doing what you do when you are not telling other people what to do?
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    How about the individual? I mean, all of the above is a true choice as well but ultimately we are responsible for our own decisions, our own votes, our own choices. The vast majority of the USA ignored the warnings as well as Wall Street, Congress, etc...
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    Thom,
    My answer is simple. I am long the stock. I am also an anaLlst and on fundamentals, Apple is by far one of the most premium choice companies that can be purchased. Is there a level of opinion there?, ya. But, the vast majority is pure fact based on growth, cash flow, and an extremely solid balance sheet. So, why am I telling zach to shut up? Because, nothing pisses me off more than to watch this guy use unearned influence on the uninformed investor in order to achieve his own selfish objective. What do you think? You think this guy is all about helping others? Sorry man, it just ain't so. Look at every one of his headlines... He clearly has a goal, and it ain't to help you.
    Good Luck.
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    Apparently macfan you can't handle it when someone speaks objectively about market conditions and investor sentiment. I happen to believe as you do about Apple fundamentals, but the truth of the matter is that fundamentals mean very little in the near term. My analysis is meant to help traders and investors navigate the turbulence of the market's incantations and reverberations. No agenda here other than to provide guidance and a point of view.

    Unfortunately your fanboy attitude is getting the better of you, it clouds your vision. In this market, letting your emotions influence your judgement is a disadvantage.
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    Big agenda, selfish objective, big fucking ego, vein, self important , pretentious, full of hubris which will be his downfall (as too the other righteous good for nothing legend in their own minds and pants, that never earned a nickel in the real wold from real professional skills or talent ), arrogant, and basically a good example of pearl to swine. Nuevo nothing.

    You arrogant small time snake oil salesmen couldn't get respect anywhere except from stroking you own egos with bull. Bet you all live on credit and haven't ever saved a dime. I'd short you in a minute and forever.
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    Zach,
    I vote for ALL of the "Candidate" scapegoats above for all the reasons you mentioned especially removing the uptick rule and no transparency or oversight with the Hedge Funds. The uptick rule was put in way back in 1938 after the crash of 1937 which no one remembers and only recently removed BECAUSE in my opinion the SEC could not enforce it with all the Hedge Funds violating it. The real MAIN PROBLEM is the almost $500 TRILLION yes TRILLION derivatives market of CDO's etc that are so convoluted that NO ONE really know who owns what anymore.
    My hope is that Paulson has a plan to provide ONLY a market to allow unwinding these things and selling them off gradually at a fraction of their original value by the holders themselves so the taxpayer is not really on the hook for it all. This could take years, but it will allow the markets to continue and slowly become stable again. Some people will lose a lot (jobs, money, home, etc), and I just hope it is mostly the folks that KNEW they were doing it that lose the most. In the meantime we do NOT need tax increases or CAP Gains increases like the Democrats have promised in their platform and speeches.
    Al
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    Alattlr,
    Well said. Cdo's themselves are not a bad thing and helped provide liquidity to the GSEs for years. The problem was that cdo's became soooo easy to get done and the fees they paid to wall street were very nice. As long as there was a steady supply of mortgage paper that could be securitized, cdo's could be issued. In steps the likes of Countrywide Mortgage. The mission...write mortgages. So now everybody and their busboy can buy a house. Prices are driven up, teaser rates reset and....wahlah...defaults and declines in home prices.

    So sentiment is dealt a big blow. In steps guys like Zach to manipulate that sentiment at the expense of others.
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    Naked shorting IS wrong (far too dilutive), but certainly not short selling per se.
    The problem last week was a financial panic. Closest culprit on your list is The Banks. Bad Lending + Leverage == current situation.
    For a company like AAPL, with circa $25/share in the bank and no debt... a market panic is an opportunity to go long. I did so at $128. A nice little addition to my retirement account.
    You make a profit by selling higher than you bought at. Unless you're margined, it matters a whit what the price does in between. If you care what a stock does next month or next quarter, you are not an investor.
    If short sellers were driving down AAPL last week (panicked sellers and a buyers' strike is more likely), they did a service--shorting a stock of a company printing money with around 20% of its value in cash. And someday they have to cover.

    Companies with the cash and productivity and flexibility of Apple can survive depressions.
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    How about not blaming anyone(s) and fostering frank discussions about what happened, why, how to adjust, etc. without pointing fingers? A novel idea perhaps, but how can there be a really sound exploration of what went wrong if people are being defensive after being blamed (and thinking more about how to cover their tracks). The focus needs to be on "no blame" but rather transparancy and serious digging for objective analysis. [someone has to hold an idealistic picture and hope....:-) ]
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    I am one of the people who wrote to you against short selling. I never called the people that go short evil or monsters: this is just a gratuitous and undue add-on on your part. What I wrote was:
    "I personally think that speculators and all the tools they have available have transformed the stock market in a business that can be easily manipulated and, more in general, in something more similar to a Las Vegas crap table than to a place where to put your savings.
    I believe there is a huge difference between speculators and investors and it is too bad that they have to operate in the same market. Speculators just bet, investors don't because you don't bet using your savings.
    The best thing for the stock market would be that shares are bought with real money without any tool for leverage other than the credit of each individual investor. If a company doesn't perform as expected its value will decrease and the shareholder may sell his investment in it taking the inevitable loss. If a company goes well the value of the shares will grow because more investors would like to buy them. This is free market. A market that has real substance, shares that are really "priced to perfection" and investors that reap benefits or suffer losses in a acceptable and orderly way.
    Speculators should have no place in this market and without them the market will not be less free but more.
    What you call free market is free only to manipulators.
    You favor the capability of shorting: selling shares you don't own but that you borrow from who actually owns them. This borrowing is made without the individual investor that owns the shares knows about that. If he knew he will almost certainly not make the shares available for loan because it is against his best interest because their value will decrease. I think shares should not be available to short sellers unless the owner of the shares agrees to the loan and gets a price for it."
    To answer your question I agree with you that is the Government (not just the current one) that let things degenerate to this point.
    But among the many corrective actions that are necessary there is also the need to separate the investors market from the speculators market.
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    Like McCain said...they have turned wall street into a casino. Claudio, that was the best response to any of these blogs.

    Just because you can do something does not mean it is a good idea. Zach, find your moral compass.
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    Claudio, you know I like you but I gotta call you on this. I've helped you "gamble" as you call it. I watched you trade shares of aapl, sell them in a day or two and take profit, wait and buy more shares at lower prices and run them up again and even more money. Why is ok for you to speculate on that but no one else? Because you really love Apple? C'mon. You may know that but the stock doesn't care. So you don't use margin, wise move but millions use margin every day and pay back their debts fine. Should margins be made tighter, sure. ALL debt levels need to be seriously reconsidered in this country/world. The problem is when crisis' occurr too often the baby gets thrown out with the bath water.

    Speculation is fine, it's what makes markets liquid. Leverage is fine when used wisely. Shorting is fine, it's what allows us to hedge.

    Macfan, stop be a self rightous troll. If you hate sack so much go somewhere else, it's sacks sight after all. Man up and start your own super altrulistic fun site I'f you such the egoless analyst.
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    hey asshole stop calling everyone who has an opinion against you short seller parasites trolls etc.... stop smoking your weed and go find out what qualification you have for any real skilled job - zero . you are a self important legend in you r own mind - you don't have a clue what investing is and I bet you haven't the slightest idea what believing in something is either. All you think of is you you you and anyone who can stroke you. you are useless utterly useless and though you think it's smart to angle and calculate your moves, you need the public forum to stroke your little ego. If you so desire the little boy scout clan - get out of the news and go private.
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    Thom,
    No hatred here at all. Let's keep on track.
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    mf, the thing is I had to take off the site for a while and when I come back there is a deluge of people calling zack underhanded and question his motives and I find these comments unfounded and off track. Catch me up, has anything happened in the past 3-4 weeks? (besides the obvious market turmoil of course - I've not been trading but I'm not dead). I have zero problems with debate, in fact I thrive on it and find it's the Socratian method of eduction the best. But In my short history when I see what appears to me to be slander it usually means /b type trolling.

    Like I said, maybe his stuff has been hashed out in the past few weeks and I've missed it and if that is so, sorry. But otherwise the Zack bashing seems really rather weird. I hate Rush Limbaugh but I don't waste my time listening to him or writing to his blog or whatever he has. When people go after a site owner like zack it seems to me the poster is bored and is just filling their free time or get a rush out of being provocative. They guise this as altrulism but never really offer salvation. If I am off base, i appologize but I gotta calls them as I see them.

    as for u RT, you are a failure if you didn't read any of my posts and see the care and thought I put into creating a reasonable, valid, highly educated response. I gave examples, methods, history and time. If you can counter my arguments using the same thoughtfulness then I would applaude you (or anybody else for that matter), but when the responses are simplistic Cramerisms I call bullshit. Somebody reads Rule One Investing and they think they have the Market cornered.

    I actually enjoy zack's writing and it would be pretty lame for me to find value in his insight and just stand buy and let people slander him. Anybody who sits but silently is pretty spineless in my opinion. Just as you feel some how justified in your comments, I too feel justified in mine. The difference is I back my shit up.
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    Thom,
    And Zach...I will be honest, as much as Zach's headlines piss me off, I do sometimes enjoy these posts. But when those headlines appear, I am forced to think Zach is serving someone other than his readers. Zach, you claim I can't handle it when someone is giving am objective view of the markets. In fact, I am all for that. If you are objective, please explain the "shock and awe" headlines that more often than not have a negative slant.
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    Now THAT's a valid question. And if Zack doesn't answer it then he deserves to be called on it. We don't always have to like the answers we get in life but it's still always nice to get an answer anyway.