The Controversial Investment Tactic: Short Selling - Risks, Rewards, and Recent Headlines

Short selling. Short selling? Yes! Short selling-- the strategy that's long been used by investors to profit from a decline in the price of a security( like stocks, bonds, and derivatives). This controversial investment tactic has been making headlines recently, as short sellers reportedly made a jaw-dropping 7 billion dollar profit amid the banking turmoil. This figure has sparked a debate weighing the potential risks-to-rewards of short selling.

Recently, short sellers made significant profits by betting against banks during economic uncertainty. With Credit Suisse, First Republic Bank, and Silicon Vally Bank practically covered in corkboard panels and a taped note scrawled in frantic pen, "Pardon our dust! We are currently getting help; we'll be fine!" while construction workers with a blue JP logo on their vest carry comically large dollar-sign bags barge through-- uncertain and tumultuous times are most definitely upon us.

Critics argue that it can fuel market volatility and exacerbate stock price declines. Short sellers may create a 'self-fulfilling prophecy' by betting against a stock,* potentially dooming the company to fail artificially. Additionally, short selling can be risky for individual investors (ah, it could affect you!), as it requires a deep understanding of market dynamics and risk management.

Pictured above: an example of a recent stock short. Uh oh. CEO Tom Siebel of C3.ai is getting pretty heated over a short by Kerrisdale Capital which caused his company's shares to plunge 38% in the past few days. Shorting is not pretty-- and not very nice. KC should give C3.ai an "I'm sorry I shorted your stock and caused your company to go into a downward spiral" apology card.

    Despite these concerns, short selling remains a popular investment strategy among institutional investors and hedge funds. In fact, proponents argue short sellers play a valuable role in the market by providing liquidity and exposing overvalued stocks. I mean, look at these numbers!

Pictured above: Every long-term investor's nightmare-- an extreme example of what a shorted stock returns in profits due to bets and short-term 'meme' investments. 

Unfortunately, as I subtly hinted before-- short selling is not a suitable investment strategy for everyone. If you're considering short-selling, you'll need quite a bit of cash to make a profit. There's a reason only hedge funds and big-name investors are investing in these shorts: they already have a million or a few to throw away, which, when turning even a tiny profit, brings back a couple of million dollars more back into their portfolio (if everything goes to plan, of course). 

Short selling is also a very complex fundamental investment strategy that can be lucrative and very, very risky, requiring knowledge and years of experience to indeed 'game' the market.

*one perfect example is CVNA (Carvana), trading at a short float above 60%. They trade now at around ten dollars per share, but when traders shorted the stock back in 2021, shares sold for roughly 380 bucks a pop. In later posts, I will delve further into "meme stocks" and strategies that have been causing a stir in the otherwise traditional market.

 

My special secret sauce (sources):

https://thehill.com/business/3905734-heres-why-the-too-big-to-fail-banks-bailed-out-first-republic/
https://www.cnbc.com/2023/04/06/short-sellers-made-7-billion-in-profit-from-banking-turmoil-ortex.html
https://corporatefinanceinstitute.com/resources/capital-markets/self-fulfilling-prophecy-examples/
https://www.investopedia.com/terms/s/shortselling.asp

https://markets.businessinsider.com/news/stocks/toronto-dominion-short-sellers-banking-crisis-financials-schwab-first-horizon-2023-4

https://finance.yahoo.com/news/c3-ai-ceo-tom-siebel-221757229.html

https://thumbor.forbes.com/thumbor/fit-in/900x510/https://www.forbes.com/advisor/wp-content/uploads/2022/05/short-selling.jpeg

(extra for the CVNA reference: https://fintel.io/ss/us/cvna)

What to Expect for the State of the Union Address

President Obama's State of the Union address is scheduled for Tuesday of next week, and it is intended to not only address the country's primary issues, but to also create some political momentum for the presidential race. In his presidential preview, President Obama states that the "central mission we have as a country" is to "rebuild the economy."  This issue was mentioned before in the last State of the Union address and the main focus was on creating jobs.  In this address, President Obama seems to be stressing equality, and making equal opportunities for individuals to succeed in the current economy, "not just the wealthy few".  The address is stated to discuss President Obama's "blueprint" for creating such opportunities, which will consist of more "made in America" jobs, "homegrown" and "alternative" energy, "skills for American workers," and a "return to American values".  Expect these topics to be mentioned for the better part of the address, especially the "return to American values," which President Obama cites as the most important topic.

Economy expands, but slowly

The Fed said the economy grew at a modest rate from late November to December due to holiday sales, increased demand for services, and oil and gas extraction. However, permanent job remains limited, while no sign of improvement in the housing market.

Although the economy continues to fair slightly better than last year’s, that is still not enough to create a strong and quick change on employment. The unemployment rate dropped from 9.4% to 8.4% in December. William C. Dudley, New York Fed president, said, “outlook for unemployment is unacceptably high.”

However, the Fed said, “The combination of limited permanent hiring in most sectors and numerous active job seekers has continued to keep a lid on general wage increases.” This limited inflation and decreased pressure to raise prices. The Labor Department reported that 200,000 jobs were added last month and unemployment rate declined to its lowest since February 2009.

The Fed released a report late last November showing that economy grew in 11 of 12 districts due to gains in manufacturing and consumer spending. The Fed does not feel complacent with this modest surge in the economy as they consider more easing measures to monetary policy. The Federal Open Market Committee will meet this month in Washington to discuss whether to try new actions to lower borrowing cost. The policy makers will publish projections for federal funds rate and forecasts for economic growth, inflation, and unemployment.

On the other hand, the residential real estate market remained at low levels, with the rental market tightening in some areas. Most businesses also borrowed money for commercial mortgages.

Moreover, more consumers are borrowing money. “Credit increased by $20.4 billion, the biggest jump since November 2001, to $2.48 trillion.” Commercial and industrial loans have also increased to $1.34 trillion.

This continuing progress in the economy is encouraging, but it is still too early to celebrate. The economy seems to recover at a moderate pace in 2012.

Greece's financial crisis can affect the USA

Not only is the U.S. in a financial crisis but so in Greece! In Greece the government is cutting a teachers salary of $27,300 by about 5,300 and also the government is going to raise the value of added tax on a a lot of purchased items by at least 23%. And how all of this is going to affect the U.S. is how Europe's debt crisis is going to affect American stores. It will make some of the U.S. corporations to raise money by stock market investors. So the Obama administration is going to have to find a way of creating more jobs by doubling the amount of U.S. exports. In Europe they had a bid to try and stop the "Aegean Flu" from spreading and to support their currency. So on Sunday European leaders announced that they made a deal with the "International Monetary Fund" to have as much as 750 billion euros ($995 billion) to go towards loans and to other financing. The U.S. is all apart of these loans because the U.S. banks hold about 16.5 billion in loans to all of the Greek borrowers. Even though American banks hold 10 times more than that amount. So how this could be a bad thing for the U.S. is if the Europeans have a huge amount of losses on the Greek loans than it could make it harder for the U.S. to get credit if Europe's banks lose money because of Greek losses. So commercial paper (corporate borrowing) for the U.S. is about 30%. An affect from the crisis for the Europeans at least the euro has fallen more than 11% against the U.S. dollar, so that makes Europe products less expensive. Also on the positive side for the U.S. is that for the U.S. Treasury securities it is making Uncle Sam cheaper to borrow so now the U.S. can get cheaper loans for 3o years at rate of 4.28%! So it looks really bad for Greece right now do.. Do you think this is really going to affect the U.S. in a positive or negative way what do you think?

Japan’s Industrial Production Rises 2.6% on Exports

Reporting for the first time on the blog, I decided to post on how Japan is doing recently.

The opening line of the article: "Japanese manufacturers increased output at the fastest pace in six months in November, supporting the nation’s recovery from its deepest postwar recession. "

While "weak domestic demand means that the Japanese economy is still highly vulnerable to external shocks," says Ryutaro Kono, chief economist at BNP Paribas in Tokyo, exports from Japan to the other countries in Asia are leading Japan to a srtonger economy, albeit slowly. Even so, Yasukazu Shimizu, a senior market economist at Mizuho Securities Co. in Tokyo says "The rebound in exports and the stimulus effects are the main reason behind the increase in production, and capital spending remains dull. We're still far off from a sustainable recovery in Japan."

Exports to the rest of Asia are helping to move Japan forward in recovering from their "deepest postwar recession", but there's still a lot of progress to be made. Apparently, the value of the yen has also been decreasing. It dropped from it's "14-year high of 84.83 on Nov. 27" to "91.45 per dollar at 8:58 a.m. in Tokyo".

...I had been under the impression that the value of the yen was increasing... Hm...

Wanna read more? Click the title.
...or click here.


-Annie Yang

Is a college degree worth less?

"Employers and career experts see a growing problem in American society — an abundance of college graduates, many burdened with tuition-loan debt, heading into the work world with a degree that doesn't mean much anymore."

Read more: http://www.time.com/time/business/article/0,8599,1946088,00.html#ixzz0ZGNogXcL

Because of the growing number of college graduates, competition has increased and looking for a job with a degree isn't as easy as before. With record high unemployment rates for recent grads at 10.6% and with the cost of tuition rising by an average of 6.5% this fall, has the value of a college degree declined?

Though recent graduates do have a harder time getting a job than maybe 30 years ago, the economy does have a factor in this. The recent conditions of our economy have definitely made jobs more scarce and have reduced the amount of new job opening. But even if the economy was back to normal college grads will still have a harder time looking for jobs than about 30 years ago. I believe that even though it is definitely tougher now to find a job with degree, it is still worth a lot and will continue to be. Most well earning jobs would be very hard to get without at least a bachelor's degree or higher. As the economy improves, new job openings will likely open and reduce the rate of unemployment of recent grads. But a big difference is that you won't be able to rely simply on a degree to get a job as easily anymore, you will need to do or find something that distinguishes yourself.

Wal-Mart Domininance Challenged?

Amazon attempts to challenge the all mighty retail chain Wal-Mart this holiday season. This all started when Amazon went head to head with matching the low prices of Wal-Mart of new books and DVDs. This price war set a precedent for the dropping of prices of all types of things, ranging from Easy Bake Ovens, to Xboxes, to cell phones.

However, the war between them is more than about price alone. The future and new technology play a huge role in this battle. Though online retailing is onyl 4% of retail sales, it is rapid spreading, it did not suffer as much from the economy, and access to online shopping is faster and easier to access. There is still the factor of instant gratification that offline shopping provides. However, Amazon now has same day shipping.

Do you think Wal-Mart should be seriously concened? How wise is it that prices are already so low before Black Friday? How will it hurt the economy, or do you think it's a good thing? How has online shopping revolusionized the retailing industry? Do you think the easiness to compare for the best prices is going to help or hurt our economy at all? To read more, the link is embedded in the title.

-Sandy Chen

I thought everything was supposed to be improving!

Oh how I love CNN news text messages. This one plainly reads, "U.S. unemployment rate hits 10.2 percent in October, the highest rate since April, 1983. Job losses total 190,000."
When I got this message I was shocked. After hearing for weeks now that the economy and employment was improving, this little text shattered that concept for me.
I never did hear any solid numbers on the improving job market and economy so I guess I can't really have expected the claims to be true but it was something I at least wanted to believe. However, my hopes were false as the economy and job market are clearly NOT improving. Obama's plans are either in vain or have not been set into full motion yet but either way something needs to be done.
What should be done to reverse our declining economy and job market?

Tax credit key to ending high unemployment rates?

I was trying to find a current event to blog about and I came across this very interesting article on nytimes.com. Apparently the government is debating about whether or not a tax credit should be given to companies who create new jobs. This is would be an updated version of a proposal created in 1977. I don't totally understand how this would work, but what I got from the article is that the policy created would make it cheaper for companies to hire more workers and that the government "would give employers a two-year tax credit if they increased the size of their workforce or added significant hours of working (for example, making a part-time worker full time.)

I personally think that this whole concept/idea/proposal would probably be a good idea, just as long as employers did not take advantage of it (a concerned expressed in the article). I think that if this policy could be pulled off then it would help the unemployment rate to go down, businesses to make more money, and for our economy to improve and not to be such crap. I am very sorry if I did a horrible job explaining this. I believe if you click on the title of this post it will take you to the article if you are interesting in reading it.

Job openings still declining

http://www.nytimes.com/2009/09/27/business/economy/27jobs.html

Over the last year, we've all gone back to our daily lives and most of us probably think the economy is getting better, and it is. However, the job market isn't. Job openings are still decreasing and the unemployed are still rising, though layoffs have slowed down. According to Thomas A. Kochan, a labor economist at M.I.T.’s Sloan School of Management. “There’s too much uncertainty out there, There’s not going to be an upsurge in job openings for quite a while, not until employers feel confident the economy is really growing.”

But how do we know the economy is "really growing". The less jobs everyone has, the less they will spend, and the less money companies make to give out paychecks. It's understandable that companies don't want to risk the economy dropping again and lose money from hiring people, but at times like these, the companies are the ones holding the economy back. 

-Weilu Jia

Every Country for Itself

Well, with this ever expanding financial crisis being on a global scale, the G-20 had made a sort of pledge/unofficial agreement to embrace free market policies and thus avoid being too protectionist because a burst of protectionism could possibly worsen this global recession. Unfortunately..., seventeen of the twenty G-20 countries have already implemented some protectionist measures in the last few months in an attempt to preserve their own jobs/industries.

*If you don't know who the G-20 are, here's a Wikipedia Link

According to the World Bank president, these tariffs or subsidies "can lead to a negative spiral of events" and that 47 "separate isolationist measures" have already been put in place since the last G-20 meeting in November.


In a way, we're all in this together as we ought to work together to fix the world's current economic crisis, yet I can also see the advantages of trying to weather the storm alone in an every-country for itself kind of way. What do you think needs to be done?

At Least Someone's Lovin' It

In these tough economic times, most businesses are failing and beginning to collapse. Our banks have needed government aid to survive and future prospects seem rather grim. Yet in the face of all this news of companies who are beginning to fall apart, we can still see a few businesses who are doing well, if not better than before.


McDonald's, in fact, is thriving. While its competitors are weakening, Ronald McDonald is seeing increasing profits, sales, and improving stocks.... But why?

When asked in an interview by CNN, Karen Wells, vice-president of "strategy and menu" says that:

"there's two things that's really attributed to McDonald's success. First and foremost, listening to our customers. It's menu variety, it's value and affordable prices at McDonald's and the convenience that only McDonald's can offer.

The other piece is our system alignment around one plan. You know, under the arches we have a term called the three-legged stool. It's our franchisees, our suppliers and our corporate staff working together. Those are the two things that have worked for McDonald's and our success."

This doesn't exactly explain their success, I mean, I'm sure most companies try to "listen to their customers" after all...

What do you guys think about this?

Today's News

A Fat Cat, but not the kind I'm going to be talking about...














So these days whenever I turn on the news, everything is all focused on our economy. A surprisingly large portion of the news has been dedicated to playing the "blame game" where everyone is pointing their fingers at one corporate fat cat or another. But I'm getting tired of that. It feels as if we're looking for someone to shift the blame on (read: scapegoats) when we should be focusing more on real news and how we can fix our current situation. I'm sure the media is especially focused on executives like Madoff (and how much money he "made-off" with...haha...never mind...) because it's attracting viewers, but I'm sure there's more important things happening in the world then how big a bonus certain "fat cats" were giving themselves. What do you think?

Signs That Things Are Getting Better

Here's what to watch for to tell whether the stimulus package is actually working, and when the economy might start to mend.

• An improvement in the unemployment rate. Of all the economic indicators, this is probably the single most important. But you might want to avert your eyes for awhile.
• More stable home prices. The realestate boom and bust is what torpedoed the economy in the first place, and the economy won't start to recover until the housing bubble fully deflates.
• A consumer confidence rebound. Since consumer confidence closely tracks the job market, the dismal numbers of the last few months probably won't improve by much until late in 2009, or 2010. Homeowners have lost more than $3 trillion worth of value in their homes over the last three years, and investors have seen their stock portfolios shredded. So even people who feel secure in their jobs are dour.
• A less volatile stock market. Every investor hopes that beleaguered stocks will come roaring back in 2009 and regain some of the ground lost since the peak in 2007 - when the S&P 500 stock index was nearly 50 percent higher than it is today. But a better indicator of economic health would be a steady recovery - without the manic swings that seem to come from every hint of undisclosed trouble at some big bank or rumor of new government intervention.
• Economic growth turns positive. By economic standards, the current downturn has already lasted longer than the typical post-World War II recession.

Housing Horror?

Home values in Novemeber have plummeted 18.2% in 20-city housing index while the 10-city housing dropped 19.1% making this the biggest drop in a 21 year history. Though values arent supposed to hit rock bottom until 2014, this will make a very difficult transition for ages such as 18-19 when we are ready to perchace a house when finally living on our own. Obama is making tax incentives to floor the housing market but is really providing less money for the bank to send loans and ultimately causing a chaotic cycle. House buyers sell wisely and take what you can get!

More Americans Joining Military as Jobs Dwindle

Although there was a lot more violence in Iraq last year, it was also the first year all active-duty and reserve forces met or exceeded their recruitment goals. And the trend seems to be accelerating.
This is interesting, yet not surprising. As the economy gets worse and unemployment falls, the steady paycheck, benefits and training offered by the military is very appealing. However, the economy alone is not accountable; the recent decline in violence in Iraq has also been a factor. In addition, the G. I. Bill will significantly expand education benefits (service members who spend at least three years on active duty can attend any public college at government expense or apply the payment toward tuition at a private university.) Recruiters now have a much less stressful job (although usually they must talk to 150 people before finding one person who meets military qualifications and is interested). Now, they can even start being more selective in their recruitments.

Job Crisis

As we all know this recession has brought us nothing but hard times and stress. If you didnt know it before massive job loss and house slumping has topped off the year 2008. California lost a total of 78,200 jobs due to the slow economy and decreased payrolls for employees. Just as everyone thinks a new president will due us justice in the economy, 1.7 million people were looking for jobs last month and continues to increase by the thousands each month. 785,200 were laid of while about 125,000 chose to leave their jobs. Particularly in construction, a 10.8 percent jobloss occured followed by abut 92,600 job cuts. Will 2009 bring hope or will this slumping economy just continue to regress untill we completely hit rock bottom?