WHEN THE PUBLIC is in the market, they’re always long the market, and during those periods when the market falls, the masses invariably go looking for someone to blame. Because they appear to profit at the public’s expense, no scapegoat is more popular, or unfairly vilified, than the short seller.
It’s almost as if one of the freedoms inherent in a capitalist democracy, specifically the ability to buy stocks we feel are due to rise and sell those we feel are due to fall, isn’t extended to short sellers. Their activities are often characterized as immoral, unethical and downright un-American.
For a long time, of course, they were just downright unprofitable. During the mid- and late-1990s, short sellers like Manuel Asensio or bears like Jim Grant were seen as old-fashioned heretics, steadfastly refusing to accept the fact that we were in a new paradigm where historical oddities like interest rates or valuation no longer mattered. The fact that the shorts were losing hundreds of millions of dollars as the market rocketed higher didn’t seem to bother anyone. After all, it was their poor judgment to bet against the market to begin with. Indeed, guys like Charles Allmon, Robert Prechter and David Tice were frumpy, charming leftovers from a bygone era that, until last year’s precipitous decline, seemed as if it would never return.
But these days, with short sellers reaping huge profits from declining markets, they have become Public Enemy No. 2. A cursory scan of the popular message boards will yield more than a few examples of antishort sentiment. (more…)