Final Segment 1

Final Segment 1 Title: 'Short Order' .  .  .  .  . Featured Stock(s): No specific stock picks... See general comments below.

After this segment, you can see Jim's Sudden:Death picks here...

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JJC:    Tomorrow, the SEC will decide whether or not it will continue to enforce its so-called emergency rule to protect a group of 19 banks and financials stocks from the endless bear raids caused by naked shorting... Never mind the fact that selling the stock short without first finding and borrowing the shares, naked shorting, had long been considered illegal by most market participants... This may not sound like a big deal to you... In fact, it probably sounds like a boring little technicality that only even covers 19 stocks, probably you don't own any of them... But, in fact, the SEC's decision, if it goes the wrong way, meaning it stops protecting these stocks by enforcing the law, could cost you a fortune and make you want to permantly abandon the stock market... And, to be honest, I wouldn't blame you... I wouldn't blame you for feeling that way either, even though I'm the single most loudest proponent that you should be in stocks...

Now, as bad as these prices for the banks were today, believe me, we will see much lower ones for the financials Wednesday, if the SEC does the wrong thing tomorrow... If the SEC decides to scuttle its emergency protection, then these banks and financials go back, back to the way they were July 15th, 16th, 17th, I mean, where it just is a free fire zone... Where they will be carpet bombed by short sellers, who simply don't play by the rules... Tomorrow is a landmark day where we find out wheter the SEC is returning to its stupid, sorry to be so blunt, laize faire attitude that allows short sellers to destroy your stocks through a combination of endless shorting, rumor mongering, regardless if the shorts can even borrow the stocks that they're selling... Something I know I had to do when I was a hedgefund manager and something I considered a bastion to protect you, the longs, regular people who own stocks... Why does this matter so much?... All right, it has to do with the character of the people, of some of the people, who are doing this... Hedgefunds are often diabolical... Some of them, the bad ones, need to be in order to make their performance bogeys, bad actors... They need to do the wrong thing... The poorly run, less intelligent hedgefund managers need to use every trick in the book to make money and these less than skilled players have been resorting to value destroying tactics that I regard as being blantently anti-you, including naked shorting, making money by shorting stocks and then banging them down without even trying to borrow them first... This disgraceful tactic of naked shorting, long considered to be illegal, but somehow not enforced by the SEC, which is supposed to be leveling the playing field for you, or at least enforcing the laws in the books, has played right into the hands of those hedgefunds that need to make money at your expense, because they're just not good at doing it any other way... It's a simple thing to do... One of these hedgefunds gets to short a stock...

Let's use the example of Lehman Brothers (LEH)... Then it spreads a lot of rumors about LEH saying that people aren't going to trade with them or are pulling their money out with them... And that raids the stock... People then start selling it, including the funds that scare people and have it short... They relentlessly sell it down, even if it hasn't been borrowed yet... You know, I used to call this blitzgreiging, when I sold this kind of operation in the 90's... And it worked... Back in 1990 it helped destroy a lot of banks and savings and loans... Now, some of them were derserving, but not all of them... It's been widely suggested to have been at work when LEH plummeted from the $40's to the teens... Althought, LEH, of course, helped the shorts immensly by disappointing on its outlook and numbers... Now the SEC decided to put a temporary stop to this unsportsman-like knocking down of your stocks, and posted the 19 list... They were supposed to be protected from something that they really protected from anyway... You know, you can read the statue in a lot of ways... I read it that you were protected from it... Or you would've been at least protected from it, if the SEC hadn't stopped enforcing the rules... Because the SEC has been so lax, it's been possible to short... Let's just use this wild example, okay?... You could short 300 million shares of a company, even if it only had 200 million shares traded... And believe me, that kind of overwhelming force, the overwhelming selling the shorts tried to do, pretty much to every stock on this listed 19 was making it impossible for the companies behind the stock to raise more money by selling shares, as the shares were constanlty being mashed lower... This was a brilliant way, it is a brilliant way to wreck a bank... Banks are fragile... Credit is fragile... The hedgefunds would knock their stocks down low enough that the banks had no ability to raise money... And then these inscroupulous investors would spread rumors about the bank... Now, they're starting to crack down on that, apparently... I'll believe it when I see it... I believe it when I see the tapes... I'll believe it when they go after some of them... When the SEC moved to protect these 19 banks and financial stocks from naked shorting, there was an immediate cessation in the seemingly endless, viscious circle down... In fact, these stocks rallied tremendously at a much higher level...

There was just one problem... The SEC left other impotant financials off the list, including, inexplicably, the largest thrift, pathetic Washington Mutual, run by General Custer Killinger, okay?... When this one was left out of the arch, it was immediately pummled by the shorts... It became the victim of all sorts of baseless rumors... Rumors tehat could have really pounded Washington Mutual's stock... It still might go that way if it's not protected... The same goes for AIG, that was off the list... And that was visciously attacked by the shorts, they pushed it all down... Nat City too... And I know Merill was down really badly, and that's protected, but it's still up, although barely, from where it was... Despite the fact that the 19 financials getting the so called special protection that ought to be provided to every stock, held up or actually went higher, and the ones left off the list got shredded by the shorts... One of the SEC comissioners is actually questioning if the emergency rule protecting those 19 financials had any effecacy... I mean, you can't make this stuff up...

I know, bank stocks got hit four percent today... The vast bulk of them, including Lehman Brothers (LEH), Citigroup (C), Bank of America (BAC), and Wachovia Corp. (WB) are still well above where they traded before the SEC intervened... Maybe that should help the comissioner make up his mind... What's Mad Money's view?... Well, we think that no stock should be the target of naked shorting... We think they should role things back to the way they were in the 1990's when all stocks were protected from naked shorting and it was enforced by the SEC, not just 19... You know, it worked just fine then, I mean, what's the deal here?... But this measure would protect you from the most pretacious and deperative hedgefunds... And of course, what are they doing?... They are now lobbying the trade group, the hedgefund trade group is lobbying to get rid of this protection... I think the hedgefund trade group is kind of like the groups that were featured in the movie, Thank you for Smoking... The pro-smoking, I mean, the hedgefund lobby, is saying that the SEC is making it too difficult to trade, meaning too difficult to take money from you... And the brokers, who are clearly their own worst enemies, given how the shorts are operating endlessly on Merill and LEH, are actually crying that the cost to institute the rule are too high for them, for the customers... And the trade groups are worried that short selling will now be too cumbersome... Wow, there's an interest worth protecting... How is there even a choice between stopping market manipulating bear raids and making it a little less cumbersome to short stocks... You should be protected, not shot at like bambi's mommy... How did Bambi's mommy faire?... Not as good as thumper...

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The Bottom Line!:    Tomorrow we find out if the SEC's recent good behavior was just a blip and the remain on the side of the rafscalion short sellers, who need to be able to raid your stocks to win, or if this SEC is finally like the SEC in the 90's and about to level the playing field back in your favor.