Amid all the head scratching and hand wringing in yesterday’s Morgan Stanley crisis review piece in the Wall Street Journal, an interesting series of data points seem to have largely gone unnoticed. They are here:
You will notice that the lethally dangerous brew of frozen, toxic evil concentrate that is short selling delivers a blow reminiscent of the impact made by a down pillow during a teenage girl’s slumber party. The stock opens at $22.83, that price having been set by the market way before a slew of short selling and already down from the prior day’s close of $28.70. From there, and despite taking what looks like rather significant short volume all day, peaking at 500,000 shares sold short per minute just before the lunch hour but hitting 300,000 shares per minute again by the close, it closes at $21.75. Even the massive spike and the consistent 200,000 shares short per minute rate in the hour before lunch only pulls the stock from $23-$24ish down to $18 or so. On top of this, during the last two hours of trading, which saw the most sustained short selling volume for the day, the stock recovered from $17ish to $21ish.
So, on what frantic anti-short parties insist is the worst most manipulation-laden day the stock had seen and when the stock was supposedly most vulnerable to rumor and innuendo, this is the best short selling could do? This is the evil bear raid tool we are supposed to be terrified of? Not only had the damage already been done (and not by short selling or even the $25 billion Deutsche Bank credit line revocation rumor) but the stock was essentially flat compared to the prior day’s open, which was $23.89.
But none of that matters. Nor does the fact that the firm alienated and lost so many of its cash rich hedge fund clients by scape-goating them, and required $9 billion in equity followed by another $10 billion from the government. It was the evil shorts who killed Morgan Stanley. Right?
Anatomy of the Morgan Stanley Panic [The Wall Street Journal]
Here Are Some Thoughts On Men And Wall Street
Jerk Running Ferry To Fire Island Not Up On The Celebs Of Financial Reform
EP — In addition, no one at the WSJ bothered to do the basic math that the total number of shares shorted that day was only 12% of total shares traded. They have no perspective whatsoever if they think that moved the market significantly in light of all the longs that decided to get the heck out of MS that day (the other 88% of market trading) after seeing how vulnerable LEH (on Monday) and AIG (that day) were.
– Not the Secretary
If only LEH had enjoyed the same scenario.
Now if they can just get the evil doers to stop shorting American vehicles.
Some guy who claimed to be a “dealer” offered me 20,000 H3s on a $5000 down tick.
Damned shorties.
That’s crazy talk. Everyone knows that hedge funds illegally collude/short to keep the price down so they can load up. I own 10 shares of ABK, and now I’m down $200, but I’m not worried because the stock is rocketing to 50, according to all of my buddies on the Yahoo Message Board. Pretty soon, I’ll be able to sell for a huge profit, and I’ll be able to afford an Xbox 360. Bank it. Peace out.
-Retail
Mackle needs to be sent to Bess’s favorite cobbler for a custom-fitting.
They did enjoy the same scenario. Both firms are/were overleveraged to the hilt and stuffed with crappy assets in the prop book. The only difference is that one firm happened to lose the confidence of the market at the exact same time as a Cabinet member’s former employer, and he just couldn’t let that one go so he had to help both.
“That same day, Sept. 16, Third Point LLC, a $5 billion hedge-fund firm run by Daniel Loeb, began to move $500 million in assets out of Morgan Stanley. The following day, Sept. 17, Third Point, after seeing the surge in swaps prices, made a substantial bearish bet, selling short about 100,000 Morgan Stanley shares, trading records indicate. Third Point quickly closed out that position for a profit of less than $10 million, says one person familiar with the trading.”
This does not make sense. How can you make 10 million profit by shorting 100K shares of Morgan? That would mean the stock price went down by 100 bucks. 30 – 100 = -70 ????
@1 – you missed the other point of the article, which was that the spike in CDS further exaggerated the panic in the market place, which caused the “other 88%” to pull out. They did a crappy job with the graph. What would’ve been more telling is to look at the movement in MS CDS (also the volume, as people were artificially driving up the price with very thin trades) and their stock price. It was the inverse feedback loop that got started with the rumors. Denying the effect of that is just as delusional as blaming the shorts alone.
@7
LESS than 10 million.
And 500k is LESS than 10 million.
It is also LESS than 750 billion.
Who writes these things? Oh – Rupert Murdoch.
I don’t get the DENMARK analogy
7, they must have used margin.
@8 — Fine, let’s go there. How much of the CDS market was people buying protection to hedge pre-existing exposure to MS (many of the parties named in the article described their action as hedging, not shorting) rather than taking a pure short or, as alleged by dumb executives trying to distract attention from their insolvency, trying to kill the equity by moving CDS? There are no “short” tags in the CDS market, so there’s no evidence for your mental speculation and conspiracy theories. Correlation is not causation and MS’ balance sheet is still crap.
too shakespeare, didn’t read
@12 – Wow, a lot of anger there. Not where in my post @8 did I suggest that people bought CDS to deliberately manipulate the stock price. I simply stated the effect of the upward movement of CDS on the equity price, and that the upward movement was induced by very few trades. The inverse feedback loop could be a correlation or causation; I am not siding with either. If you’d like to argue that increased CDS has no pressure on stock price at all, then that is a separate argument and one that you’d have a hard time finding evidence substantiating.
And btw, if you discredit the article as much as you did, it’s probably not wise to cite the same article as your factual support. For argument’s sake, what makes these other banks and hedge funds more believable than MS other than your apparent hatred for the company? :)
Am curious whether the fact that some HFs were pulling their assets from MS ($800M in one case) at the same they were shorting it constitutes some type of insider trading violation..
All I wish for Christmas is…a solvent bank.
Can I see the same chart from 9/8 when the stock price was at 43.27 through 9/17?
@10
Hamlet ref.
-first db post
@14 — I was merely referencing the statements in the article as to trading intent, wasn’t commenting on their validity or endorsing any message of the article as a whole. My point was just that the article lacked perspective. In arguing for caging shorts, those advocating new regulatory controls bear the burden of persuasion and the facts fail them.
No hatred for MS, they just have the same crappy balance sheet as everyone on the Street now. Lots more pain to come.
@14 — I was merely referencing the statements in the article as to trading intent, wasn’t commenting on their validity or endorsing any message of the article as a whole. My point was just that the article lacked perspective. In arguing for caging shorts, those advocating new regulatory controls bear the burden of persuasion and the facts fail them.
No hatred for MS, they just have the same crappy balance sheet as everyone on the Street now. Lots more pain to come.
15-
If I walk into a McDonald’s one day, get lunch, decide it’s disgusting, vow never to eat it again, and then go home and short the stock, does that constitute an insider trading violation?
@ CY(21)
It might if your family constitutes a measurable % of the Firm’s customer base (etc).
15 In general, insider trading happens when you are in possession of material non-public info. Which is not the case in the scenario that you outline (i.e. your knowledge that MS is about to loose $800 million of HF assets is not a material non-public event).
If it was so clear to MS that the evil short sellers were distorting the stock price – why did they not take advantage of the mis-pricing and used their stock buy-back program to load up on MS?
And why did nobody else take advantage of the mispricing if it was so obvious?
Where is Warren when we need him?
23/15
Materiality can be shown where the information “might have been considered important by the reasonable investor” and would have “a significant propensity to affect” investors. Mills v. Auto-Lite, 396 US 375.
I think the pulling of an $800M account certainly falls within this definition of material, whereas a single customer dissatisfied with a MCD burger does not.
I think the real question w/r/t insider trading is whether the HF owed any fiduciary duty to MS in that it had insider information that could materially affect the price of MS.
Actually, I think the materiality of one $800 million account to MS is not that different than one burger to McD’s.
The entire article is a waste of space. Morgan Stanley Dean Witter Discover & Co is now trading at just under $14, despite one of the strongest two day rallies the financials sector has ever seen, despite short-sales bans and other molly-coddling. It’s not relevant. MS owned a lot of crap, and then moved into a business area (commercial banking) in which it has no idea how to execute and no edge; and that is why it’s price has fallen.
The entire article is a waste of space. Morgan Stanley Dean Witter Discover & Co is now trading at just under $14, despite one of the strongest two day rallies the financials sector has ever seen, despite short-sales bans and other molly-coddling. It’s not relevant. MS owned a lot of crap, and then moved into a business area (commercial banking) in which it has no idea how to execute and no edge; and that is why it’s price has fallen.
ͳeʡ