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Can
you make your life’s fortune swimming upstream? Yeah, I think you can.
Stay within the school and you’ll receive what the masses historically
receive… a portion of bread and a ton of circus. Make that bread and
CNBC if you will.
You
are wise not to
get caught up in the day to day and minute to minute pabulum thrown your way
by the NY/DC axis of weasels. The knee jerk reactions they illicit are best
left to the orthopedic surgeons.
Let’s
look at some big picture
stuff. The most gullible people on the planet, overall, have U.S.
zip codes. It is nothing short of astounding how many citizens buy into the
official stats our government regularly dispenses. Distraction may just play
a part in that problem. Life is complex and I confess to being easily
distracted. We must insist on focus.
Today
we’re going to look into a criminal enterprise that would make Al
Capone blush. He’s turning over in his syphilitic grave and kicking
himself for not being the first to think of it. Lacking imagination, that
guy.
Here’s
the deal. I’ll start with a poem… “he that takes what
isn’t hizzen, pays it back or goes to prison”.
Talk
about an outmoded ditty. These days you can take what’s not yours, sell it,
and not go
to prison. White collar folk seldom do hard time in case you wondered. They
just pay back 10 to 20% of their ill gotten gains.
Would
you like unlimited access to trade a market in your desired direction?
Most
of us simply buy stocks and go long
that position. We are convinced it’s going higher. You can also short a stock. Say,
for example, you believe IBM is going lower. You can sell IBM even though you don’t
personally own it. You can call your broker tomorrow and sell IBM
and the money from this sell will then appear in your account.
This
type of transaction is legal because the intermediary (your broker) can
borrow IBM stock from a different client and sell this stock into the market.
“Shorting” is a completely normal market function. You can go
long or you can go short. It’s all good.
Where’s
the problem? You are not supposed to be able to short a stock unless you can
actually access that stock. Do you think you could hold sway over a market if
you were given unlimited
access to that particular position? You don’t have to own
it personally and you don’t even have to borrow it.
It’s
called a naked sale. You sell something you don’t own and have no
access to. You can influence and actually dominate any market you choose with
this mechanism. This is completely illegal if the intent is to force share
prices lower. Unfortunately, the security laws regarding this type of fraud
are not enforced.
Naked
short sells are commonplace. U.S. hedge funds appear to be the primary
abusers. Small cap stocks are the frequent targets. Some companies have more
shares sold short than they have issued! This is an obvious fraud. Dishonesty
has been institutionalized.
The
junior exploration stocks have long been abused by these activities. Recent events
suggest this is about to cease. A gentleman named Jim Sinclair has just
pledged his full attention and personal fortune to the cause of ending this
fraud. Sinclair has been an absolute giant in the world of gold for decades.
He knows his stuff. He is also completely fearless.
His recent
proposals put illegal short sale offenders on notice that they stand to be
criminally prosecuted. A $50,000 gold reward is part of this picture. So is
organizational activity. Expect more perp walks in the coming months and
years.
I strongly
believe that the entire junior exploration and mining share sector has been
under the influence of both legal and illegal shorting activity. This is a partial explanation
for their recent failure to keep pace with various commodity prices. Their
historic leverage to mineral prices has been M.I.A. for an extended period of
time.
We’ve
definitely been swimming upstream, but the currents are now changing. It will
just take a few exposures to put an end to illegal naked short selling. No
one wants to spend their days alongside the deposed Elliot Spitzer.
When, not if, the
naked short-selling drag is removed from these small stocks, they will begin
a price appreciation process. Those who are shorting them legally will have to
close out their positions. The only way this can be done is to buy the shares
back. The shorted companies will turn upward. Possibly with a vengeance.
All small stocks are
particularly vulnerable to targeted shorting. It’s not just those in
the resource sector. The Enron debacle is more representative of our markets
than most care to believe. We demand and deserve better.
Invest Resourcefully,
Russel McDougal
Investor’s Daily Edge
All
articles by Russel McDougal
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