Wednesday, April 8, 2009

Cramer From Real Money: Professors Fail To See All The Angles

The following is a good synopsis of the academics' myopia on the subject of stock markets, stock trading and the "uptick rule." It's really irritating to read these studies, as it becomes obvious about 2 paragraphs in that they've seemingly NEVER traded a stock in their life and don't really understand how the stock market works.

Cramer's being quite diplomatic when he writes that they're failing to see all the angles; what they're not seeing is right in front of their face. With some common sense, some experience in the markets, the professors would see their studies are at best myopic - and at worst just plain 'ol wrong:

Professors Fail to See All the Angles

By Jim Cramer
RealMoney Columnist
4/8/2009 10:17 AM EDT

"It's really being done because there's this perception that there are bear raiders, or people pushing the price around, and there is concern that there are short-sellers doing that, " says Charles M. Jones, a professor of Columbia Business School, in this morning's Washington Post. "Call them manipulative or abusive. But we haven't been able to find them in the data."

Of course you can't, professor. They don't have to identify themselves as short-sellers anymore. They can do whatever they heck they want because there's no enforcement of the naked short rule. So you don't have to mark your positions short. Further, you have to incorporate all of the ETFs that allow shorting on a double or triple basis. When I sat down with specialists on these numbers, they showed me proprietary data that indicated 40% to 50% of the volume during the big bank raids were short.

Furthermore, the professor, who perhaps never traded, doesn't know what it is like and what you can do to a stock without the uptick rule vs. being forced to operate with it. Before the government banned married puts, where you could buy puts and common the same time and then blast out of the common -- and I qualify again, IT WAS LEGAL, because people always misinterpret what was done in the old regimes -- you could cause hellacious damage to a stock. Did the professor understand life before the rule, and after, since the market dropped 47%?

Most important, unless you have traded, and you know about collusion and mindset selling, you would not know the power of destruction that the shorts can unleash if done simultaneously. I am sure the good professor could say, "Well, prosecute the raids," but the government has shown no inclination whatsoever to go after these ne'er-do-wells.

Put simply, the idea that the uptick rule doesn't matter, which is really the province only of the academics, is precisely what I hate about nonprofessionals opining on our business. They simply don't have any real understanding of how dirty it is, how the numbers don't tell the truth unless you dig down as I did, and how psychology works.

The professors, who seem uniform about this rule, just can't be trusted. They are too far away from the fray and they have helped create mass destruction with their seemingly harmless studies.

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