It is funny how politicians react to a difficult situation. And the similarity and predictability of their reaction. When commodity prices go up, our great Chidambaram bans price discovery! A study can clearly show that the prices of goods are influenced by demand and supply. When demand for a product increases, price increases and when supply increases beyond demand price falls.
Now the great American senate has banned short selling. Short selling is an art and is necessary for the market to be as efficient. I remember in Jan 2008 having a conversation with a fund manager – as I have said earlier in my blog, I thought Tata Power, L&T, and HDFC were over priced. He agreed and said sell not only what you own, but also your neighbour’s shares!
If I am an equity trader in the USA and I see some overzealous banker give a US $ 700,000 home mortgage to a guy earning $ 17,000 a year, the only thing I can do is to short the bank share! Thus short selling is a simple tool which helps at least some “irrational exuberance” guys not jumping up to the Heavens!
Do I like short selling? No frankly i prefer the put options, but for people who are not too happy using options, share loans and short selling should always remain open. People need to realise that only in a democracy can share markets thrive – you need to have 2 views. Or please go to China and create a facade of running a stock exchange.
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