Short Selling Ban Returning To Insolvent European Countries Near You
"Insanity: doing the same thing over and over again and expecting different results."
- Albert Einstein
Back in August 2011 Europe ushered in the totally idiotic idea of reinstating a short selling ban in financial stocks. We predicted at the time that the result would be a sheer disaster: "To those who may have forgotten, on September 18, the SEC banned the shorting of all financials here in the US. Below is a chart of the carnage that ensued... The same chart is coming to Europe first. End result: 48% drop in under a month." Sure enough, a week later we were right: "European banks are already unchanged compared to the day of the ban and in France they are now negative! What next: selling is illegal or "Speculation" is a felony? We expect to find out soon..." Why do we bring this up? Because according to Spanish daily Cinco Dias this last sugar high recourse of a collapsing system is soon coming back to an insolvent European country near you. From MarketWatch: "Spanish stocks rebounded from a sharp opening loss on Friday lifted by gains across the banking sector and led by a 26% rise for Bankia SA ES:BKIA +26.37% after a media report on a possible ban on short selling of banks. The IBEX 35 index defied losses across Europe to gain 1% to 6,596.40. Spanish daily Cinco Dias reported Friday, citing banking sources, that banks in the country want market regulator, CNMV, to reinstate a ban on short selling of domestic banking stocks."
At this point we are going to go out on a limb and say that if indeed true, and if it happens in Spain it means it will have to happen everywhere in Europe as well for it to be effective, the ramp higher will last for all of 48 hours tops, just as it did last time, and realistically will be shorter due to the habituation side-effects of a liquidity addicted market, and then proceed to lead financial stocks to new lows, resulting in the same outcome we saw after the last short selling ban: another coordinated global intervention to save the world from collapse. Only this time the OIS is already at +50, cut from +100 previously. What next: the Fed will hand out USDs in FX swap at no cost, or even better, negative?
And when this now biannual intervention fails, what then?