October 29, 2008
Please help to see that the short sale, uptick rule is reinstated on the US stock exchanges. A majority of US citizens now have some exposure to investing in the US stock market, when IRA's and 401k's are included. One would say the mutual fund is the most used investment vehicle for the average U.S. citizen. The USA had been on a steady progression of becoming more of a stock ownership society, which is a good thing because capitalism works best with pools of capital to draw upon. One cannot be so sure an ownership society will be a growing trend going forward if recent occurrences of massive stock redemptions are extrapolated into the future.
Ever since July 2007, when the short sale uptick rule was removed most citizens have seen the value of their invested savings decline substantially. Why? The short sale uptick rule was an equalizer between mutual funds, that typically are bullish on stocks vs. hedge funds which can also be agnostic or bearish on the direction of stocks. Of course you likely know, most all hedge funds are only available as an investment vehicle for rich, so called sophisticated investors.
Ever since the uptick rule was abolished the playing field has been too tilted in favor of bearish objectives found among hedge funds and their uniquely wealthy clientele. Hence, look at any major stock index since July 2007 and you will basically see a downward trend. How to tell the reason for this? Look at a 10-20 year chart of the volatility indexes ($VIX or $VXN) focusing on July 2007. As you may know, the volatility indexes are an inverse bearish/bullish measurement, essentially. Eg; an elevated/rising $VIX favors a bearish outlook.
It is a direct correlation. As soon as the uptick rule was abolished, the over riding sentiment on US stock exchanges has been bearish. Why was the rule removed? Heaven knows? And why it was abolished really doesn't matter, as long as the current unacceptable situation gets fixed. The uptick rule had been in place for decades, and seemed to be a proven procedure for helping to instill an orderliness to how the stock market trades. Ever since July 2007 an individual stock price or an entire stock index can crater to the downside much more easily, as particularly evidenced by the virtually unprecedented downward market action of September and October 2008.
Please, insure the simple procedure known as the uptick rule is reinstated on US stock exchanges. Millions of people could lead much more wretched lives if the uptick rule is not reinstated. It simply is too easy these days for hedge funds and other bearish market participants to destroy accumulated wealth in the average person's retirement and investing portfolios.
Every rally in the stock market indices is much more of an uphill battle ever since the uptick rule was removed. Will all of America benefit with the stock market indices relentlessly being driven into the ground more so than in past decades? Unequivocally, no. And best of all this simple remedy to one of our most pressing economic problems, will essentially have a minimal to zero price tag to fix vs billions of dollars allocated elsewhere. Regards, Patrick McQuaid