The Day After

While out cruising on my 72-footer this past weekend, the Pilar del Caribe, I got a buzz on my TV225 videophone from my father telling me he had been reading the new web site, found it quite informative, but wasn’t quite sure of the need for it. Why were people so suddenly frantically against naked short selling, a practice that had supposedly been around forever yet one he had never encountered in all his years of investing?

Just then my EM Sounder went off indicating it was time to drop my fishing line. To brush him off quickly, I used the tried and true anti naked shorting party line of “because it’s against the law.” “What law,” he asked. “Ummm…,” I stammered, “Good question; Let me get back to you.”

Back at the ranch I prepared myself a cappuccino spiked with Naturaae Gustusus and began to check the net for answers. I found this one site by a guy named Bob who wrote that naked short selling “actually violates a number of rules and sections of the 1934 Securities Exchange Act, as well as subsequent provisions.” Bob also said NASD rules were violated as well. If that was good enough to put scads of people in a tizzy and make them demand a Congressional investigation, it seemed good enough to pacify dear old Dad.

But Dad would have none of it. “I just checked my course material from the Investors Advantage seminar I took several years ago in Zurich. There’s nothing in there about naked shorting, and those guys call themselves experts!” Put in the unfamiliar role of actually trying to defend the anti naked shorting folk I tried to explain there were supposedly references in the Act to failing to deliver shares… probably by horseback, but why nitpick. As always, Dad was already thinking one step ahead: “Are you saying anything that violates NASD rules or breaks the Act is illegal and should be banned?” “Well, errr, I guess so,” seemed the only possible reply.

“What about all those stocks that get delisted-- didn’t they get delisted for breaking NASD trading requirements,” he demanded to hear me acknowledge, which I had no choice but to do. “Then by their mere trading, aren’t those companies breaking the same body of law that the naked short sellers are accused of?” Having proven his point about the NASD, it was now on the SEC side of the equation: “Aren’t companies required to disclose the number of issued and outstanding shares and make other disclosures of material fact? Aren’t those things covered by the Act?”

What could I say? He was right. I knew once Dad got going it would take a while, so I pulled out a bag of barbecued WaferChips and settled into my easy chair. “Isn’t it hypocritical,” he continued, “to rail against one group of people that you suspect are allegedly breaking a set of laws, but not against another where you know in black and white they definitely are in violation? And what about all those people banned from the industry that find jobs as promoters for these companies?”

I tried my best to explain that to the anti shorting folks any other documented illegalities were not just distractions, but propaganda tools to deflect attention from their movement. “But isn’t by far the most vociferous group on this issue the legions of penny stock companies and promoters,” Dad retorted.

Thank goodness the gal from Countryland Wellness had arrived to give me my daily massage. I politely told Dad I had to go. “Hey, you never answered my original question about what people mean my naked shorting,” he exclaimed. The honest answer was that the more I read those anti naked shorting sites, the more confused I got. In their view, $1 trillion had already been sucked out of the markets and privatized social security would be bled dry in no time. So I told him to give me some time to figure that out and, when I did, I’d call him back.

By the time y’all will be reading this I should be patrolling the halls of Hedge Fund World 2005. If you see me there, do say hello.

Welcome to the Official NAFF Blog

When I founded the National Association of Freedom Funds many years ago, the #1 world issue was the impending millennium. I believe the killing we made on naked shorting Y2K stocks will one day be recorded as a watershed in securities deregulation history.

As I sit here at my desk in our Cayman offices, I note how calm the seas look. Yet, at what we’ve seen could be a moment’s notice, a tsunami could come from nowhere and wash us all away. Without total deregulation of our markets, at any given moment we could be launched into a depression that all the Xanax in the world wouldn’t cure.

Let me give an example. A couple of years ago, our BWI based fund identified a small Canadian diamond mining company. Given the fact our friends entrenched in the diamond industry assured us there was no way this company could compete against them, we felt obligated to jump in. Yet despite the huge number of issued shares, it was impossible to borrow. Needless to say, we profited handsomely from naked shorting their shares and, as predicted, the company never came close to succeeding. By short-circuiting their stock, we saved future investors boatloads of money.

The secret of the success of the way of life we Americans enjoy is rooted in the checks and balances our Constitution lays out for our government. The National Association of Freedom Funds acts in much the same way in regulating our stock market. We do it using the benefits of a free market. It goes without saying that the less regulation one imposes, the freer a free market can be.

When the SEC first proposed Regulation SHO, I personally met with influential Congressmen, lobbyists, and members of the SEC staff. I praise them for enacting many of my suggestions (which I’ve promised to keep confidential for reasons of national security), but I think it obvious there is much room for improvement.

In fact, everything was going along swimmingly until these anti naked shorting web sites started to pop up. I had never read such pretentious diatribe in my life. When a major TV newsmagazine came knocking (a story we easily delayed until we were able to preempt it with one of our own on another network), I knew the time had come for a web site of our own. I knew the only way to get our message across was to outspend and out-lawyer our opponents. So look for major print advertisements, infomercials, and plenty of lawsuits against anyone who spreads misinformation about us.

Enjoy!