doomsday for stock lenders and borrowers

  1. 2,853 Posts.
    lightbulb Created with Sketch. 86
    One of the directors of OPES had been before his Opes employment, a chairman or some such of a strange animal called the Australian Stock Lending Association or something to that effect. It was pointed out that Australia has among the highest amounts of stock available for and used for lending in the world. Recent growth from $200 to $300 billion worth. Quite staggering. No public reporting requirements. Invisible and huge.
    That is probably 1/3 of the entire market or more is borrowed for peanuts and shorted for profit by those who pay very little to borrow the stock. Very active in this trade are the old line full fee brokers looking for a way of surviving in the discount e trading environment where a large proportion of stock investors no longer pay their high fees.
    So OS hedge funds trading through the night there on the Aust market and local day traders borrow stock and smash the stock of any company that is tacking into the wind. Any sort of bad news, out they come. Eg a bit of a decline in the gold price? Smash the mid caps and small caps.
    Who loses most? Superannuation investors who cannot legally play these games.
    But the brokers are borrowing their stock from the custodian firms and evn funds and on lending them.
    This is incredibly risky behaviour.
    Now the federal government has agreed to take over poewer to regulate these matters from the States who are too ill equipped to deal with it.
    When super funds get trashed, especially DIY funds who cannot legally play these games, the buck will come back into the government. People who had provided for their own retirement have been and are being ripped off wholesale and will have to come back to guess who for income support in their old age which for many is right now. The amount allocated in the budget for pensions will fall far short and the taxpayers will have to pick up the tab. Up go taxes and out go governments.
    Naturally any government with half a brain will stop this stock lending from big S/funds pretty sharply. It is extremely risky and no trustee in their right mind should be allowing it. It is probably illegal under the S/act even now, but no enforcement. The power I believe is being transferred right now following agreement at the last COAG.
    Imagine. Suddenly hundreds of millions of dollars worth of short sold stock will have to be covered very quickly.
    There will be droves of defaults and bankruptcies and brokers falling over and then even banks following them. Australia's own sub prime with nuclear attachment. Bonanza at last for the little guy and all the sharks on the beach being bashed with oars and axes.
    If I was an executive of a bank or broker I would be watching the horizon very carefully.
    The stock lending game may be about to be wound right back and governments can be brutal in their own interests, which this most certainly is.
    Got half a brain? Get out of stock lending or borrowing no matter who you are asap. You might be sealing your own doom as there will not be enough stock for sale to fill the covering orders when it comes.
    The grim reaper is sharpening the scythe. It is very big. And hungry.
 
arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.