short people

There are three things that come to mind this snowy evening here on the Great Plains.

I bought a CD by Randy Newman on Amazon last week and I listen to it through earphones while I engage in important enterprises on my computer here at home. Two of the three things come from song titles on that CD.

It’s Money That I Love

Short People

The third one is our nemesis Osama bin Laden and his group of merry men.

I read on Yahoo! tonight that Al Qaeda may be planning a cyber attack against financial websites in December. If they do, one of their motivations will be that it’s money that they love. If that’s the case, they will be short people. And as the song goes,

Short people got no reason to live.

“What the hell are you talking about, Jimbo?” many of you are asking. “Is the water cold there in the deep end?”

Yes. Yes, it is.

Well, what I’m talking about is that there are two basic ways to play the financial markets. The vast majority of us wake up in the morning, salute the flag and say we are proud to be Americans and proud to be long the US markets. We own stocks, mutual funds and other equities in our personal and retirement accounts. There are some who play the game a different way and they are said to be “short.” A short borrows your stock from your broker and sells it, putting the proceeds in a cash account. The short is expecting the value of the stock he borrowed and sold to go down. He will buy it back at a later time for less money, thereby making a profit. There are many derivative plays one can play on both sides such as options, warrants, etc., and the short person can play options to leverage his buying (or selling) power.

If Al Qaeda is planning an attack on financial websites, one result of such an attack would be a loss of confidence in the financial system and the markets by the people who are invested in these instruments (the “longs” I described earlier). If these attacks were to occur, a result would logically be a decline in the value of stocks. Let me use a recent movie to illustrate how this would work.

Last weekend we saw Casino Royale. It was a reasonably good movie. One of the subplots was that the villain went short on a company that was introducing the world’s largest jet airliner (despite his broker’s warning that everyone was going to make money buying that stock). The villain used the option chain to leverage his short position with the intention of sabotaging the aircraft and deflating the stock. I’ll make you have to go see the movie to know whether he was successful in sabotaging the plane or whether James Bond kicked his ass. But the villain’s plan was to make the stock go down by illegal means—sort of an insider-trading scheme.

This, I believe, is why that if Al Qaeda launches an attack, they will be firmly ensconced in short positions in all the financial firms first. While this might sound crazy, there is a story that has drifted through the financial blogsites for years that Al Qaeda opened short positions in the major airlines’ stocks shortly before September 11, 2001. That scenario was also spoken about in Casino Royale. And, while I’m sure that Al Qaeda insiders all had short positions on that infamous day, I’ll go to my grave confident that the brokerage statement for the man with the biggest short position was mailed to 1600 Pennsylvania Ave.

If you see the percentage of short positions in the stocks of US financial firms begin to rise, then you should take on an appropriate amount of fear. However, if you don’t mind, I’ll continue to thumb my nose at Al Qaeda and its oddball headmaster. I’ll stay long—long and strong.

At least, that’s the way the prevailing wind is blowing here tonight in Jimbo’s world.