A working member of the business press writes in response to last week’s post on the SEC’s war on short-selling:
I would make one additional point that I’m sure you’re already aware of—namely that any move to curb short-selling will inevitably curb critical reporting on companies and markets as well.
Any financial journalist committed to delving beyond the corporate handout knows that shorts can be great sources—they can provide all sorts of perspectives and information about a faltering company that you never would have thought of otherwise, and they’re an invaluable counterweight against all those unthinking analysts who just keep bleating “buy.” As long as you keep in mind that they have an ax to grind (though no more or less so than those on the other side dedicated to seeing a stock go up), and verify that their information is accurate, it’s very valuable for a journalist to talk to them.
And now that source of information is going to be severely crimped, because shorts will be leery of being perceived as “spreading rumors” if they give negative information on a company to a journalist. It’s already happening; this week I tried calling a well-known short I’ve spoken to in the past, to get his thoughts about the SEC crackdown, and he wouldn’t even get on the phone with me.
This is, of course, very true. Business reporters are bombarded by “longs” and touts all the time. Contrarian sources are invaluable in helping journalists break through the flacky haze by pointing out problems the companies are papering over.
But as I wrote in the Opening Bell this morning, I’d like to see more coverage of whether the SEC’s move has caused a “short squeeze”, where investors who have shorted stocks scramble to cover their bets by buying shares, sending a stock soaring.
In the five days since the SEC’s announcement, financials have rallied 31 percent, The Wall Street Journal reported today, without noting the SEC connection.