* If I short the stock market, what risks are there that I won't get paid?
*
  Category: Specific Markets     I detect a tone of urgency in Bob
Prechter's latest video Theorist, and I understand why. Alas, I do not have
wealth to protect. But what I do have to protect is my ability to short this
market on its way down in order to generate income. Is it possible/probable,
though, that I may be in the position of knowing to short the market, but
end up losing my trading account because of my broker going under, or
because short sellers won't get paid for other reasons? Thank you!
  Responder:
Vadim Pokhlebkin Date: 7/18/2008  It's entirely possible, and even likely,
that eventually a firm or exchange will run into trouble as the bear market
progresses. (Case in point: Bear Stearns.) Furthermore,

"Some have asked whether they should buy puts for wave (3) of 3 down. Well,
it might work, but what if the sellers can't pay? This bear market will be a
quagmire of risk ... In the case of a system-wide default, no one will
accept blame, and the government will probably try to get its banker and
broker friends off the hook. The individual investor, as always, will be the
biggest loser ... If you are a speculator, futures are easier to manage, but
even they are not guaranteed. To maintain market integrity, brokers will
have to be especially vigilant to close out under-margined accounts. If they
don't, the system will have trouble paying off the winners. Keep an eye on
the Commitment of Traders report. As long as the commercials are net short,
we can be sure that the shorts will be paid. When the 'large speculators,'
i.e. the hedge funds, and the 'small traders,' i.e. the public, get net
short, the chances will dim that the shorts will be paid. When silver was
soaring in late 1979/early 1980, the longs did not get paid. The exchange
changed its rules to allow liquidation of existing positions only; the longs
outnumbered the shorts, so when liquidation began, the market collapsed.
Insiders rarely lose. There is also political risk. Politicians can buy
votes by railing against unpatriotic short sellers and legislate against
them." -- Bob Prechter, Elliott Wave Theorist, June 2006, excerpt; full copy
available from EWI's Customer Service for $20.
  Category: Specific Markets     I detect a tone of urgency in Bob
Prechter's latest video Theorist, and I understand why. Alas, I do not have
wealth to protect. But what I do have to protect is my ability to short this
market on its way down in order to generate income. Is it possible/probable,
though, that I may be in the position of knowing to short the market, but
end up losing my trading account because of my broker going under, or
because short sellers won't get paid for other reasons? Thank you!
  Responder:
Vadim Pokhlebkin Date: 7/18/2008  It's entirely possible, and even likely,
that eventually a firm or exchange will run into trouble as the bear market
progresses. (Case in point: Bear Stearns.) Furthermore,

"Some have asked whether they should buy puts *for wave (3) of 3 down*.
Well, it might work, but what if the sellers can't pay? This bear market
will be a quagmire of risk ... In the case of a system-wide default, no one
will accept blame, and the government will probably try to get its banker
and broker friends off the hook. The individual investor, as always, will be
the biggest loser ... If you are a speculator, futures are easier to manage,
but even they are not guaranteed. To maintain market integrity, brokers will
have to be especially vigilant to close out under-margined accounts. If they
don't, the system will have trouble paying off the winners. Keep an eye on
the Commitment of Traders report. As long as the commercials are net short,
we can be sure that the shorts will be paid. When the 'large speculators,'
i.e. the hedge funds, and the 'small traders,' i.e. the public, get net
short, the chances will dim that the shorts will be paid. *When silver was
soaring in late 1979/early 1980, the longs did not get paid. The exchange
changed its rules to allow liquidation of existing positions only; the longs
outnumbered the shorts, so when liquidation began, the market collapsed.
Insiders rarely lose. There is also political risk. Politicians can buy
votes by railing against unpatriotic short sellers and legislate against
them."* -- Bob Prechter, Elliott Wave Theorist, June 2006, excerpt; full
copy available from EWI's Customer Service for $20.

--
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Yours Sincerely,

B. SriRam

Director, Reliable Stocks and Shares(India)Ltd

4B,Skylark Apartments,

6,Rutland Gate FifthSt.,

CHENNAI- 600006.

Ph:044-42027089/42010221/28332373
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