You Read it Here First

The Wall Street Journal today picked up on the SEC economists study that I noted the other day, as has AOL's often quite savvy Blogging Stocks blog.

The study deals specifically with naked shorting in the IPO market, but its conclusions go far beyond that.

The study eviscerates the fraudulent theories advanced by stock market conspiracy theorists such as Phil Saunders, a former used medical equipment salesman and self-styled "market expert" who posts crackpot rants under the pseudonym "Bob O'Brien," and is notorious for his touting of the disastrous subprime lender Novastar. Saunders had claimed time and again that Novastar was a victim of these same mythical "stock counterfeiters" and "naked shorts," and anyone who believed him was soaked.

This same moron is still shamelessly pummeling away at the imaginary naked shorting demon. His "sanitycheck" blog, heavily promoted by Overstock.com CEO Patrick Byrne, contains analysis by "experts" such as a dentist who writes market treatises when not filling cavities. Its comments section reads as if it were written by Cho Seung-Hui.

Saunders and the inept CEOs he represents contend that shares decline not because of management incompetence, but because of something called "fails to deliver" securities. Those are supposedly equivalent to evil, rapacious"naked short-selling."

If the "fails to deliver" leg of their mythology is sawed off, the whole snake oil routine collapses.

The odor you smell is fresh sawdust.

As noted in the Journal story, "delivery failures exceeded short sales for a large portion of the IPOs, which the economists said 'casts doubt on the notion that the level of fails to deliver are caused by naked short selling.'"

Blogging Stocks's Zac Bissonnette observed:

The naked short selling issue looks like a red herring to me, tossed around by CEOs whose stocks are underperforming because management has established a track record of OPUD -- Over-promise, under-deliver. In the case of OSTK, the only fail-to-deliver investors need to worry about is Patrick Byrne's failure to deliver profits.

Hear, hear.

© 2007 Gary Weiss. All rights reserved.

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