I see the SEC is considering a ban on short selling. This is, of course, the same SEC that has failed to take any action against companies that might have, say, spread false information to support their stock prices  (cough “we are well capitalized”, “KDP is willing to buy us”, “Buffett will save us” cough).  It’s the same SEC that in 2004 exempted certain large banks from regulations on capital requirements, allowing them to lever up as high as 40 to 1, and removed discounting designed to account for risk.

This is nothing short of a total panic by people who have no clue what they are doing. And to think, I mocked Russia for being a nation run by market commies.

– Barry Ritholz, The Big Picture

This is a move that reeks of desperation.  It’s also a move that historically results in what I like to call Epic Fail.  As Tim Knight said, “They can make shorting illegal. But not selling.”  If you want to see how well it worked for China, go take a look at the Shanghai Composite (from 6100 to 2000 and still falling).  All they’ve done is provide fuel for a rally at the expense of removing the fucking floor.  This is the kind of fetid donkey feces one expects to see in developing countries, shortly preceding the rioting and the stonings.  We are well into the land of unintended consequences, and Rick Santelli was absolutely correct back in Spring when he said “we might as well put a hammer and sickle on the flag”.

This has certainly been an exciting week in the markets, and I’m going to need more popcorn. At times like this, people start asking questions that can generally be answered with “it’s a little too late to do anything about it”. In short, lacking a feel for the market, people tend to buy and sell at the worst possible times. What follows is my personal take on likely outcomes.

First, my price targets for the S&P 500 remain unchanged; 1070 intermediate, final bottom around 850. (The final number has a good deal of wiggle room; we could easily reach the 700s.) We should reach the final bottom in one to two years. What is most likely over the next month or two is yet another bear market rally. The second most likely outcome is a plunge down to 1070 preceding such a rally. Any move for which one is not already positioned carries sizable risk; either missing a rally or enduring another significant decline.

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This has been making the rounds on Wall Street:

Breaking News: Lehman To Be Acquired by Tooth Fairy

The market responded with enthusiasm to reports that the Tooth Fairy has agreed to acquire Lehman. The purchase price has not yet been determined and will be set by Dick Fuld wishing upon a star, clicking his heels three times, and being transported back to that magical place where Lehman still sells for over $70 per share.

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