To short this stock (if you can short it at all) costs 50% to borrow in annual interest. That interest goes to whoever owns it. So, IF that interest keeps up long-term, the longs who are loaning the stock will actually make money on this all the way to the final payout, at current prices. There are other ways to short WHX, which involve expensive options that also reflect the high borrow interest rate. A few ways to alleviate this sooner: 1) everyone who buys the trust offers the shares to short so all longs can collect the high loan interest, which would lower the loan interest rate and make it unattractive to be long, although that is not in the interest of those who are long and already loaning shares (note that many longs are not loaning out the shares, only those who loan them out get the 50% interest, so some longs are benefited for their risk, some are not), OR 2) all (or many) shorts get out (buy shares back) which would also alleviate the borrow interest rate and make it unattractive to be long, although that is not in the interest of the shorts.
It is clear in this case that it is the LONGS who are loaning shares that are being supported by lack of understanding in the market. Perfect information and the ability/understanding for all longs to loan out their shares at the high interest would cause their case to fall like a house of cards.
As with most things, the best way to alleviate this condition is to get everyone to understand and admit that the emperor (he who is long WHX) has no clothes. That's when he will realize he is naked and run for cover.
Sentiment: Strong Sell
"As with most things, the best way to alleviate this condition is to get everyone to understand and admit that the emperor (he who is long WHX) has no clothes."
Since most of what you wrote is wrong, I'd suggest you cover your nakedness first.
"That interest goes to whoever owns it. "
Most of what is written in these threads is people who assume stuff without really knowing anything about what they are writing. In fact, most of that interest goes to the broker. I have received substitute payments (in liue of distribution) on various trusts indicating that my units were loaned out to shorts, however I never got any of that interest. All I got was a payment at the end of the year to compensate for the higher tax rate of substitute payments versus dividends.
Loaning out shares is a good business for brokerages.
"To short this stock (if you can short it at all) costs 50% to borrow in annual interest."
Hmm ... that's so preposterous you MUST be kidding. But for anyone who might mistakenly believe there are any facts in your post, the 50% is not interest charged on short sale, it is the minimum capital requirement in a margin account. For example, if the proceeds of a short sale are $1,000, it is required that the $1,000 proceeds of the sale AND $500 be in the account while the short position is held.
"That interest goes to whoever owns it. So, IF that interest keeps up long-term, the longs who are loaning the stock will actually make money on this."
Not even vaguely correct. The lenders of shorted shares get no compensation.
"note that many longs are not loaning out the shares, only those who loan them out get the 50% interest"
Note that Baloney doesn't come sliced any thicker.
"It is clear in this case that it is the LONGS who are loaning shares that are being supported by lack of understanding in the market."
Are you absolutely, positively sure that YOU haven't cornered the market in lacking understanding? You're so good at it, there might not be any room left for anyone else to misunderstand the market. At least not to the laughable extreme you've taken it.
When I say 'not in the interest of the shorts' above, I mean those who buy back shares now no longer benefit from any drops in the share price. It IS in the interest of any shorts who remain short...
You can see the imbalance here. Some longs loan out the shares and benefit from the 50% loan interest. Many longs do not loan out the shares and take greater risk vs. return. But ALL shorts have to pay the 50% interest. If you are short, you want to educate those longs who are ignorant of the interest they are missing, as well as the risk they are taking if they don't understand the trust's payout dynamics and prospects vs. a regular dividend paying stock. As long as that information gap exists, this thing will be propped up inappropriately.
I can't buy the idea that anyone would cover a short just after earning the obligation to pay the distribution due to the long holder of their shorted shares, especially since there is no catalyst to cause this stock to go up. Having said that, it does feel like someone is supporting this stock in an attempt to keep it from dropping significantly. I just can't understand who or how, since the largest institutional investor only holds 384k shares. Hedge funds who don't need to declare their positions perhaps?
I too expect the price to drop into the low $5 range, if not lower toward the all-time low of $4.35. Unfortunately, that was the concensus opinion after the last distribution, but it never went be low the mid-$5.00 range before quickly rebounding above $6.00.
Hello RC, Well, last quarter was before this curyesterday's payout which is complete (8x more to come) where this payout is worth 11-12% (1/9) of the total value of the stock value (this current payout) and 12-13% (1/8) next dividend payout. That is my reasoning for the $5 level. The stock value with 8 dividends now left is really only $3.60 / share (if the dividend stays at current levels which is doubtful).