"The action in this stock is starting to get really absurd."
Absurd in what way? MFN just seems to be drifting with the other silver stocks, about the middle of the pack:
I would expect that to continue until MFN can show that production is ramping up on schedule.
I don't think that 5% short out of 47 million shares is 'that' much of a short position. Hopefully, they are not 'naked short' without borrowed shares. THAT pisses me off severly and it seems that FTC or whomever, can keep a tight grasp on that.
One theory I have seen on some of the PM news sites is that some hedge funds will short the PM shares while being long the metal. Sort of like a straddle.
I have a small position in MFN due to all the good things I have read about the company and also positive mention on Jim Puplava financialsense.com
Anyhow, that's my take on it. But who really knows? All I know is that when production ramps up MFN should rise provided that Gold \ SIlver etc., keeps rising which looks likely given the demand dynamics of the sector.
The question might be ... why are so many precious metals stocks showing increased shorts.
Perhaps the approval for the IMF to sell 400 tonnes of gold today is an anticipated reason for a decline in Gold.
Another possible answer, it seems that many technical analysts feel the correction in precious metals has further to run and that would correlate highly with a dip in precious metals stocks. The little juniors being the most volatile often react the most drastically. One must beware however as they often rebound violently as well.
Also when so many people think the correction will continue, we have a reasonable chance that they will be wrong...who knows.
Just some thoughts.
"Hold the price down so that some investment bank can faciitate a buyout on the cheap?"
This is such a strange answer. What is remarkable is that you see it so often on Yahoo. Where does such an idea even come from? In my opinion, it's a sad commentary on the state of economic education in America. Is this how small investors invest?
The normal method of investing is that, if you think something is worth more than the current price, you buy it. It is true that an institution would try to hide its true intent, and they might buy 100,000 shares, then sell 20,000, they buy 50,000, then sell 10,000 so that hopefully no one would notice the quiet accumulation. But to sell more and more of something because you think it is undervalued? That whole concept makes no sense from an economic standpoint.
When someone shorts a stock, it is almost invariably for one of two reasons. The first is that they think it will go down in price. The second is as a part of a complex position intended to be risk neutral, but with a guaranteed profit. Thus someone might be long a convertible issue, and short the stock, for example.
Personally it makes me nervous to see the shorting going up in MFN. In 30 years of stock trading, I've never seen a short squeeze, though I knew someone once who said he had a friend that once held a stock where there was a short squeeze. My hope is that this shorting is because of arbitrageurs taking hedged positions where they are long the convertible, and short the stock, and that the short position is not as a result of these shorts doing research that indicates more delays ahead, or other mine construction issues.
I have noticed that MFN is not alone - other silver stocks are also being heavily shorted. Another possibility is that with all the additional capacity coming on stream this year, some are expecting a major drop in silver prices. MFN, SSRI, SRLM and CDE are among those with big production increases expected for 2008, and there may be others.