Are Short Sellers Wrecking Morgan Stanley (MS) and Goldman Sachs (GS)?

As I'm writing this, financial stocks are being absolutely taken to the cleaners, with Goldman Sachs (GS) and Morgan Stanley (MS) leading the way. Here's a 3 day chart of both stocks:




















A lot of people out there are blaming short sellers for this action, but I believe the explanation is much simpler. First, let's remember that like most financial stocks, both GS and MS are hard to borrow so if there's shorting going on, the activity is probably limited. And secondly, let's remember that stocks can also be driven down by longs who are dumping their positions. And third, who the hell wants to buy financial stocks right now?

So to make a long story short, these stocks are getting killed because the longs are capitulating and dumping their positions after taking huge losses, without a great deal of buyers out there to take the other side of the trades. I'm willing to bet an awful lot of money is coming out of mutual funds today, and for most portfolio managers, the brokerage stocks are the first to go.

On the positive side, the destruction of traditional Wall Street will give enormous market share to firms like Lazard (LAZ), Raymond James Financial (RJF) and Evercore (EVR) as clients learn that a big balance sheet isn't always the best thing in the world. When I do feel we're bottoming, those are the stocks I'll be looking to pick up for the intermediate to longer term.