SEC To Ban Shorting? SAY IT AINT SO!

Today was quite a wild day for the markets, complete with a huge short-covering rally in financials.

The action was driven by prospects for a bailout plan to prop up our drunk and stumbling financial markets. In addition, England's Financial Services Authority put in place a temporary ban on shorting financial stocks.

And of course, we are now hearing rumblings that the US government will do the same. While I'm not surprised that the US government will step in and bail out the powers that got us into this great mess, I am pretty shocked at the notion that that major financial regulatory bodies are even considering engaging in blatant manipulation of supposedly free financial markets.

The US already has in place what is officially called The Working Group on Financial Markets, or more commonly, The Plunge Protection Team. To my knowledge there is no official disclosure of the Working Group's actions in our markets, but it is thought that it steps in the market and adds liquidity when things get seriously funky to steady things out. But now, the powers that be are no longer afraid to take manipulation into the open.

I am personally horrified by the thought of the US government banning short selling of financial stocks, or any stocks for that matter, because it goes against exactly what I love about investing - the fact that if you're bright and able to think independently, you can get in there and make money.

The freedom to go long or short as market conditions change allows risk-tolerant traders and investors to profit in all market environments, and a ban on shorting completely favors long-only investors over those with a knack for profiting on the short side. Banning shorting of any particular sector punishes those who were smart enough to see the carnage coming, and rewards the foolish crowds that were buying financial stocks all the way down.

After leaving my position with TheStreet.com where I was not allowed to trade individual stocks, I opened an account with thinkorswim (SWIM), and began trading on July 15th. Since then, I am up 4.3%. Granted, I haven't hit the ball out of the park, but I did beat the S&P 500, which was roughly flat over the same time period.

And the reason I have beat the S&P is almost entirely because of two positions - my short position in Harman International Industries (HAR) and my puts on US Global Investors (GROW). Without them, I'd definitely be in negative territory. They've more than made up for my losses in names like GameStop (GME) and ironically, thinkorswim.

In closing, I am totally for the government enforcing rules that are on the books, including those regarding naked shorting. But the idea of trying to manipulate the market up by eliminating what is a very useful tool to many investors just makes me sick.