Dear CIGAs,

The government’s ruling that non borrowed shorts would not be tolerated in the 19 primary dealers of US government securities has led to a big rally in financial stocks. Will it continue? Clearly a lot of financials are not strong and do not deserve to go up. Some financials are fine and deserve to go up, but now the illegal shorts have become front page news and the world is aware of them.

Jim Cramer, a well known US TV personality and former money manager, is on TV today shouting about the Bush administration and The SEC allowing the up tick rule to expire. He is pointing out how the removal of the rule has created the downside volatility and some of the panic that the US stock market has experienced recently. He argues that the shorts have been bullying stocks and they have caused a lot of panic that would not have occurred if the Bush administration had not ignorantly allowed the up tick rule to expire. He further suggests that the rule should be a 10 cent up tick, not a 1 cent up tick as it was before (the up tick rule stated that a stock must move up at least one cent before a short can be instituted).

If Mr. Cramer and others who are pushing for reinstatement of the up tick rule and the end of naked shorts everywhere succeed, this will definitely move toward ending stock bullying by shorts and will move toward stabilizing the market for financials and other stocks that have recently been battered down.

Clearly the government has the power to squeeze shorts and destroy longs. If market rules are changed fortunes can be made and lost in moments.

Let’s keep an eye out for government action. Mr. Cramer’s rant today seems like a political call for help by the average American shareholder and in the current election year a lot of politicians may listen.

Respectfully yours,
Monty Guild