The Waterbury Democrat., 1932-08-13

New York, Aug 13.-Asserting that normal short selling is an es- sential part of a free market In securities, Howard c. Sykes, presi- dent of the New York Curb Ex- change, comes to the defense of the security exchanges in an article in the current issue of Credit and Financial Management, official publication of the National Asso- ciation of Credit Men.
 "It ig the vital truth not gen. erally recognized today" Mir Sykes explains, "that the severity of the decline in security prices in 1929 was due to the absence of any slzeable 'short" interest in the securities market. During the long period of bullish operations. those who had realized that prices for stocks were rising far above their intrinsic valuations and who hahd taken short positions in the market with a view of stemming then tide and stabilizing prices, had time and again been forced to cQv- CT their commitments as a result of a nationwide buying movement which had gained irresistible mo- mentum.
 Consequently. there were few bearish interests or bearish opera tors left in the market when the reaction actually set in and it happened that when general liquid- ation appeared, based upon a changing business situation. the market became decidedly topheavy. Figuratively speaking, all were sellers with no buyers. Had there bene a Substantial short interest in the market in 1929, not only would the hysterfcal bullish specu- lation have been reasonably check ed, but, in my opinion, the se- verity of the reaction would have been greatly modified.
 "The opinion in some quarters seems to predominate that anyone who sells short is a rascal and ought to be severely punished. We hear much argument about short selling during these depression days. Tn the years of the bull market 1t was seldom mentioned. However, in discussing this prac- tice, one must consider its effect under any and all circumstances. A speculative short sale. is one in which the principal sells a stock which is, not owned by him, but which he is obliged to borrow in order to make delivery. He must return these borrowed shares at short sale resolves itself into a contract to deliver at future date given number of shares of stock, at a fixed price, which are not owned at the time of sale.
 d"rw0 oRcapfioIo u,D,ioh dotar mine the success of any enterprise are knowledge and judgment. If we know, to the exclusion of others that certain veents are about to happen, we take advantage of that knowledge and make transactions accordingly. If our judgment tells us that certain happenings are likely to occur, we act in keeping with 1t. The application of these two factors, to very large extent, determines the price of anything, whether 1t be needles or steam shovels.
 The farmer is an example. He estimates that his paintings will produce a-certain amount of wheat, If he believes that the price of wheat will decline, he sells his crop for future delivery. In the event that his crop should be damaged or fails of production, he would be obliged to purchase the wheat in the open market to meet his contracts.
 Consider the position of a job Der whose entire business consists Qf trading in merchandise. In al- most all his dealings he sells a product without actually owning 1t. He expects to buy 1t at a cheap CT price and so make profit. The farmer and the Jobber, like the short seller of stocks, all contract to deliver something in the future which they do not own att he time the contract is made, This same operation occurs in many other lines in which agreements are made