The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1932-06-06

The great argument in favor of short selling is
that this practice serves cushion to the market.
When stocks downward, the shorts" hasten
to cover. Hence, they put in orders to purchase,
which boost the market price of the securities in
volved and gives renewed confidence. This prevents
the collapse Of security values the Stock Exchange
That any such contention is contrary to the whole
logic of short selling has not seemed to put damper
on this cushion talk. 1t is the aim of the profess
sional shorts depress the market far possible
Therefore, they not likely to step in and buy
until the market has gone into what practically con-
stitutes a collapse.
Only bunch about decisive upturn in security
prices will send the bears scurrying to buy and
their obligations. II bear ever serves as cushion
it is contrary his interests and intentions and
result of supposed necessity
The cushion myth is exposed by the well-known
financial expert John T. Flynn, in article in the
New Republic He illustrates his case by using the
example of American and Foreign Power and j. l.
Case common stock two securities in which there was
considerable short activity at the close of last
On Aug. I, last, American and Foreign Power
common had been sold short to the volume of about
$4,000 shares At that time it selling at about 27
1t oscillated in price for couple Of weeks, rising to
its high for this period little 80 at the middle
OF the month.
Then it broke sharply and settled down to about
y at the end Of September. Within six weeks it
thus had declined to little than third of its
value Aug. TO-
Did the bears" step in to the stock from
collapse when it appeared to be breaking-thus sus-
tanning the cushion theory? They did not.
When the prices seemed to be hitting the to-
boggan they did exactly the opposite. They greatly
increased the short sales, thus giving the stock
eaSitforaI trfcr into the On no short
interests stood at $4,000 On Sept. II they stood
at 4l6OO
Further the number Of daily sales OF this stock
greatly increased after the break began. In short
the stock deliberately and sharply was hammered
down.
After Sept II there was some attempt to cover
but this moved slowly When the stock had sunk to
u there still we're $4,000 short shares which had not
been covered. Such covering as done in
large part a result Of England's going of the gold
standard and the temporary suspension Of short sell
ing on the New York Stock Exchange which fright
ened many bears into covering activities.
Thus the cushion turned out to be trapdoor into
the basement.
The ]. I Case short activities we're equally i'm
pressive. There are only $4,000 shares of Chase
common Yet. on Aug. l. 1881, there were 1896
shares short which had not been covered The stock
then stood at CO. BY the end OF September it had
dropped to 5s.
Did the bears put their sturdy and benevolent
shoulders under Case and stop its slide? No more
than they did with American and Foreign Power.
During August they sold and more shares short
Bv Aug Is the short interests had mounted to 10000
shares BY Aug. IS they totaled 1se,6OO, or II per
cent Of the entire issue of common stock.
Moreover. there was the most vicious and per-
sisteat hammeging of the stock through excessive
daily sales Through August and the first half of
Sep enber the weekly sales Of Case common far ex-
ceeded the total stock outstanding. The total issue
Of Case common We have is only ls5oOO shares.
Look at the following record Of weekly sales