I do not expect much to change with any revision of the rules for short selling. We already had two separate policy changes with respect to naked short selling, and this did not put a stop to the practice, or even do anything to redress the outstanding failure to deliver overhang. The players involved are too well connected and the whole exercise amounted to a propaganda session. Regulators accepted the explanation that the issue was mainly due to honest mistakes, as if it was really just a small rounding error on the hundreds of millions of transactions that are processed everyday. The intensity of the abuse was understated and the rule changes were ineffective to deal with what amounts to massive fraud.

Similarly I expect no meaningful change to come from the revisions to short selling, except perhaps to protect the connected banks and engineer a short-covering rally. Why should the markets bounce on requiring an uptick? If you are short today (I am) then you do not need to cover just because the rules have changed. And you can still short all you want. The little guys that put short positions on in the hundreds or thousands of shares will be unaffected by all this. The hedge funds will no longer be able to carpet bomb stocks by shorting a million shares in a few days, but otherwise it will not create any sustainable rally for the market.

Sadly, the regulators do not care what happens to the mining stocks and the junior miners. It is a tiny sector in the market and I suspect they want to see the miners get pounded. There will be no special rule changes to correct many years of trading abuses by the big houses. I do not get my hopes up.

I also expect nothing meaningful to come from the CFTC investigation in the silver market manipulation. Of course the market is rigged, and you have to be a complete moron not to see that, much less require an investigation for months to uncover evidence. It is ongoing everyday, just look up the daily trading chart or the COT report. But the exercise is to put an impression of regulatory oversight in place while they allow the criminals to loot the market. They want to look busy, and present a nice report for the useful idiots in the media to refer to when they say everything is fine.

Until the wheels fall right off the wagon, thats what we can expect. When the delivery failure in gold or silver comes, and it WILL come sometime, then the game is over. Until then, the ringleaders will carry on and the regulators will pretend that its all on the level. The Joe 6-pac investors will assume everyone is doing their job and not take appropriate steps to protect their assets (and asses). Those of us who take the time to see what is going on and buy gold while we can, we should end up okay in the end. We will make a bit of money along the way, since they can slow down the rise in the metals but they cannot reverse the primary trend. Just have confidence that you are right and wait for the scam to collapse under its own weight.

There is no such thing as too big to fail. History has taught that lesson many times in the past, and all scams eventually become unstable and collapse. We cannot know the exact timing when it will occur, but we can be sure that in the fullness of time all market rigging will succumb to fundamental economic realities. As the finite suppllies of real gold and silver bullion are drawn down and new mine supply is constrained, that day may come sooner than many think.

cheers!

mike