collective on foreign affairs
5th. December 2023
I] STOCK MARKET and CAPITALISM
The stock market is a central institution of capitalism. Companies go to the public to seek funding in order to raise capital for their expansion.
In any enterprise, its economic growth consists in the enlargement of business profitability, thus the stock market’s movements can impact companies in a variety of ways. The rise and fall of share price values affects a company’s market capitalization and therefore its market value. The higher shares are priced, the more a company is worth in market value whereas a lowered share price, the less value is its market worth.
The buying and selling of stocks and shares is what Karl Marx expressed as ‘fictitious capital‘. This is where money is put into circulation without any equivalent in values, that is, without any actual commodity production or genuine productive activity.
When a society arrives at the Financial Capitalism phase, it is at the stage of capitalism in which economic and political domination is exercised by financial institutions or financiers rather than by industrial capitalists. Finance capitalism is characterised by the pursuit of pure profit from the purchase and sale of, or investment in, currencies and financial products such as bonds, stocks, futures and other derivatives like modern cyberscurrencies.
II] SHORT SHARE SELLING
Short selling is a way of making money on company stocks for which the price is falling. It is also referred to as “going short” or “shorting.” Short selling in stock market is often executed by one group of investors (the corporate insiders) who knowingly knows about a certain company weak performance but whose business potentiality still has an competitive edge or specific corporate advantages. On the other hand, if a business sector is going to be weakened temporarily – though could likely improve in the future – these corporate vultures would likely swoop in to buy stocks when these stock-shares are selling off at bargain prices.
On these particular series of events, the specific situation occurred when Hamas’ crossbordering into Israel on October 7 caught the Israeli army unpreparedly off-guard. Somehow or somewhat, somebody seemingly knew in advance and made billions betting against Israeli shares traded locally and on Wall Street five days before the Operation Al-Aqsa Flood or Deluge; Arabic: عملية طوفان الأقصى, short-selling Israeli shares – betting that they will fall – spiked in the days before October 7, far exceeding the short selling during “numerous other periods of crisis,” Robert J. Jackson, Jr., Joshua Mitts and colleagues wrote in a paper titled “Trading on Terror?” published in SSRN; ‘Our findings suggest that traders informed about the coming attacks profited from these tragic events.’
Robert J. Jackson, Jr – New York University School of Law – once served as commissioner of the U.S. Securities and Exchange Commission, and Joshua Mitts – Columbia Law School – is an expert on short selling, where the investor is betting against the security. He is also familiar with the Israeli market.
From the published paper, the ex-commissioner and his team had examined many transactions in the EIS, which is a security traded on the New York Stock Exchange through which investors can gain exposure to Israeli shares (MSCI Israel Exchange-Traded Fund, or NYSE: EIS).
It is often stated that investing in the EIS is equivalent to investing in the Israeli economy. Betting against EIS means you are betting against the Israeli economy.
The paper by Jackson and colleagues is, thus rather enlightening insofar that the authors have had anchored on data officially reported to the U.S. Financial Industry Regulatory Authority (FISA), and in the analytical process that follows, the researching’ team admirably identified two huge transactions selling borrowed units of EIS on October 2. Based on these volumes, the short sellers seem to have made millions of dollars.
[ EIS is an exchange-traded fund that tracks Israeli shares in New York. This is one way to bet on Israeli shares without buying any. EIS tracks the main indices on the Tel Aviv Stock Exchange, including giant Israeli companies such as Nice, Teva, the banks, Elbit Systems and Israel Chemicals ]
III] TRADING ON TERROR
According to the Jackson et al paper and other unverified reports, Israeli sources had indicated that Hamas has financially savvy people and it is not complety implausible that they bursted behind these shorts’ shots. Furthermore, the short selling could well be executed by Hamas on its behalf by other actors or proxies.
While the source of these so far putative information leading to the short selling as yet not completely known presently, it is however still plausibly the caper originated in Hamas circles: “Our findings suggest that traders informed about the coming attacks profited from these tragic events,” Jackson, after the Operation Al-Aqsa Flood or Deluge or Arabic: عملية طوفان الأقصى, wrote:
1) From Jackson and the team, one can say that they found strong indications that, in early October, somebody in U.S. stock market circles anticipated catastrophe in Israel, leading stocks to crash.
Indeed, on October 2, that somebody or somebodies carried out an enormous volume of short transactions on the EIS – meaning they bet against Israel.
2) In fact, from what one knows, the volume of short transactions on October 2 was so huge – 227,000 units, compared with a few thousand on any given day – that the transactions did not look or seen as a gamble. Whoever was behind the transactions apparently harboured confidence that some disasters or others would strike Israel.
Shorting involves profiting from securities you do not own. If you are confident that a given company’s shares are going to fall, you borrow them from somebody, sell them, and later (sometimes just within days) you buy them on the market (at the lower price, if you were right), give them back to the lender and pocket the difference.
So, if you short a stock and it falls, you win. People shorting Israeli shares on October 2 did well. The value of EIS fell by 7.1 percent on October 11 (the first day the American market was open for business after the conflict began), and over the 20 days following that tumultuous weekend, EIS lost 17.5 percent of its value.
3) Moreover, this situational incident indicates that the short selling that day far exceeded the short selling that occurred during numerous other periods of crisis, including the recession following the [2008] financial crisis.
Specifically, if a trader borrowed a unit of EIS and sold it for say $54, after the crash the trader could buy the unit for $44.50, return it to the lender and make $9.50 per unit.
To examine how unusual the gamble against Israel was, the researchers further checked the volume of short transactions in EIS units from 2009 to 2023, during which Israel experienced plenty of crises.
4) There were 3,570 trading days throughout that period. The volume of shorts on EIS on October 2 was in the top 99 percent percentile. The “short ratio” for EIS was also extraordinary on October 2: “It is extremely unlikely that the volume of short selling on October 2 occurred by random chance,” they wrote.
“Moreover, it indicates that the short selling that day far exceeded the short selling that occurred during numerous other periods of crisis, including the recession following the [2008] financial crisis, the 2014 Israel-Gaza war, and the COVID-19 pandemic,” they added.
For one Israeli company alone, 4.43 million new shares sold short over the September 14 to October 5 period yielded profits (or approximates avoided losses) of millions on that additional short selling for one out of hundreds of securities traded on the TASE. Although there were no aggregate increase in shorting of Israeli companies on U.S. exchanges, Johnston abs Mitts did identified a sharp and unusual increase, just before the attacks, in trading in risky short-dated options on these companies expiring just after the attacks.
5) The other grounds for their suspicion are the fact that the short transactions were carried out during the Sukkot Jewish holiday, when nothing unusual was happening in Israel and nothing dramatic was expected.
Jackson and Mitts even checked for correlation between the shorting and the Netanyahu government’s plans to overhaul the judiciary, where the greatest dram
was on July 24 – the day the Knesset voted to revoke the reasonableness standard. The date of the vote was known in advance, though its results were not. In fact, EIS units lost 5 percent of their value following that vote, attesting that the market had not anticipated the outcome. There was no unusual volume in shorts.
6) Also, as shorting is risky, but if you bet against a share and it rises, you lose. The bigger the short, and the longer it lasts (until you have to return the security), the bigger the risk. The giant gamble against EIS (meaning, against the Israeli economy) was done when the market was trending upward. In fsBetting against a market trend just increases the risk. Also, the shorts were unusually long, strengthening the theory that the investor knew of the attack in advance.
7) Interestingly, Mitts and Jackson identified similar patterns in EIS in April, when rumors were circulating that Hamas was planning to launch an attack. “Specifically, short volume in EIS peaked on April 3 at levels very similar to those observed on October 2,” they stated.
8) There, too, it was concurred that coincidence beggars belief and suggests the information originated in Hamas. Terrorists caught in Israel related that the attack had been planned for April 5, on The Passover eve, but was canceled at the last minute – whether because Iran ordered it so, according to some media sources, or because the Israeli army was on high alert at the time.
The short spike on April 3 was about a week after Prime Minister Benjamin Netanyahu tried to fire his defense minister, Yoav Gallant, triggering mass protests by Israelis. By April 3, however, it was clear that Netanyahu had reversed course on ousting Gallant – indicating that whoever was shorting Israel was npt doing so because of that rumpus, but because of the planned (albeit canceled) terror attack.
9) The researchers also had searched into shorts on the TASE and found a significant spike in the days before October 7.
In fact, shorting on the TASE began to increase from August, but peaked in the week before the attack. There was no obvious reason for the behavior; Israel was on holiday, the public sector was shuttered and a lot of Israelis were on vacation. There is no reason to associate the shorting spike with the judicial overhaul, the researchers said, noting there was no particular shorting activity following the “reasonableness” vote in July.
Again, the suspicion arises that somebody had prior knowledge of the Hamas attack.
10) In addition, one must confirm, Jackson and Mitts did not identify an increase in short-selling shares in Israeli companies traded in New York (as opposed to short selling the index tracking Israeli shares). This is also or can be interpreted due to the fact that investors figured the military industries would do well from hostilities and many of the other companies operate in the international markets, so the terror attack on Israel would not hurt their business.
11) Jackson research team also noted that while the volume of additional trading in EIS was absolutely abnormal in New York, it was not, however large in absolute terms – probably because there just is not that much trading in its units. However, they definitely did observe spikes in short selling on the Tel Aviv Stock Exchange.
Shorting the TASE from mid-September to October would have been enormously lucrative, the researchers calculate. In just Bank Leumi alone, “4.43 million new shares sold short over the September 14 to October 5 period yielded profits (or approximates avoided losses) of 3.2 billion NIS [nearly $900 million] on that additional short selling.”
12) The authors however could not identify whether there was any connection between traders short selling in New York and Tel Aviv directly.
Note that Jackson and Mitts do not claim the information originated in Hamas. However, the information they collated suggests as much. Hamas had planned the attack for months and its leader, Yahya Sinwar, seems to have planned not just the tactical aspect but logistical and financial aspects as well.
On the other hand, financial capitals in Wall Street and Tel Aviv Stock Exchange (TAFE) have much not improbable involvement, too, by discerning the ease in getting war-financing chestboards similar to the Ukrainian venture.
Also, always remembering that from J. W. McCallister’s research in The Grim Reaper where 80% ownership of the New York Federal Reserve Bank- by far the most powerful Fed branch – are controlled by just eight families, four of which reside in the US. They are the Goldman Sachs, Rockefellers, Lehmans and Kuhn Loebs of New York; the Rothschilds of Paris and London; the Warburgs of Hamburg; the Lazards of Paris; and the Israel Moses Seifs of Rome; read New Left Malaysia, 2022, The Federal Reserve Cartel.
If one believes Hezbollah leader Hassan Nasrallah that he did not know about the Hamas attack in advance, then Hezbollah was not the one shorting Israel. Nor Iran, by the same logic. Only investigation by law enforcement, in Israel and the United States, may uncover who benefited from the terror of trading short transactions.
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