By Ambrose Desmond
Trying to find a silver lining in the Gulf catastrophe is not an easy thing to do. However, some faint ones can be spotted. First is the real possibility of a shift toward much more conservative drilling policy and more momentum for the alternative energy movement. Second is the possibility that BP, a company that has caused so much suffering and degradation, will finally be undone by its own irresponsibility.
While it is not a sure thing, it is beginning to seem more and more likely that BP will go bankrupt. The $20 billion it has pledged for clean up is 1/5 of the current value of the entire company and is generally agreed to be woefully inadequate. I wouldn’t be surprised to see BP forced to pay twice that amount for the clean up effort, which is far more than it could withstand. Political pressures and public perception are mounting against them and decreasing the likelihood of a government bailout. Unless you believe that the Obama administration will fold completely and let BP off the hook somehow, it seems practically inevitable that it will go the way of GM. In short, things are looking bad for a bad company.
If you believe this will happen, then a short sale of BP stock could be something you would want to do. You might be wondering whether the short sale of stock is ethical. You might have read about “naked” short sales and all the havoc they reeked in 2008. You can rest assured that a regular short sale is very different than a “naked” one. A regular short sale is just borrowing stock from your broker with the promise of giving it back. You borrow 100 shares of BP currently trading at $27 and immediately sell it for $2700. In another few months when the stock is only worth $9, you buy it back for $900 and return the shares to your broker, keeping the $1800 difference.
On the other hand, a “naked” short sale is a trick in which you sell stock that never actually existed. You didn’t borrow it, you just made it up. When you do that, it inflates the amount of stock in circulation which drops its value. It is a dirty Goldman Sachs trick, and very different than a regular short sale.
So go ahead and short BP, and you can donate some of your profit for the clean up.
Ambrose Desmond runs sustainablog’s green investment subdomain, and specializes in holistic financial counseling. He believes a good road bike might be another smart investment in the wake of the Gulf oil spill.
Image credit: Fibonacci Blue at Flickr under a Creative Commons license