Short Interest

Biotech stocks continue to make new highs on the back of aggressive M&A and pre-revenue IPOs. Bloomberg suggests the bubble may be about to burst.

If yesterday's strong 2 Year bond auction confirmed that there was not a hawkish cloud on the bond market's horizon, then today's just concluded 5 Year bond auction doubled down on the strength of the short-end, when moments ago the Treasury sold $35 billion in 5 year paper at a yield of 1.480%, stopping 0.3 bps through the 1.483% when issued. The Bid to Cover of 2.54 also posted a modest increase to last month's 2.49, if a below the TTM average of 2.71. The internals were also in line, with Directs getting 7.5%, Indirects a far stronger than average 60.1%, and Dealers left holding 32.4% of the auction.

With the S&P 500 now in positive territory for the year and the mainstream media back in normal cheerleading mode, it is worth noting that 1) "Most shorted" stocks have outperformed the broad market this year, 2) the last 3 weeks have seen the biggest short squeeze in almost 4 years, and 3) Hedge funds are now at a record high 57% net long. We suspect, given the looming Humphrey-Hawkins and March FOMC and the short-term 'gap' between the market and fun-durr-mentals, volatility will be on the rise again.

You just short some more...

We have been discussing the widespread belief in "the narrative of central bank omnipotence" for a number of months (here and here most recently) as we noted "there are no more skeptics. To update Milton Friedman’s famous quote, we are all Bernankians now." So when Saxobank's CIO and Chief Economist Steen Jakobsen warns that "the mood has changed," and feedback from conference calls and speaking engagements tells him, there is a growing belief that the 'narrative of the central banks' is failing, we sit up and listen.

The algos are loose as GTAT is halted 5 6 7 8   9 times post-Chapter 11 (5 up, 4 Down)... this is how price discovery occurs in a massively overvalued company, with no cash flows, and a record short interest...

“At This Point You Just Have to Laugh”. In every important respect, the Fed and the ECB and their brethren are no longer central banks at all. They are Ministries of Markets, no different from a Ministry of Industry or – even more eerily similar – the Ministry of Culture you would find in most European governments. At this point the Narrative hegemony is complete. There’s no longer even a cursory bow to the idea that fundamentals matter. So I’m calling a top. Not a top in markets, because I honestly have no idea what’s going to happen next. But I’m calling a top in the Narrative of Central Bank Omnipotence because it has, in fact, reached its asymptotic limit of influence and belief.

That was quick! Last November Snapchat was valued at $2 billion in the private VC market; by Q1 that had risen to $7 billion; and yesterday it soared to $10 billion. Gaining $8 billion in market value in just nine months is quite a feat under any circumstance - but that’s especially notable if you’re are a company with no profits, no revenues and no business model. How much does it cost to manipulate an entire market? Apparently not much. And it’s getting cheaper!

We are sure this will end well... As CDS-based credit ETFs are launched, so the number of ways to 'sell' volatility (buy complacency) for retail equity investors have exploded in recent years as The Fed's stranglehold on uncertainty has continued. However, as Bloomberg reports, as VIX has tumbled in the last few weeks, investors are wagering on further declines - in the five weeks through Aug. 15, they put almost $320 million into the VelocityShares Daily Inverse VIX Short Term ETN (XIV): the longest stretch of weekly investments since the note began trading in 2010.

The algos and chart traders are making another run at 2000 on the S&P 500, attempting to convince the wary investor one more time that buying on the dips is a no brainer. And in that proposition they are, ironically, correct.  To buy this utterly manipulated market at these nosebleed valuation levels is about as brainless of an undertaking as is imaginable.

Earlier today, countless investors who still foolishly believe that in the new normal "fundamentals" matter, screamed out in terror when Zillow announced that it would acquire Trulia for $3.5 billion or a 20% premium to the Friday close, and were suddenly silenced. The reason: with 38% of its float short (making it the 30th most shorted stock in the Russell 2000), this was one of the most dramatic confirmations of what we said was the best trading strategy under the Fed's artificial and capital misallocation regime, namely "buying the most hated names to generate the most alpha." So for all those who still believe that the market has quite a ways to go under the yoke of the Fed's centrally-planning before it all crashes into a house of rigged cards, here is the list of the most shorted stocks in the S&P500 and Russell2000, sorted by descending short interest as a % of float.

What a difference a weekend makes... After offering $2 billion for Trulia last week (and seeing its share soar), Zillow has decided that $3.5 billion worth of its bubblicious paper money-stock is the right price for its real estate marketing and income-less competitor Zillow. Of course, on the back of near-record short interest the stock has exploded higher once again this morning and is now up over 60% from before last week's offer. We suspect the word 'synergy' will be used heavily (and not the word 'layoff') but in the interests of helping our fellow man, we present the combined firm's income statement...

The central banks of the world are massively and insouciantly pursuing financial instability. That’s the inherent result of the 68 straight months of zero money market rates that have been forced into the global financial system by the Fed and its confederates at the BOJ, ECB and BOE. ZIRP fuels endless carry trades and the harvesting of every manner of profit spread between negligible “funding” costs and positive yields and returns on a wide spectrum of risk assets. Stated differently, ZIRP systematically dismantles the market’s natural stability mechanisms.

Just when you thought that nothing could be worse than bubble blindness of Greenspan and Bernanke - along comes the Yellen doctrine of “resilience”. Its dangerous Keynesian blather, and far worse than Greenspan’s feigned agnosticism which held that the Fed does not have the capacity to recognize financial bubbles in the making and should therefore mop them up after they burst. The Maestro never did say exactly what caused the massive and destructive dot-com and housing bubbles which occurred on his watch - except that Chinese factory girls stacked 12-to-a-dorm-room apparently saved way too much RMB. By contrast, Yellen’s primitive Keynesian mind knows exactly what causes financial bubbles. She has now militantly asserted that bubbles are entirely an irrational impulse in the private market and that the price of money and debt has absolutely nothing to do with financial stability.