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Short-Sellers Set-Up Shop As Sentiment Starts To Shift
"It's dangerous to be short still, but we might be building toward a moment where the market becomes quite vulnerable," warns Bill Fleckenstein who is finishing up the documentation on a new short fund he is about to start marketing. With the slowing growth of the Fed balance sheet, over 70% of the S&P's gains since 2011 from hope-driven multiple-expansion alone, bond and equity market sentiment at extremes, and (as Goldman warned) valuations anything cheap; it is hardly a surprise that, as Reuters reports, after years of hiding under their desks, short sellers are re-emerging - slowly. Whether outright short or long/short funds, the market-share of this corner of the business bottomed at approximately 25% in 2013, but in the last weeks, several S&P 500 companies have seen large increases in shares borrowed for short bets; and the "tide might be turning."
Sentiment extremes in stocks...
and bonds...
Fed balance sheet growth slowing and dislocated from the equity exuberance...
Multiple-expansion the only hope left...
And Goldman dashing those hopes...
S&P 500 valuation is lofty by almost any measure, both for the aggregate market (15.9x) as well as the median stock (16.8x). We believe S&P 500 trades close to fair value and the forward path will depend on profit growth rather than P/E expansion. However, many clients argue that the P/E multiple will continue to rise in 2014 with 17x or 18x often cited, with some investors arguing for 20x. We explore valuation using various approaches. We conclude that further P/E expansion will be difficult to achieve. Of course, it is possible. It is just not probable based on history.
The current valuation of the S&P 500 is lofty by almost any measure, both for the aggregate market as well as the median stock: (1) The P/E ratio; (2) the current P/E expansion cycle; (3) EV/Sales; (4) EV/EBITDA; (5) Free Cash Flow yield; (6) Price/Book as well as the ROE and P/B relationship; and compared with the levels of (6) inflation; (7)
nominal 10-year Treasury yields; and (8) real interest rates. Furthermore, the cyclically-adjusted P/E ratio suggests the S&P 500 is currently 30% overvalued in terms of (9) Operating EPS and (10) about 45% overvalued using As Reported earnings
Is it any surprise that the Short-sellers are setting-up shop once again as greed dominates fear... (via Reuters)
After years of hiding under their desks, short sellers are re-emerging - slowly.
...
Buying the most heavily shorted stocks was a much better bet than the S&P 500
Jim Chanos, president and founder of Kynikos Associates and one of the most prominent short sellers, said the market is primed for people like him and as a result he has gone out to raise capital.
"Now I think is not a bad time to be raising capital for what we do. When we got a rough going in the mid-90s, that was exactly the time to raise capital," Chanos said, adding it was better to do this when critics viewed him as "like the village idiot and not an evil genius."
Already, there are signs 2014 may be different.
...
"We're about done with the document and I'll be marketing it officially very shortly, like within a week," he said.
That's not to say he is brimming with confidence - not yet.
"It's dangerous to be short still, but we might be building toward a moment - whether it's two weeks from now or 10 months from now I don't know, where the market becomes quite vulnerable," said Fleckenstein.
...
"There's growing interest on (shorting) a number of stocks, concentrated in areas that did well last year," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.
...
"Biotech is in full bubble mode, meaning companies that have no prospects of a drug continue to grind higher," said John Hempton, chief investment officer and founder of Bronte Capital, a Sydney, Australia-based asset management firm that often takes short positions.
Short sellers say they believe bulls may be getting too confident. The S&P 500's forward price-to-earnings ratio is at its highest since mid-2007.
...
"Short selling over the last two years has been a hedge against profits," said Douglas Kass of hedge fund Seabreeze Partners Management Inc. But he said recent disappointments from companies as varied as Ford, Intel, and Elizabeth Arden are signs that the "tide might be turning."
For shorts, it appears to be the opposite of "blood in the streets" time...
Charts: Bloomberg, Goldman Sachs, and @Not_Jim_Cramer
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All this technical analysis, when there is no market to begin with.
Are not the Fed, price controls, and all the other forms of government intervention or market manipulations represented by the prices involved in the analysis?
Do you know what the Fed is going to do and what all the other forms of government intervention are or are going to be? Please do tell...
I do not. Data analysis does not claim clairvoyance. It is quite a sharp tool to enable one to see the top and see the bottom but as traders, speculators, or short term investors we don't need the be smart enough to time the top or the bottom. We just need to be smart enough to sink our teeth into the journey between the two.
With regards to a market, I mean that there is indeed a market. What I think you mean to say is that there is no free market and that you are juxtoposing a free market against a controlled market. I'd rather look at it as one entire market regardless of the level of controls or freedoms of which all the transactions, processes, and mechanations are represented in the price. (Viewed another way, you could say that the entire market is free but one very powerful group of participants (governments) have cornered the market on interest rates.)
Expect to see many more market gurus piling on the bearish band-wagon soon now that the first taper has begun, the worsening unemployment, housing market, channel stuffing, wars, bitter cold weather, and especially because Obozo has lost all his political power from Obamacare, Syria....
There's nothing moar the Fed can do now that won't doom the US dollar and they know it. And if the US dollar fails, war will break out all over the world cause we can't fund it! China, Iran, North Korea, Syria, Russia, all know it too. The Federal Government will basically cease to exist leaving the States as our only governments... again.
When all you have is a hammer, everything looks like a nail.
This market is going higher. It's been going higher for 2+ years thanks to the FED and with the FED still committed, it will go higher still.
I think technical analysis as a tool became useless bcak in the 80's when the futures market got tied to the equities market.
This is bullish.
Oh, they have found more buyers to BTFATH.... and now they will be forced buyers
The markets are as fake as a three dollar bill with Yellen's picture on it. Never short fake, manipulated markets unless you are especially suicidal.
Besides, the NSA is monitoring all your trades. Why do you hate America so much that you have to short?
What I logged on to say after reading this.
" warns Bill Fleckenstein who is finishing up the documentation on a new short fund he is about to start marketing. "
Key words right there. Bill has something to sell. Like I said before. With the banks turning negative and telling us...it's time to BTFD. There will be no currency allowed to be made shorting this "market".
The last time metals prices collapsed the Government stepped in a big way. This time there is no "Uncle Put"....more like "Uncle Punt." The dollar is still weak against the euro and the Pound...but interest rates while incredibly low by historical standards are quite high relative to Europe and Great Britain. Those things look set to reverse to me. I think Mercedes Benz summed it up nicely when they said "cheap luxury." That was just a couple of days ago.
Well, Bill closed his short fund over five years ago. He hasn't opened it again until now. Methinks that means something.
"with the slowing growth of the Fed balance sheet..."
Best of luck betting on that trend, Bill.
I think you're misquoting. Bill doesn't actually say that in the article.
Fleck was early and correct on both the NASDAQ and housing bubbles. The only question for 2014 is how early he might be again. Other than that he is a spot on contrarion ready for a hat trick.
I guess that's how a short-seller has to do it. Start early to get everything ready into position and then watch it play out. So based on that, I would say we're still not at the shorting point yet.
Jesus, if the NSA can solve all the technical problems on spying on everybody in this world all the time, how difficult is it to manipulate a few markets with fast computers and infinite money?
If you really think that you can short and make money in fake, manipulated markets that are essential to America's power and control of this world, your IQ may be approaching your dick size. In meters. And so will your bank account.
Never use your dick as a yardstick.
It hurts folding it multiple times.
Looks like you speak from personal experience. Your middle name is not Don Juan or Rasputin?
In others words, BUY!
This will push the market up even more when new shorts get squeezed. It will collapse eventually, but it's futile trying to top-tick it.
If I was ever to try and guess a top in the SPX, I'd guess 1929. :o)
I've always been in the let the banks
suck up more of their own losses and
incentivize investing in credit by
not just giving those banks a private
free credit line.
The following to infinity is an
economy benchmarked to no time value
on money to infinity, until they
change over.
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=vxx&inst...
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=sh&instt...
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=pst&inst...
The Fed's hoping trickle down
will suffice, that people will
build an economy despite its being
centric to TBTF.
I personally wouldn't want to be
the lender for any length of time
even after rates should tick up
some.
We're locked out of the cheap
borrowing game because of the
wide net interest margin.
Otherwise the logically larger
demand for cheap credit would
self-correct the system just as
those who SOLD the banks' bubble
could've/should've ended the crisis
long ago.
Those who put down 5/10% should have/
should've had non-recourse, and the
banks should have skin in the game.
Mod's/Loss Sharing have been essentially
holding borrowers' feet to the fire,
those who SOLD the bubble facing
a deer in the headlights policy of
hand it over.
Those who did sell and who haven't bought
into the new artificial bubble, and I'm
in the camp that thinks even that much
is illusory, are simply spending less,
where safe money's concerned, and
waiting out the folly.
The more fundamental crime against
those who legitimately SOLD the bubble
created by the banks was the theft of
their "put up or shut up'ability."
The bankers may have attended
Wharton, but they preferred class
in Atlantic City.
This is perhaps fastest understood
simply by watching "A Big Hand For
The Little Lady."
http://www.youtube.com/results?search_query=big%20hand%20for%20the%20lit...
The whole thing's about self-dealing
a self-made bubble to sell and an
adversity to buy, and it's essentially
thoroughly petty in its conception.
Anyone so positioned and allow to do so
can sell credit to produce widgets to
one's own competitors in a field
dominated by oneself, only to
flood the widget market, and then
call the loans.
Disclosure/information above board's
the main thing, and again,
those who put down 5/10% should have/
should've had non-recourse, and the
banks should have skin in the game.
between 2 weeks and 10 months....
and a "could be".....
OKAY!!! LET'S BET THE FARM ON THAT ONE!!!!
WTF? Did you want a date and time? What's your great predictive contribution?
Just another short smashing, Mrs. Y's first test.
short-sellers ready to get smashed?
markets will go up.
When I see margined longs enter like nuts THAT is when I would expect a slam down to happen.
What is a "short"? Can someone refresh my memory...I've forgotten during all of the Bernank's QE.
That's when the Government steps in and determines it will create economic value here.
Hey Yellen!!!!!
Get those printers working faster you fuckng cunt!!!!!
sufferin' succatash!
Everything in existence, up to and including the end of humanity itself, is simply another cog in a healthy wall of worry.
The question, "Is this information bullish or bearish" has become obsolete.
Stawks, have become, self-aware.
....
"over 70% of the S&P's gains since 2011 from hope-driven multiple-expansion"
"Nobody will see this one coming", too... Unless their eyes are open.
I haven't even read this article. I give it a +1 for the alliteration in the title.