As Bearish Russell 2000 Bets Hit 3 Year High, Here Is How Hedge Funds Are Doing In 2014

Tyler Durden's picture

In its latest Hedge Fund Monitor, BofA's Ankur Singh finds that while hedge funds are willing to be the boats that rise with the central banks' liquidity tide, nobody is willing to fight the Fed in its latest admission that a subset of stocks, mostly those that make up the Russell 2000 index, "appear to be overpriced." As a result, BofA reports that "Specs increased Russell short position to a three year high. MAA and technicals suggest we may have further increase in Russell short positions."

BofA adds:

Large speculators increased Russell 2000 net shorts to -$4.6bn from -$4.0bn notional last week.


Bearish. Sustaining the move below 1168- 1154 confirms a one-month top and sets up a drop back to the May and Feb. low of 1082. The 1212-1214 area remains key US equity market resistance and the lack of a breakout above this area is a bearish divergence with the S&P 500

* * *

So what does this mean for all hedge fund strategies across the board? It means that for the 6th year in a row virtually every hedge fund index is underperforming the S&P, with Distressed Credit doing the best (+5.3% YTD), Traditional equity long/short up a tiny 2.8% YTD, while Macro funds have finally emerged from the basement and have posted a paltry 0.98% return through the end of June, after being negative largely for the bulk of the year.

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w00dmann's picture

A few weeks ago, ZH circulated a piece which, if I interpreted it correctly, claimed the Fed was printing money and pumping it directly into the stock market to obvious effect.  It noted other Central banks were acting in similar fashion.  This has been rattling around in my brain, and I find myself asking questions I am hard pressed answer.

Such as, why would the Fed do this?  It’s not like they need the money; they can print all the money they want!  Why would they care if they buy low / sell high and make profit?  And how exactly do they (reportedly) inject this money into the market?  Is there some guy at the Fed who literally sits at his computer and buys NFLX and AMZN all day long?  And finally, if true, why would they do this?  If they’re trying to find an indirect way to sprinkle money to the masses and increase demand & velocity of money, why pick on this one thing that will benefit not the masses, but only those who play it?

And besides, wouldn’t this be the lamest possible strategy you could come up with to spread money around?  Here is the all-powerful Fed who can print limitless money at will, using a transfer mechanism the equivalent of selling used porn on a street corner.  It seems incongruous to me.  Why couldn’t O’lame-a just give everybody a tax credit, for example, and then ask the Fed to print the difference?

I can only come up with a few obvious answers:

-Gov’t wants stock market making new highs so they can point to it as a leading indicator of economic recovery and trick the masses into believing a recovery is nigh.  Fed buys stocks, never intends to sell.

-Gov’t wants headlines “market makes new highs!” to entice people to get in on the gravy train (given the highly uncertain / “gambling” nature of stocks, this seems less likely to me).  Fed buys stocks, never intends to sell.

-Gov’t is using Fed as some weird money-making instrument in ways I can’t understand, and when Fed buys & sells stocks for profit, the profits somehow enter the monetary stream as “real money” (?!)

I’m sure I must be the dumbest ZH’er on the site who can’t figure this out.  I wonder if my more enlightened compadres can explain.

Btw has this story been confirmed as true, or just a rumour?  If confirmed, I wonder why the MSM hasn’t pounced on it, or at least 60 Minutes.   Either way, I will celebrate the day the markets stop being manipulated in such a heavy-handed fashion.

666's picture

The gubmint prints money to give to the banksters to make 'em even more rich; it does nothing for the masses or the economy. Hitler, on the other hand, printed money to build up Germany's infrastructure, create jobs and pull the country out of it's hyper-inflated depression to build it into a world power almost overnight.

Now do you get it?

Oracle 911's picture

Something similar did Stalin and not to mention, the CCCP won the WW2.

Oracle of Kypseli's picture

There is logic behind their actions. In the surface, it does show a wealth effect for those with IRA's and 401K's. However, the second component is that all the TBTF banks are insolvent but appear to be making profits through the magic of creative accounting and facilitated by restructuring accounting rules.

Legally, the FED cannot give money to the banks so they loan them money at 0.5% and the banks redeposit them to the FED at 2.5% or more, thus gaming the system as they effectively handing them money.

Where are the brave creative lawyers with brass cojones who can bring class action suits against the FED when you need them?

What can the average Joe do? Nothing. As those with more than the FDIC 200k in the bank will favor these banks as they have been established as TBTF. If the 1%nters keep their money there and the rest of us keep the money in the mattresses or PM's it will not tip the scales.

Only a black swan event that will trigger the unraveling of the 1 quadrillion derivatives will do it. But then what? Are we all going to be better off? Not at all. We will all suffer. BUT.......Karma and schadenfreude are the great equalizers.

Considering the above, if I were the FED or Obama, I would do a 50/50 distribution where I funnel money to the banks and also give tax credits and refunds to the 90%nters, the poor and refunds to kids as they did during the Paulson/Pelosi conspiracy to calm the masses. I confess I bought a 42" Sony.

That money will get into the system immediately and can bump GDP to the point of O'bama's apotheotic resurgence.

JUST DO IT and…. You can play golf for as long as you want.


bunnyswanson's picture

The elites are buying fine art, antiques, prime real estate, and other currencies with their US dollars, flooding the market further with US dollars.  Gold is undoubtedly being bought with US dollars.  The whole world is sticking it to America.  With glee.  And the policitians and the leaders in other venues are standing there and doing nothing, or approving it.  Has there been a class offered on "What to Do When Your US Dollar is No Longer Accepted" ?  Because there should be.  The joke called the aggressions is further isolating a country called home to 300 million people, when in no position to when considering the end result.  What's the RUSH?  Why not TALK TO EACH OTHER.  Men with mental illness are making the decisions.

i_call_you_my_base's picture

It's the "wealth effect" that the fed believes in (and talks about a lot). They believe that if a person's assets on paper have a higher number that they will spend more, and with the US economy supported by 70% internal consumer demand, that "wealth effect", in their eyes, has a serious impact. The reality though is that you cannot get blood from a stone.

w00dmann's picture

Thanks, got that, except if only a portion of the people have paper assets such as stocks, then they will be the only ones to experience this mythical effect, which is why it seems like a futile / limited effort to me. 

Tasty Sandwich's picture

If you believe, then you'll use your credit cards.

Zero percent financing on that new computer from Nebraska Furniture Mart.

No interest for sixty months. (terms and conditions apply)

Tasty Sandwich's picture

Your obvious answers = "wealth effect".

World News with Diane Sawyer reports that the DOW has reached a new high.

Zero probability of default

Eyeroller's picture

The Fed sets zero interest rates.

Big companies take out loans without interest.

They use the money to buy their own stock, thus pushing up the share price.

So a company's stocks can have a high share price even though their earnings are shite.


w00dmann's picture

Thanks Er, I get that part, just not sure why they are so focused on jacking up the prices in the 1st place.  

Quinvarius's picture

Feinstein, Schumer, Lloyd and Jamie, as caricatures of our government and banking leaders, need to get paid.  That is the source of central planning price moves. 

buzzsaw99's picture

try to think globally. ask yourself why the GPIF would keep buying the ATH (all time highs)? Why would the BoJ the BoC, the ECB, the BoE et al peg their currecies to the usd? Ask yourself where does the hot money from the usa trade deficit go to die, and how? The maggots are all one big happy organism, until you look at the big picture it doesn't make a whole lot of sense.

AccreditedEYE's picture

Tough to judge which is the more crappier/contra trade: this BofAML garbage or the Marketwatch piece out this morning calling for rip higher into the end of year and continuation of Bull Market.

Lewshine's picture

Quit asking stupid questions and do as you've been trained to do - Buy Q & Spy Calls and short precious metals with both hands!!

oudinot's picture

We will all be able to understand how the Fed works when they are audited.  I believe the last time they were audited (checking gold inventory as well) was in 1954.

Until we get an audit even the smatest guys/gals-that's not me-won't be able to figure out their Byzantine Modus Operandi.

Pheonyte's picture

OT: So much for Madame Lagarde's numerological mumbo jumbo. 7/21/14 turns out to be a whole lotta nuthin'.

Dr. Engali's picture

I've seen a lot of mumbo jumbo end of the world bullshit over the years, and it aways turns out the same way.... the sun comes up and life goes on. 

Rodders75's picture


RUT could certainly rally rel to EEM


overmedicatedundersexed's picture

w00dy me boy here over 1 yr ?? try this on 1. where is all the 401k and pension plans money? 2. where is all the insurance co money? where is all the cia/ security service pension money and investment funds??

stocks and bonds you say? well also real estate and derivatives for now do you get it?? low interest makes all the debt go down, capital gains tax makes .gov simply orgasmic, and the skim at the margin makes GS a lot of fiat.

w00dmann's picture

Thanks o. M. I.  That does start to make sense of things for me. 

NoDebt's picture

"This is the most calm, orderly, well-managed pullback I have ever seen since the last one"

- NoDebt, August 2013

firstdivision's picture

Nothing says go balls fucking long on RUX like "As Bearish Russell 2000 Bets Hit 3 Year High".  Epic squeeze coming down the pipes.

rex-lacrymarum's picture

I actually disagree. Big specs have been right on the Russell for at least ten years in a row. 

Keltner Channel Surf's picture

Longer term positioning aside, as a Russell day-trader the technicals are extremely mixed this morning, either because of a) typical temp POMO counter-pressure likely to end ~11:15, only $1B today  b) news-driven algos waiting at 200 DMA (around current level) to suddenly rocket forward at any sign of sentiment moderation.  I’m not saying we couldn’t have a watershed breakdown, but the lower volume as many normal participants sit and watch CNN could make short trades today fraught with peril.

ejmoosa's picture

Total earnings of the Dow Jones Industrial average were down 1.54% in 2013 from 2012, which was up a mere 3.14%.  Meanwhile the index itself is up 26.5% in 2013 and 7.26% in 2012.


You can view a chart here:


Eight of the 30 companies had their peak earnings before 2009.

Only 13 had their best year in 2013.


I fail to see where the optimism is coming from that indicates profits are going through the roof soon.

pakled's picture

"pecs increased Russell short position to a three year high"


Take your pick:


To the moon Alice.... to the moon!


Danger Will Robinson.

SilverMoney1's picture

So what does this mean for all hedge fund strategies across the board? It means that for the 6th year in a row virtually every hedge fund index is underperforming the S&P 


...and what does it look like when RAROC is factored in? The mandate of the fund especially when risk is involved is more important than "out performing" the market.

If I made an average of 3% with very, very little risk, I would take that ANY DAY over a 15-20% risk on capital.

Learn to "Finance" zero hedge.