Downside Hedge Fund Bets On S&P500 Highest Since 2008

Tyler Durden's picture

Who says hedge funds are ambivalent about the current market? As of last week, they have not been more bearish on the S&P since before Lehman. From SocGen: "Hedge funds have opened the biggest net short positions since early 2008, concentrated on the most liquid segment of the market, i.e. the S&P 500. Meanwhile, positioning on small caps hardly moved (slight increase in net shorts on the Russell 2000). Surprisingly, they actually stuck to their net long positions on Technology (Nasdaq)." As usual, the amusingly named "hedge" funds defy their purported nature (as in, to hedge), and merely pursue momentum, and should be more appropriately called "career risk" funds as the only variable is doing precisely what everyone else is doing: remember - to get a bonus at the end of the year, you don't have to outrun the market, you just have to outrun the biggest institutional fool out there. "Hedge funds have closed their net short positions on 10-year Treasuries and strongly diminished their net shorts on the long end (30Y), as recession fears have crunched expectations for higher bond yields, and endorsed by the Fed’s announcement that it will keep rates low until at least 2013." Hedge fund infatuation with metals continues: "Hedge funds’ enthusiasm for gold and platinum remains strong, as indicated by the high net long positions on these metals. Meanwhile, net long positions on base metals (copper) have been strongly reduced. Net long positions on crude oil remain relatively stable, less impressed by the perceived recession threats." Expect to see numerous short covering sprees until the end of the year, even as the market continues it secular decline back to fair value somewhere around 400.

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topcallingtroll's picture

"Hedge" fund is about as misnamed as Greenland.

They should be called unhedged funds

Leveraged Beta is not alpha, but is often mistaken for such.

slaughterer's picture

What you saw yesterday and will see today is those heavy, concentrated positions described above getting smoked by the HFTs of the "other side."   Contrarian paradise for now, until the reality sinks in again. 

baby_BLYTHE's picture

Hedge Fund Hyenas, as coined by Webster Tarpley

slaughterer's picture

In Germany, it is popular for establishment politicians to refer to hedge funds as "locusts."

pcrs's picture

That is projection from their side. Politicians are confiscating wages and saving to the subsistance level. They will not stop fining and taxing untill you are just alive.

IMA5U's picture

translation: time to buy


how u like BAC this morning?

malikai's picture

Downside sounds like a pretty one-sided trade these days. I'm thinking it's time to pick up a few ES calls.

russki standart's picture

Beware the Ides of October.  Without QE3++++, the S&P will deflate like a falling souffle.

Dr. Richard Head's picture

ZIRP till 2013 is QE3 no?  At least according to Jim Rogers it is.  The Fed will have to be involved in the market to keep interest rates negative for their primary dealers.  True interest rates have not been realized as our centrally planned bearded economist wants to reward his buddies to the detriment of those damn saving type people. 

SheepDog-One's picture

Yep and thats all we're getting for QE3, ZIRP and tools standing by with their tools in their hands. 

Dr. Richard Head's picture

"Tools in their hands"?  They should stop that or they will go blind.  If those bearded fucks overtly annouce QE3, there will be a shit storm.  I would imagine they will just shut their bearded traps, wank their tools in private, and the nominal levitation will continue. All the while, the real losses will be hiding in the teeth of the whipsaw.  Gold and silver are risky bets you know.  Joe Publics gots to keep his 401K stuffed for retirement and all.

firstdivision's picture

So that explains yesterday's rally. It was just fund's doing short covering.

Thomas's picture

That's true for all the explosive rallys'. At one point in time, the 13 largest NASDAQ rallies in history were in the 2000-2002 window.

LawsofPhysics's picture

Explains the rally yesterday and today.

MoneyWise's picture

They already covering, late info.. Watch your Gold.. :)))


Yeah, baby, keep pumping..

trampstamp's picture

Agreed... I need ES hit 1250 so I can make my month. Then it can do what it wants lol.

TradingJoe's picture

This "run up" will fade into Friday and from there it is DOWN DOWN DOWN!

RobotTrader's picture



They are dumping PM's and buying the usual suspects again:  SBUX, WFMI, COH, JWN, etc.

And it was only a matter of time before the bank stocks were squeezed huge.  Somebody who bought BAC at the lows yesterday is on the way to "making their year"......


centerline's picture

Serious whipsawing. Engineered to kill funds.

snowball777's picture

Thanks, Robo. There's nothing like your pom-poms to ease a bear's troubled mind.

malikai's picture

Nice to see you back Robot. By the way, where were you these last couple weeks?  We sure did miss you on LULU's ride down.

d00daa's picture

"the market isn't pricing in qe3, THE MARKET IS PRICING IN AN ECONOMIC BOOM, LED BY THE US CONSUMER" - momofader


firstdivision's picture

Welp, that housing number was better than expected. QE3 argument is getting beatdown this week. Must be keeping Ben busy having to revise his speech with each and every single number coming out.

WonderDawg's picture

So, you think QE3 is a done deal, huh? I'm doubtful about that, but it's all speculation at this point.

SheepDog-One's picture

QE3 will be the biggest let-down ever.

Dangertime's picture

Hedge funds are the new sheep.  Stupid, Stupid sheep.

Dr. Richard Head's picture

Looks like the old sheep have had their sheering, so now it's the hedge sheep's turn.  I would imagine a hedge-wool sweater would be really itchy.

ben_bernanke's picture

Hedge funds are going to lose a $%^ load of money on those shorts, let me tell you.

Dr. Engali's picture

Looks like it is probably time to take the other side of that trade. Uncle Ben will ram a printing press up their ass.

Flakmeister's picture

Ummm... the S&P net short position concerns me... Been builidng an SDS postion, hedging it by selling out of the money weeklies.

These fuckers are hardly ever right and I might have to rethink things....

slaughterer's picture

Hope you are not one of the thousands who opened SPY 110 and 108 August 26th puts yesterday at 1140. 

Flakmeister's picture

No... I sold a slug of Aug 26 SDS 27 and 28 calls, covered, natch...

I wouldn't touch a weekly SPY put even if Mothra emerged and started dry humping the Statue of Liberty... Your batting average has to be >60% or so otherwise you will bleed a slow death...

tarsubil's picture

Ever feel like you're in a hall of mirrors?

Flakmeister's picture

Yes, that is a good way to put it...

Robslob's picture

Ben has spoken!

SheepDog-One's picture

'No QE3 for you! Come back 1 year!'

Oh regional Indian's picture

Seriously SD? 1 year? That is like 6 lifetimes, the way it's all flying apart. They WILL HAVE TO create a situation where QE x flows, or game up. Will it be war funding, post false flag funding? Who knows. Maybe they will, as a final act, actually drop some money directly into consumer hands, increase SNAP enrollment.... so many ways to keep it going and keep sheep coming for the shearing.

All this current mayhem, whipsawing thrash metal is all Jackson Hole prelims. What comes out of it might be the ultimate dollar destroying move, because it's time has come. But of course, who can say in this rigged game.


buzzsaw99's picture

It looks like the runup on the 30y isn't over.

ZeroPower's picture

Guys gold is absolutely getting destroyed... volume on all ends coming here

snowball777's picture

And so early for Christmas shopping.

ZeroPower's picture

Indeed. Ill probably wait till end Sept for my 'Christmas' shopping since ill be paying ~$1500 then:)

snowball777's picture

Flew past resistance at 1780 didn't it?

Options expiry be a MF, ZH.

Damn you Hugo!!! ;)

Dr. Richard Head's picture

Speaking of Hugo, someone is going to have to go into the market to purchase that gold (cough....JPM.....cough).   Come Monday the rally in gold and silver return? 

malikai's picture

Do you smell that? That smells like Benocide's "deflationary risk".

magpie's picture

"No one loves tradition, only the smell of freshly printed FRN in the morning."


WonderDawg's picture

Good, let it keep dropping, I need to buy some more.

Archimedes's picture

The market is higher because the CBO predicts the economy will grow faster than predicted. This is the same organization that predicted in 2001 that the US would have a 16.8 Trillion dollar economy and a 2.5 Trillion dollar surplus! So with a 14.3 Trillion dollar deficit on its way to 16.8 Trillion the CBO was only off by 19 Trillion or so.

Come on people. Please ramp the market up into Friday so I can short it again....fools.

snowball777's picture

Was that prediction pre or post Dubya tax folly?

Sockeye's picture

These guys all going short fits with my latest working theory:
Ben doesn't want gold to compete with U.S. $ as a reserve currency. He will crash gold (and equities) by announcing an end to additional QE measures.
Junk away!