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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.

SPX positioning:

10 Year positioning:

And more on equities...

...bonds

...and metals

 

 

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Wed, 08/24/2011 - 09:55 | 1594802 topcallingtroll
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"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.

Wed, 08/24/2011 - 10:15 | 1594880 slaughterer
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. 

Wed, 08/24/2011 - 11:27 | 1595234 baby_BLYTHE
baby_BLYTHE's picture

Hedge Fund Hyenas, as coined by Webster Tarpley

Wed, 08/24/2011 - 11:39 | 1595293 slaughterer
slaughterer's picture

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

Wed, 08/24/2011 - 14:55 | 1596170 pcrs
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.

Wed, 08/24/2011 - 09:58 | 1594820 IMA5U
IMA5U's picture

translation: time to buy

 

how u like BAC this morning?

Wed, 08/24/2011 - 10:10 | 1594865 malikai
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.

Wed, 08/24/2011 - 09:58 | 1594821 russki standart
russki standart's picture

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

Wed, 08/24/2011 - 10:19 | 1594895 Dr. Richard Head
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. 

Wed, 08/24/2011 - 10:32 | 1594959 SheepDog-One
SheepDog-One's picture

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

Wed, 08/24/2011 - 10:37 | 1594992 Dr. Richard Head
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.

Wed, 08/24/2011 - 09:59 | 1594826 firstdivision
firstdivision's picture

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

Wed, 08/24/2011 - 10:15 | 1594881 Thomas
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.

Wed, 08/24/2011 - 10:00 | 1594830 LawsofPhysics
LawsofPhysics's picture

Explains the rally yesterday and today.

Wed, 08/24/2011 - 10:04 | 1594831 MoneyWise
MoneyWise's picture

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

Kaboom!!!

Yeah, baby, keep pumping..

Wed, 08/24/2011 - 10:08 | 1594855 trampstamp
trampstamp's picture

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

Wed, 08/24/2011 - 10:00 | 1594832 TradingJoe
TradingJoe's picture

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

Wed, 08/24/2011 - 10:02 | 1594837 RobotTrader
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"......

LOL.....

Wed, 08/24/2011 - 10:10 | 1594864 centerline
centerline's picture

Serious whipsawing. Engineered to kill funds.

Wed, 08/24/2011 - 10:13 | 1594874 snowball777
snowball777's picture

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

Wed, 08/24/2011 - 10:14 | 1594877 malikai
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.

Wed, 08/24/2011 - 12:03 | 1595401 d00daa
d00daa's picture

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

 

Wed, 08/24/2011 - 10:04 | 1594840 firstdivision
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.

Wed, 08/24/2011 - 10:09 | 1594859 WonderDawg
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.

Wed, 08/24/2011 - 10:09 | 1594860 trampstamp
trampstamp's picture

lol!

Wed, 08/24/2011 - 10:33 | 1594965 SheepDog-One
SheepDog-One's picture

QE3 will be the biggest let-down ever.

Wed, 08/24/2011 - 10:05 | 1594842 Dangertime
Dangertime's picture

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

Wed, 08/24/2011 - 10:28 | 1594942 Dr. Richard Head
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.

Wed, 08/24/2011 - 10:05 | 1594845 ben_bernanke
ben_bernanke's picture

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

Wed, 08/24/2011 - 10:07 | 1594851 Dr. Engali
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.

Wed, 08/24/2011 - 10:10 | 1594863 Flakmeister
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....

Wed, 08/24/2011 - 10:17 | 1594884 slaughterer
slaughterer's picture

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

Wed, 08/24/2011 - 10:27 | 1594919 Flakmeister
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...

Wed, 08/24/2011 - 10:17 | 1594888 tarsubil
tarsubil's picture

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

Wed, 08/24/2011 - 10:23 | 1594924 Flakmeister
Flakmeister's picture

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

Wed, 08/24/2011 - 10:12 | 1594868 Robslob
Robslob's picture

Ben has spoken!

Wed, 08/24/2011 - 10:30 | 1594956 SheepDog-One
SheepDog-One's picture

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

Wed, 08/24/2011 - 10:55 | 1595100 Oh regional Indian
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.

Vivek

http://aadivaahan.wordpress.com/2011/08/24/precursor-03-bottom-falling-out-still-still-and-a-gander/

Wed, 08/24/2011 - 10:12 | 1594871 buzzsaw99
buzzsaw99's picture

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

Wed, 08/24/2011 - 10:12 | 1594872 ZeroPower
ZeroPower's picture

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

Wed, 08/24/2011 - 10:15 | 1594879 snowball777
snowball777's picture

And so early for Christmas shopping.

Wed, 08/24/2011 - 10:19 | 1594894 ZeroPower
ZeroPower's picture

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

Wed, 08/24/2011 - 10:25 | 1594929 snowball777
snowball777's picture

Flew past resistance at 1780 didn't it?

Options expiry be a MF, ZH.

Damn you Hugo!!! ;)

Wed, 08/24/2011 - 10:30 | 1594955 Dr. Richard Head
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? 

Wed, 08/24/2011 - 10:18 | 1594890 malikai
malikai's picture

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

Wed, 08/24/2011 - 10:23 | 1594923 magpie
magpie's picture

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

B.S.Bernank

Wed, 08/24/2011 - 10:21 | 1594908 WonderDawg
WonderDawg's picture

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

Wed, 08/24/2011 - 10:14 | 1594875 Archimedes
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.

Wed, 08/24/2011 - 10:15 | 1594882 snowball777
snowball777's picture

Was that prediction pre or post Dubya tax folly?

Wed, 08/24/2011 - 10:20 | 1594904 Sockeye
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!

Wed, 08/24/2011 - 10:24 | 1594925 TradingJoe
TradingJoe's picture

you are right and you are wrong:

 

he wants to crash gold and this why he wont announce anything but...gold will innevitabily be bought again as a safe haven or alternative to stocks being obliterated!

Wed, 08/24/2011 - 10:27 | 1594934 centerline
centerline's picture

Gold going parabolic sure does poke the Fed in the eye regarding confidence.  Not sure they can do much about it though.  The jig is up for now.  Margin hikes and a serious wave of deflation brought about by "no news from Ben" could knock gold down.  But that might be the best possible entry point for 2011.  Once the squeeze is on, the masses will cry to the heaven's for help and absent a black pterodactyl event, stimulus will flow again - once step closer to the "pop."

 

 

Wed, 08/24/2011 - 10:21 | 1594914 youngman
youngman's picture

And I am sure the CBO has all those Obama Healthcare savings included.....lol...that is another 2 trillion miss....per year

Wed, 08/24/2011 - 10:21 | 1594915 TradingJoe
TradingJoe's picture

Am trully stupified to see how much fear/greed is in the markets right now, light volume ramp, trying ot kill all shorts into Friday, beware of the unintended consequences! QE3 or anything esle ain't coming PERIOD! Everybody and their mommies are selling into these HFTs rallies! No politician will commit no ANY "stimulus" for now!

Ya'all, keep a cool head and if you're not the shorting type stay out, your time will come! For the rest of us, shorting is no sport this time but a SURE BET to make a BOATLOAD and then some! We'll get the chance to be long soon enough!

Anything else is just NOISE!

Wed, 08/24/2011 - 10:57 | 1595107 DUNTHAT
DUNTHAT's picture

"EXCHANGE STABILIZATION FUND"

Wed, 08/24/2011 - 10:38 | 1594917 MoneyWise
MoneyWise's picture

no image?

Wed, 08/24/2011 - 10:32 | 1594961 dracos_ghost
dracos_ghost's picture

Seems like a solid contrarian indicator from the historical charts.

Wed, 08/24/2011 - 10:35 | 1594975 youngman
youngman's picture

They have gold in their targets today.....nothing has changed..nothing.....something is up....the computers are on overdrive....last chance for the Banks to cover the Venzuelan buy I guess...got to find it somewhere.....I wish I had an HFT computer...

Wed, 08/24/2011 - 10:49 | 1595067 drivenZ
drivenZ's picture

"this is bullish" is thrown around alot....but this is bullish(no sarcasm)

Wed, 08/24/2011 - 11:33 | 1595271 dcb
dcb's picture

it's going up before it goes down again, if it goes down again. this just tells me the short squeeze has begun

Wed, 08/24/2011 - 11:57 | 1595365 SwingForce
SwingForce's picture

If this is true, then why have they all posted losses in the last ferw days? They should be making a killing being hedged, after they themselves sell stocks.

Wed, 08/24/2011 - 16:26 | 1596453 Tube_screamer
Tube_screamer's picture

How they calculate sp500 non-commercial positions on total open interest? I try, but result is not the same. I'am talking about second graph on this picture

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