NYSE Short Interest Rises To 2012 Highs

Tyler Durden's picture


On the surface, the fact that NYSE short interest was just reported today to have risen to 13.1 billion shares as of April 30 could be troubling for the bears, as this just happens to be the highest short interest number of 2012. Indeed, an increase in short interest into a centrally-planned market is always disturbing, as it opens up stocks to the kinds of baseless short covering melt ups that simply have some HFT algo going on a stop hunt as their source, that we have seen in the past several weeks. Naturally, it would be far easier to be short a market in which Ben Bernanke managed to eradicate all other bears, especially when considering that a year ago the Short Interest as of April 30 was virtually identical.

However, courtesy of some recent discoveries by Bloomberg, we now know that his very pedestrian way of looking at short exposure is simply naive, as it ignores all the synthetic means that hedge funds truly express their position these days, mostly in attempts to avoid observation, and to magnify their balance sheets in any way possible. In other words: epic abuse of leverage, but not simply on the books, but through repos, Total Return Swaps, and various other shadow "shadow" P&L enhancement techniques. To wit from Bloomberg:

Citadel Advisors LLC and Millennium Management LLC said their assets soared ninefold when tallied under a new rule that requires hedge funds to disclose investments financed through borrowings.


Citadel, run by Ken Griffin out of Chicago, reported $115.2 billion of regulatory assets in a March 30 filing with the U.S. Securities and Exchange Commission, compared with $12.6 billion of net assets. Millennium, founded by Israel Englander, disclosed comparable figures of $119 billion and $13.5 billion as of year-end.



In short sales, investors borrow assets to sell them in anticipation that they can be repurchased at a lower price later and they can pocket the difference. Hedging includes the purchase of offsetting positions to limit risk in a trade.


While some fund managers only gave information on their gross assets, 31 of the 50 largest also disclosed their net assets in a separate section known as the client brochure. For these advisers, gross assets of $949 billion were more than double their net assets of $422 billion.


That indicates hedge funds may be using as much leverage as they did prior to the 2008 financial crisis. On average, hedge funds held total assets that were double their net capital as recently as 2007, said Daniel Celeghin, a partner at Casey Quirk & Associates LLC, a Darien, Connecticut, adviser to asset managers.


Not all of the difference between net and gross assets may be explained by leverage, because the SEC’s gross number also includes proprietary stakes that money managers hold in their own funds as well as assets that don’t get charged a management fee. The SEC’s calculating method can lead to double counting of assets at funds, such as Citadel, that include multiple entities.


“If you are heavily levered, obviously that will result in you having a larger gross asset number,” said Gary Kaminsky, a principal in the business advisory services group at Rothstein Kass, a Roseland, New Jersey, accounting firm that audits hedge funds. That’s because, under the SEC approach, “all that matters is what’s on the asset side of the balance sheet,” Kaminsky said.


Hedge funds are relying less on margin loans from prime brokers, the securities firms that provide credit and facilitate trading, and more on repurchase agreements, leveraged exchange- traded funds, and derivatives such as total return swaps, according to Josh Galper, the managing principal at Finadium LLC, a Concord, Massachusetts, investment research and consulting firm.


“Leverage is down across the board from the perspective of borrowing from a prime broker,” Galper said in a telephone interview. “It’s tough to measure how much embedded leverage funds are using.”

In other words, while the chart above is useful generically, the reality is that a true picture of outright bullish or bearish appearance is now impossible to be gleaned courtesy of precisely the same synthetic instruments that nearly destroyed the financial system in the fall of 2008. Funds will do anything in their power to systematically boost their leverage at the gross level, while leaving their net leverage appear innocuous, and then spin how gross is not net, even as their Prime Brokers onboard all the risk: after all who bails them out if things go wrong? Why, you do.

And who benefits if they are right? Here's who, together with an AUM breakdown based on the old and new methodology:

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Thu, 05/10/2012 - 15:43 | 2414373 Careless Whisper
Careless Whisper's picture

The Careless Whisper News Update & Threadjacking

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Thu, 05/10/2012 - 15:48 | 2414378 idea_hamster
idea_hamster's picture

"Mr. Wall, I'd like to introduce my two friends, Mr. Nut and Mr. Grape.  They'll be up against you for a while -- I hope that's OK."

Thu, 05/10/2012 - 15:54 | 2414400 ratso
ratso's picture

A new short sale high on the NYSEVounds pertty bullish to me.

               Sounds like a great time to buy.

Thu, 05/10/2012 - 16:03 | 2414430 xela2200
xela2200's picture

It is a valid contrarian indicator.

Thu, 05/10/2012 - 15:46 | 2414375 junkyardjack
junkyardjack's picture

Great another short squeeze coming up

Thu, 05/10/2012 - 15:50 | 2414389 mayhem_korner
mayhem_korner's picture



Did you read the words after "On the surface..."?

Thu, 05/10/2012 - 16:25 | 2414502 junkyardjack
junkyardjack's picture

Seems like long story short, there could be even more shorts than the chart above indicates.  Also reason for a massive squeeze

Thu, 05/10/2012 - 15:55 | 2414411 resurger
resurger's picture


but i feel the Bulls are tired, i dont know why

Thu, 05/10/2012 - 16:30 | 2414484 SheepDog-One
SheepDog-One's picture

One of these times the FED short squeeze will blow up in their face. Maybe this time. Could also very well be those record shorts here at near all-time market highs is the FED banks themselves....Hmmm gives one something to ponder.

Thu, 05/10/2012 - 15:47 | 2414380 mayhem_korner
mayhem_korner's picture



I can't understand the table...it has too many commas in it.

Thu, 05/10/2012 - 15:48 | 2414386 km4
km4's picture

How Wall Street Killed Financial Reform by Matt Taibbi Rolling Stone http://bit.ly/KIpUn0 The scary part is way the banks strangled Dodd-Frank with a big assist Congress and the White House.

Nice read !

Thu, 05/10/2012 - 16:02 | 2414431 cossack55
cossack55's picture

Fuck the Fed, Fuck the banks, Fuck Wall Street, Fuck the market.

Thu, 05/10/2012 - 18:25 | 2415022 earleflorida
earleflorida's picture

    FDR's threat to "Packing the Courts", reversed almost all the Supreme's Laissez faire pro-business rulings without ever having actually changing the amount of justices on the bench. It was seen by judicial historian's as "The White Monday Moment", ie. "a switch in time saved nine"! [1933]

    A lot of history here, but, there was a hero that fought ruthlessly against Wall Street, and the Oligarchy Corporations. His name was Ferdinand Percora, someone that has gone missing from today's political universe - "Ball's of Steel!"


Ps. Perhaps Obama could pull the switch, if his 'Health Care Bill' gets the thumbs down. Unfortunately, he is the problem and certainly not the solution - so let's hope none of these fool's today re-invent themselves after the greatest president in History. FDR did thing out of necessity as did Lincoln that were definitely temporary. But these presidents are dismembering the U.S. Consttution and 'Bill-of-Rights', not to forget mentioning  Amendments XI - XXVII .  


Thu, 05/10/2012 - 15:52 | 2414392 Sudden Debt
Sudden Debt's picture

So the markets go down another 5%, we'll announce that we'll print and the shortsqueeze does the rest....

Didn't we go there already a few years back?

Thu, 05/10/2012 - 15:52 | 2414393 Jacque Itch
Jacque Itch's picture

Bear trap set perfectly.  Again.  These guys are goooooooood.

Thu, 05/10/2012 - 16:01 | 2414425 Sudden Debt
Sudden Debt's picture

And the fucked up prt is, that it will actually work.

Thu, 05/10/2012 - 16:05 | 2414433 xela2200
xela2200's picture

The big boys have all the sheep ready for the slaughter (stock and commodities). All they need is the QE heroine.

Thu, 05/10/2012 - 15:52 | 2414396 Todd Horlbeck
Todd Horlbeck's picture

That graph showed me to worry at 18 billion, not 13, if I'm short.  In fact, it looks like the first uptick is the best time to get short.  (i.e. right now)!

Thu, 05/10/2012 - 15:56 | 2414404 Goldilocks
Goldilocks's picture

The Alan Parsons Project- Games People Play
http://www.youtube.com/watch?v=BZWBw_gupXE (4:25)

Thu, 05/10/2012 - 15:55 | 2414408 Debtless
Debtless's picture

What's that giant sucking sound?

Thu, 05/10/2012 - 16:01 | 2414422 Dr. Richard Head
Dr. Richard Head's picture

I finally understand what momos sound like in the wild.

Thu, 05/10/2012 - 15:57 | 2414412 pauhana
pauhana's picture

Kyle Bass on CNBC at 4:30 today.

Thu, 05/10/2012 - 15:59 | 2414420 Dr. Richard Head
Dr. Richard Head's picture

I was just wondering, on a previous ZH post, where the hell he has been.

"Sooooooooo........this market is manipulated.  Catching falling knives.  etc. etc."

Thu, 05/10/2012 - 15:58 | 2414414 buzzsaw99
buzzsaw99's picture

dum fuk shorts deserve the screwing.

Thu, 05/10/2012 - 16:21 | 2414485 SheepDog-One
SheepDog-One's picture

How do you know those shorts arent the banks and FED? Hmmmm.

Thu, 05/10/2012 - 16:06 | 2414434 monopoly
monopoly's picture

Shorting broken markets makes 0 sense to me.

Thu, 05/10/2012 - 16:28 | 2414509 SheepDog-One
SheepDog-One's picture

Also makes 0 sense going long broken markets based upon some assumption from the sheeple herd that 'Benevolent Bernank' will always be there no question about it to hand them more free oats and sweet clover, and never is actually backing up the slaughterhouse truck. 

Thu, 05/10/2012 - 16:11 | 2414451 chump666
chump666's picture

Just like the EUR trade, that in all reality should be trading way below 1.30, tight range trades i,e buying dips and shorting (on leverage).  HFTs trade on supports, give the illusion of market bids then on top of that (pending 'good' news) long posistions pile up. 

The bulls are too hopeful for the hopium shot via central banks when the market is not just technically broken, but just broken on all aspects.  This market is operating on x leverage, TVIX f*ck up a little while back should be a reminder of unstable fund flows eg the derivative timebomb.

Anyways bear signal is theNasdaq closing low 7 sessions in a row, CISCO blowout.

Thu, 05/10/2012 - 16:25 | 2414495 SheepDog-One
SheepDog-One's picture

All bets placed on Bernank to deliver miracle QE right on time as everyone is assured 100% will happen and bulls will once again be fed endless free buckets of honey oats....well I'm not betting on it myself at all.

Thu, 05/10/2012 - 16:17 | 2414472 max2205
max2205's picture

FSLR and GMCR back to $150...weeeeeeeeeeeeeeeeeee

Thu, 05/10/2012 - 16:19 | 2414475 KandiRaverHipster
KandiRaverHipster's picture

i remember applying to jobs at DE Shaw when i was in college in the Bronx! 

Thu, 05/10/2012 - 16:43 | 2414566 ziggy59
ziggy59's picture

What's mine is theirs, what's theirs is theirs...

That's fair.

Thu, 05/10/2012 - 17:12 | 2414709 firstdivision
firstdivision's picture

That means a short squeeze will occur before it drops further.

Thu, 05/10/2012 - 18:10 | 2415021 XRAYD
XRAYD's picture

Another use of Ben's ZIRP gifts to run casinos and distort prices for short term profits!

Thu, 05/10/2012 - 20:12 | 2415537 bagholder
bagholder's picture

Doesn't the chart suggest, following april 2011 we roll over? as opposed to a short squeeze?

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