Net long vs short:Implied same here..BUT on the BULL side of the equation (see article below)
Message 17543443
Implied the same about the "smart money" in the last few lines of the above.
But on the other hand there may be some mindless shorting going on too.
So we may be getting close here to a bottom. Within a few months imo.
In bear markets first the bulls get hammered, then the bears who turn into bulls early get hammered, and lastly the late-to-the-party shorters get taken out. (like the late-to-the-party bulls at market tops) Right?
forbes.com
Clipped Hedges
James Grant, 06.10.02, 12:00 AM ET
When things like hedge funds acquire a mass-market following, a disaster of some kind is just around the corner.
Carrefour last month disclosed its plans to sell hedge funds in French supermarkets. "We want to democratize the hedge-fund business," Thierry Gosset, the administrative director for financial services of the world's second-largest retailer, told Bloomberg News. "We aim to achieve the necessary critical mass by attracting many small investors." Minimum investment: the equivalent of $900.
There is only one place in which a conscientious grocer would display an assortment of hedged investment products: the perishables case. Like a head of lettuce, a leveraged investment partnership wilts easily.
In all times and all markets, excess is a leading indicator of peril. In the breakneck proliferation of hedge funds, excess is turning into absurdity. According to The New York Times, the worldwide population of hedge funds is approaching 6,000. With the help of $144 billion in new money, assets climbed 38% last year, to $563 billion.
The exact nature of the risk posed by the rapid placement of these hundreds of billions of supposedly sophisticated dollars will be revealed, as usual, too late (see FORBES GLOBAL, Aug. 6, 2001). Even before the inevitable pileup, however, we can perceive the outlines of trouble. Ostensibly, hedge funds are hedged. Most certainly, they are leveraged. The risk lies in the debt--and the collective inexperience of the managers and investors.
A half-century ago Alfred Winslow Jones, an ambitious former financial writer, had an idea. He would invest $100 in the stock market. He would borrow $30 and invest that, too. To mitigate the risk of the extra $30 of long exposure, he would sell short $30 of stock (that is, sell borrowed shares with the expectation of buying them later, possibly at a lower price). He would, as the phrase went, be "short against the increment."
If his stock selection was good, Jones reasoned, he would be more than fully invested. But to be on the safe side, he would hedge. He called his fund a "hedged" fund. It is telling that, down through the years, the final consonant has gone missing.
Which brings us to Jones' progeny. No doubt hundreds, even thousands, of these offspring are faithful to the founder's vision, but with complete certainty, we know that hundreds, even thousands, are not. We know something else. Not even the progenitor flawlessly implemented the A.W. Jones & Co. investment model. So bruising was the downturn of the stock market in 1969ç0 that Jones himself considered calling it quits.
Jones' previous success did not go unnoticed. Many tried to emulate him, not forgetting the part about taking on some margin debt. By 1977 Institutional Investor asked where all the funds had gone. "Quite simply," the magazine answered, "what was larger than life on the upside was magnified on the downside, too--despite the apparent ‘hedge' concept that was supposed to enable them to profit on their short positions. Performance fees, in an era of nonperformance, dried up."
Nonperformance today is almost preordained. Hedge-fund promoters promise to be leveraged, to be hedged, to be "market neutral," to be short, to be long. The trouble is that there isn't enough ice water to fill the veins of all the fresh, young hedgies.
"He was all nerve and no nerves," it was said of a certain speculator a century ago. But for those with the conventional wiring of the nervous system, nothing is quite like short-selling. Have you ever tried selling short and then tried to sleep? For most people, the two activities are incompatible. That's because the potential loss on a short sale is unlimited.
Rallies in bear markets are notoriously violent and can be made even more explosive by the mushrooming growth of leveraged investment partnerships. On days such as May 8, when the Nasdaq composite rose 7.8%, you could almost feel the sweat beading up on the brows of thousands of novice fund managers.
In April short interest on the New York Stock Exchange reached a record high 6.8 billion shares, up 3% from March. The rise was reportedly driven by hedge funds. And although the absolute volume of short sales is touching a record high, the confidence level of the short-sellers must be near a record low.
It is an open secret among seasoned bears that only a small fraction of short sales these days are the result of rigorous and original securities analysis. Nowadays more and more shares are sold for no better reason than that "the market is going down."
Democratize the hedge-fund business? Sure, and as long as we're at it, let's democratize the New York Philharmonic. We'll all play first horn.
James Grant is the editor of Grant's Interest Rate Observer. Find past columns at www.forbes.com/grant. |
