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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (100028)	11/30/2008 11:27:59 AM
From: Hawkmoon	1 Recommendation Read Replies (2) \| Respond to of 110194

Russ, I agree with you about the hedgies not having the same kind of power as they had before. We've discovered that an unregulated "shadow banking system" has consequences that outweigh it's usefulness. The hedgies will no be regulated like any mutual fund, and they will have to show both major long and short positions. It's been insane that they didn't have to reveal short positions, but mutual funds have to reveal long positions. Also, yes.. short interest is decreasing a bit, but it's still well above levels of last year at this time, when the S&P was about 100% above current levels. Thus, given that the world seems to be deleveraging, margin debt is dramatically declining, and we're down from 1500 to 750-900 on the SPX, that should have tossed out a lot of margined positions. And since margined stock is the only stock that is supposed to be shortable, short interest should be declining dramatically. The following graph shows margin debt trends over the past 10 years. It indicates that in the past year margin debt has reduced by more than 1/3. mediaserver.fxstreet.com fxstreet.com seekingalpha.com The logic being, if margin debt is declining, short interest is logically supposed to decline at a similar rate as available stock is reduced by reduction of margin debt. If margin debt reduced by 50%, short positions should reduce by 50%. Thus, the majority of that shorted stock out there can only be naked short. Hawk