Bears Lose Conviction in Face of Cheap Stocks
By Barry Ritholtz - February 10th, 2009, 2:00PM
Doh!
The biggest bears in U.S. stocks are losing their conviction after the steepest decline in the Standard & Poor’s 500 Index since the Great Depression.
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Source:
Cheapest Stocks Since 1990 Reduce U.S. Short Selling
Lynn Thomasson
Bloomberg, Feb. 9 2009
http://www.bloomberg.com/apps/news?pid=20601213&sid=ajvP_h.al.70&
February 10th, 2009 at 2:03 pm
Aren’t some of those folks (Fleck, Kass, BR, etc.) often early? Weren’t many of you early in your bearish calls too? Me-thinks these folks could be a bit early here too.
February 10th, 2009 at 2:09 pm
LOL fleck bullish that’s a gas. the short etf’s distort this data. cheap stocks? what? cheap compared to 1990 with a 15.5 pe give it up. the past 20 years have distorted the universe. earnings continue to plunge.
February 10th, 2009 at 2:15 pm
It might be prudent to consider that all forms of trading on NYSE (and everywhere else) has decreased. So isn’t it logical that short-selling would too? Does someone have a chart that shows number of shares vs. number of shares borrowed and sold short?
February 10th, 2009 at 2:21 pm
Mustard seed.
February 10th, 2009 at 2:22 pm
If I ran a big fun with other peoples money I’d be out too, but there is no way that the down side is over. That catastrophe that Obama talked about is still in front of us, not behind us…
February 10th, 2009 at 2:27 pm
Dunno if it’s been linked before, but just in case:
HAZARDOUS MATERIALS?
The patchiness of the moral-hazard argument doesn’t mean that we should simply rubber-stamp another bank bailout; that may be both unjust and a poor strategy for whipping the financial sector into shape. But it does mean that the failure of Lehman Brothers was an unnecessary and costly sacrifice to moral-hazard fundamentalism. It also means that we should not sit quietly by because we fear that government action today will lead to reckless market behavior years from now.
I find this somewhat infuriating, and given that human primate physiology is hardwired for fairness, expecting folks to not demand a comeuppance for the beneficiaries of throwing moral hazard to the wind is a fantasy.
February 10th, 2009 at 2:31 pm
BR,
Yes, this may be the case, but where will the marginal buyer come from to sustain any rally?
I have to say it here because it didn’t get a lot of comments but people should check out the taleb/roubini video here. I think it still shows what the average dumb-ass is thinking about the state of the economy right now. I can’t even believe what those guys are still getting from those fools on CNBC after they called this whole thing.
I used to think Kneale or Kudlow were the worst but Michelle Caruso Cabrera might just take the cake.
February 10th, 2009 at 2:37 pm
Anyone tried to do any shorting lately??? There sure doesnt seem to be any inventory available where I trade… ETF’s are a nightmare to find loaner shares on, but equities too.
February 10th, 2009 at 2:37 pm
knielsen79 @ 2:15
Yes, one has to consider short interest relative to overall trading volume.
Short interest relative to margin interest is another relevant parameter.
It’s also worth noting that the CBOE index options put/call ratio has been declining for over a year.
February 10th, 2009 at 2:40 pm
I-Man,
Yeah same thing here. I tried to find some shares to borrow recently on a few and couldn’t.
February 10th, 2009 at 2:42 pm
The Shorter Geithner Plan: Look Ma, No Socialism!
from Paul Kedrosky’s Infectious Greed
http://paul.kedrosky.com/archives/2009/02/10/the_shorter_gei.html
The Geithner non-plan TARP 2 plan is now (mostly) out, and it is about as complex, dubious, over-engineered and sketchy as expected. The non-plan plan — Tim G. calls it a framework, which is offensive to frameworks — involves enough moving parts to be an economist full-employment act; it is a druidic mixture of regulatory capture, cute grad-school theorizing, and look-ma-no-socialism-here contortions to avoid temporarily nationalizing insolvent banks.
February 10th, 2009 at 2:45 pm
I-Man @ 2:37
According to shortsqueeze.com, short interest in QQQQ is 97M, versus 160M average daily volume.
(Short interest doesn’t seem to be all that high).
February 10th, 2009 at 3:09 pm
Fleck covered as he was expecting a rally and he owns a few large cap stocks. I don’t think he is looking for a new bull market, rather a bear market rally.
February 10th, 2009 at 3:11 pm
In a busting credit crunch, asset values set a floor and let you assess downside risk. P/E’s are irrelevant in a depression/severe recession. While peak earnings power may be high, we see how it can be built on sand/quicksand. Fundamental asset values are not high for most companies relative to their stock prices. Stocks therefore remain very risky here IMHO.
February 10th, 2009 at 3:15 pm
To some extent this is probably just a reflection of shrinking hedge fund assets. If hedge funds have less capital, unless their strategies have pushed them increasingly more short after stocks are down huge, there would almost by definition be less shares short. So I’d argue this data is fairly irrelevant.
February 10th, 2009 at 3:15 pm
There’s way more to that chart than meets the eye…….
Member firms know a year in advance when they are going to report short interest, so they time their covers accordingly (that’s why they get paid so much). And by the time data is released, it’s 12 days old. So chum like us think the water’s safe……
Here’s the schedule:
http://www.nyxdata.com/nysedata/default.aspx?tabid=748
This is interesting stuff to think about,
February 10th, 2009 at 3:25 pm
The cheerleaders on CNBC sure are morose today. Even the smug Caruso Cabrera.
February 10th, 2009 at 3:40 pm
@ Marck Mchugh,
Very good point you bring up.
February 10th, 2009 at 3:46 pm
As much as I’d like give other reasons, this is probably a reflection of a lack of credit availability to finance the transactions than anything else. Plus, the world doesn’t appear to be close to ending so the bottom is probably somewhere near here. Another good buy and hold signal if you have a favorite area that you think will rise a bit in the coming weeks / months (PS don’t forget to sell with a profit)
February 10th, 2009 at 3:53 pm
Excerpt from AP story that whiles about no details from Treasury yet …
Then, in a related government commitment of financial support, the Federal Reserve broadened a program designed to boost resources for consumer credit and small business loans — from $200 billion to up to $1 trillion.
Talk about burying the lead.
Consumer credit is the grease that moves the wheels, It is trickle UP theory aka old fashioned economics.
February 10th, 2009 at 3:57 pm
Alot of the convertible arbitrage guys who short stock to hedge blew themselves up last year. I’m sure they gave back alot of what remained of their AUM, and consequently had to cover. That probably explains part of it.
February 10th, 2009 at 3:58 pm
I’m with dead hobo on this one. Lack of liquidity would logicaly affect those who give the market liquidity, i.e. short sellers. Investment capital disappears when people need money to service their debts.
February 10th, 2009 at 4:01 pm
I hope by “valuation” they simply mean “share price” because looking at the PE based on the recent EPS estimates put out by S&P, the market is hardly cheap.
For the firs time EVER, S&P reported EPS is going to come in negative. And not just a little negative, but worse than -$8/share. Operating EPS isn’t much better and managed to be revised downward for the quarter currently reporting from $8.19/share to $6.33/share. Pegging a PE(ttm) on this is trying to hit a moving target moving in two directions at once!
February 10th, 2009 at 4:04 pm
dead hobo,
LOL
Wall street HATES trickle up theory. It helps the community. It’s the old ” us crook s need to sell” signal. Someone is trying to help the suckers. We can’t have that.
February 10th, 2009 at 4:11 pm
Creating more credit is a no-go- responsible people are hunkering down and paying off debt- the only folks who would take out credit in this environment are the same ones who can’t get credit.
You can’t make someone take out a loan even if the governement pulled out all the stops- people are unsure of the future and that will determine their actions. Case in point- interest rates on cars are zero but no resposible person will purchase a new car in this environment. The only way to increase demand is to lower credit standards and give loans to the folks out there who currently can’t get loans- of course then the problem becomes getting the loan paid back.
February 10th, 2009 at 4:26 pm
Dead Hobo,
On what are you basing that the lack of consumer credit availability is an issue here? At least as far as mortgages go in the Northeast, I know several mortgage brokers and they have no problem finding loans for credit-worthy customers.
I think that with a very shaky economy and layoffs happening left and right, most people do not want to go shopping or buy a new car/boat/house. With the latter, I think there is a general (and in my opinion, correct) belief that houses will be cheaper a year or two from now, which is pushing off purchases even more.
February 10th, 2009 at 4:42 pm
http://www.screencast.com/users/erikdbrucker/folders/Jing/media/5830251f-3904-44a7-a0a4-ba1f72cb11a2
A very lude but very funny bear cartoon. most definitely appropriate today.
warning – extremely graphic and vulgar.
February 10th, 2009 at 4:50 pm
Maybe the bears should’ve waited a day to bail-out (snark)>
February 10th, 2009 at 4:51 pm
Another wonderful reason this market is flirting with a downside resolution near term. The Obama/Geithner stimulus package is sabotaging the stock markets inauguration low.
February 10th, 2009 at 4:53 pm
guidepostings @ 4:42
Not suitable for young children
(Or bullish analysts).
February 10th, 2009 at 5:07 pm
Maybe investors are just losing interest.
February 10th, 2009 at 5:16 pm
Considering most hedge funds took a bath last year, there is less money laying around to hedge with. Then there is the uncertainty of will the govt just arbitrarily stop short sales.
Then this time last year we still had Bears, Lehman, and investment banks. Less players to take risk, no investment banks to leverage the risk. Less options being placed and traded.
February 10th, 2009 at 6:11 pm
I have been screaming about low short interest for a year…a sign of crippled hedge funds and a very compelling reason to be short now. In addition, volume ticked up a bit and down goes Frazier today. Also, despite a near 400 point drop, total put/call closed at only .88???? This is a joke. II Bulls dropped less than 1%.
Expect a major down move in equities.
February 10th, 2009 at 7:22 pm
I just love how CNBC still prattles on about “the street” or “the markets” liking this or that, as if that isn’t a huge part of the problem that got us into this mess. Who cares what the effing “street” likes or doesn’t like at this point? Do the frigging RIGHT thing that will fix this for the long term and screw those bastards. Too much short-term thinking still in play here.
February 10th, 2009 at 7:53 pm
Has anyone else heard this buzz they are going to stop mark to market and possibly announce this tom.
What a horrible idea but that would surely make the market rally hard.
February 10th, 2009 at 8:48 pm
@ben22: Heard that as well but how does changing the rule really change anything? It merely prolongs the game of “pretend”, IMO. Yes, it could spur a pretend rally of sorts, but then we’ll just be back here again at some point.
February 10th, 2009 at 8:58 pm
Mannwich,
I totally agree, that would be just a short term way to mark assets up to what they aren’t really worth, that said, it would still ignite a pretty strong rally IMO, would just be an opportunity to trade is all, this market is full of them.
I picked up some stuff very late today that I’ll most likely sell within the next 2-3 weeks, either at a nice profit or I’ll just get stopped out.
Not sure if you read the mr. mortgage thing in the cafe yesterday, it was real long, but he went over mtm in there and summed it up really well and how silly the talk of how mtm got us here is.
February 10th, 2009 at 9:11 pm
ben & todd above nailed it – hedge fund assets have been crushed, and hedge fund exposure is ridiculously low compared to past year/6 months, hedge funds are making smaller bets, and getting chased out of them quicker, with terrible perf in 08 the only way to stay in the game is put up PNL in 09/dont get blown up again, smaller bets w a shorter leash accomplishes that, re short interest down ticking that is the answer, especially where no one wants to be caught tremendously net short in a massive bear mkt rally and get your face ripped off and close down, cant short without finding a long hedge, no longs to hedge with means no exposure, no trick to it – feel free to look around for others/make up others
February 10th, 2009 at 11:15 pm
That’s the greatest sell article I’ve seen in awhile.