Short Sellers Making an Even Bigger Killing Than You Think

[Phill Twist]

It’s no secret that betting on declines is proving profitable in what has been the worst start to a year ever for global stocks. What is surprising, according to research firm Markit Ltd., is that returns for shorts are even higher than those generated during the 2008 financial crisis, when considered on a relative basis.
Back then, it was the housing bubble and the collapse of the banking industry. Now it’s China, oil and the end of zero-interest rate policy in the U.S. Sustained worries about an economic slowdown and the rout in commodities has added momentum to short strategies into the end of last year, with shorting activity peaking in the closing weeks of 2015 and showing no sign of slowing, Markit said in a report last week.
“Over the last five, six years, you’ve been conditioned to use weakness as a buying opportunity, and when other people are scared you’ve been paid to be brave,” said Michael Shaoul, head of Marketfield Asset Management LLC, where he co-manages a $2.4 billion long-short fund. “At this point in the cycle, weakness needs to be treated at face value. When one sector starts to deteriorate, there’s no reason to expect it to get better.” http://www.bloomberg.com/news/artic...-making-an-even-bigger-killing-than-you-think

 

[Scataphagos]

It's the "nature of the markets".

Get a proper "read" and play it correctly. Nothing special about this decline... it's not even "fast and furious"... regardless of the media hype.

 

[speedo]

I have no empirical data for this, but my observations show fear is stronger than greed.

 

[Stewie]

I have no empirical data for this, but my observations show fear is stronger than greed.

I think this is absolutely correct. If you block out how fast the fall is, in red, and compare it to how fast (slow) the rise is, its pretty obvious.

There is that saying that the markets take the elevator down and the escalator up.

 

[speedo]

Yeah, Gartman's had egg on his face lately but he is a smart guy. He described the latest bull market as "melting upward".

 

[lawrence-lugar]

In the markets...someone, somewhere...is always making a killing.

 

[Stewie]

In the markets...someone, somewhere...is always making a killing.

And with all this volatility even more so. The interesting part is that from what you read in the news, so many funds are down, be they Hedge Funds of HFT's, even trading desks at banks seem to be doing badly. So where is all the money going? I'm sure a few retail traders are killing it, but that is a spit drop in the ocean.

Could it also be that during these insane swings when the futures go up really high and drop really low that perhaps its a wash? Some might make huge on a fast rise, and then lose it all cause they are still bullish as it comes crashing down.

If some people were profitable when the ES went up 20 in a day, and maybe down 20 the next day, does it stand to reason that when the ES goes up 50 and down 50 in the same day that someone is making tons more, and others are losing tons more?

 

[speedo]

Futures are a zero sum game...not so in stocks.

 

[Stewie]

Futures are a zero sum game...not so in stocks.

Yes, but not for the individual. I can buy and ride 40 points higher, and then sell at the top and go short for 40 points back down and make 80. If I buy and hold, all the way back down and sell at BE, I've got nothing. Likewise, at the bottom, some poor sucker might sell, and be very negative as it climbs, but once he sees it roll over and come back down, he's holding on (kind of like surf... LOL) and get out at BE himself. Or of course sell at the bottom, buy at the top, and lose 80 in total.

So the question, are there funds out there that are killing it on both their longs and shorts. I'm sure some individuals are, but we are a drop in the ocean for the markets. It could still be that for the most part, many firms are just doing OK, even with this huge volatility cause even though they might have big wins, then might also have big losses.

 

[speedo]

In futures for someone to gain, someone has to lose and vice versa. Some firms could wash their trading profits against their money management vehicles.