Yesterday’s conversation about Margin leads us to today’s headline: Bears’ Bets Fall on the NYSE.
"Short-selling activity fell on the New York Stock Exchange for the latest monthly reporting period, as bearish investors continued to struggle.
For the monthly period ending Feb. 15, the number of short-selling positions not yet closed out at NYSE — so-called short interest — declined 0.9% to 9,595,242,421 shares from 9,680,953,526 shares in mid-January.
Market-wide, the short ratio, or number of days’ average trading volume represented by the outstanding short positions at the exchange, fell to 6.2 from 6.8."
I don’t know much of Treflie Capital Management, but apparently they are a consulting firm which tracks short interest. They reported the "the average short-selling portfolio fell 1.8% in January, a dreary follow-up to a decline of more than 5% for all of 2006."
To be filed under No $#*t Sherlock: "Harry Strunk, a partner at Treflie, said short sellers have had an especially difficult time since the summer, when the stock market began a steady run higher that included fresh records in the Dow Jones Industrial Average."
Really? Do ya think?
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This post belatedly adds a new category, Short Selling. (How on earth did I ever miss that one?)
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Source:
Bears’ Bets Fall on the NYSE
By PETER A. MCKAY
February 23, 2007; Page C7
http://online.wsj.com/article/SB117219429274416810.html
If Google were to lose 1/3 of its market cap, that loss would be greater that the entire value of Amazon at its peak of $113 at the end of the last boom market. There’s a saying that includes the search terms ‘wool’ and ‘eyes.’
Amazon at Peak Price 113
Shares Outstanding 414,000,000
Market Cap 46,782,000,000
Google at Current Price 462
Shares Outstanding 306,160,000
Market Cap 141,445,920,000
Drop in Google of 1/3
Loss of Market Cap 47,143,925,136
This is greater than all of Amazon at its peak. We’re getting better all the time.
If Google were to discover its next big thing (the promise of which is what the market says justifies its current valuation), and all of Google’s metrics were to double right away, Google would then have a market cap of 7.5 times sales. That’s a large improvement over the current multiple of almost 15 times sales. Any word on that next big thing, yet?
With a short ratio of one day, IF someone recognizes that Gubyuby is not going to dominate the world, and the overall market goes into a correction, and that is then accentuated by a geo-political calamity, Goog is going to rocket down.
The average guy on the street is going to learn the nuances of how a stop loss really works. The trigger of a sell order does not guarantee the stop price.
I was going to comment re your post on margin debt the other day, but didn’t get around to it. Now’s as good a time as any. Dresdner Kleinwort’s greed-fear index hit an alltime high the other day–that’s high greed, low (low, how about no) fear. Just another little piece for the mosaic.
My God, finally some Google sanity. Google isn’t good at anything other than monetizing search. Innovation? Huh? They aren’t the founders of search, they don’t have the best algorithms in search and they really haven’t created anything since their ability to monetize search. (Which, kudos to them, they do better than anyone else.)
They own no content and offer search. That’s it. Now, they have built up a strong position of cash and market cap that they should take advantage of before that opportunity passes ala AOL. Because some day the big ole bear is going to come a hunting and cream the dimwits. And, more importantly, someone else might eat their porridge.
Google’s market cap exceeds the GDP of many countries and the market cap of Thailand, the world’s 21st larget economy.
Lol…yeah, GOOG attracts some of the brightest talent extant because they’re a bunch of idiots.
At this point, it’s kind of hard to see where Google’s follow-up will come from. Hiring all the Asperger’s geeks in the world doesn’t guarantee a steady stream of hits — if anything, it’s likely to stifle them. Sclerosis at Microsoft definitely creates a huge opportunity, but I imagine that the attack will come from a start-up, rather than the new Google bureaucracy.
Life has been rough for the shorts since July. I heard somebody say (but haven’t verified) that this is the 2nd longest period in history without even a 2% correction!
Probably a GOOG search would find that answer for me, eh?
While I do use Google to search, I find myself on Yahoo’s pages much more. In addition, I also find myself using Yahoo’s search engine more and more. Not because I don’t like GOOG, but because I’m already on the Yahoo web page and they have a search box right there…
Non-finance types at my work were talking about stocks and Jim Cramer today alongside discussions of sports betting.
Shoeshine boys anyone?
According to Sentimentrader.com, while it may have dropped slightly, the Short Interest remains near record highs. The unusually high put call also sends a clear message that the bets are stacked against a market advance.
Mr. Market always hurts the most players possible.
I’m not sure if many people read this blog anymore, but here is a great example of how after reading Mr Rihtholz’ piece, an inexperienced investor might want to run out and short the heck out of the market [after all BR is a neither a bull or a bear].
The NY times [of all sources] presents a vastly more balanced and accurate piece on the short interest rise. The blogosphere remains a dangerous place where anyone can find anything they want to hear–or more accurately read in print–so of course its true, right?
The New York Times
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February 24, 2007
Off the Charts
A Mountain of Margin Debt May Not Be Cause for Concern
By FLOYD NORRIS
American investors are now deeper in debt — at least in their margin accounts — than ever before. And that is starting to arouse concern of excessive speculation.
“We wonder how much of the current rally reflects an economy that is ‘just right’ versus a buoyant market tenuously supported by maximum debt and minimal worries,” wrote Joseph Quinlan, the chief market strategist of Bank of America, in a note to investors this week.
Mr. Quinlan pointed out that margin debt at brokerage firms reached $285.6 billion at the end of last month, breaking the record of $278.5 billion that had been set as the market peaked in March 2000.
Margin debt reflects borrowing in brokerage accounts. In the United States, investors can buy stock with as little as 50 percent down, borrowing the rest from the brokerage firm. It is a strategy that magnifies profits if share prices rise, and that can do the same to losses if the reverse happens.
In the aftermath of the stock market slide that began in the spring of 2000, investors showed a sharply reduced appetite for the risk that came with such borrowing. By the time the market hit bottom in the fall of 2002, the amount of outstanding margin debt had fallen by more than half. Now it is back.
But today’s level of margin debt is probably not an indication that speculation has returned to the old levels. For one thing, the market is a lot larger now. The second chart shows that margin debt remains well below 2000 levels when expressed as a percentage of the combined market capitalization of the two largest United States markets, the New York Stock Exchange and Nasdaq.
Moreover, the recent growth in margin debt has been much more gradual than it was in 2000. In early 2000, margin debt had nearly doubled from a year earlier. Now it is up about a quarter from a year ago.
There is another statistic on margin accounts that provides some reassurance — the amount of money that such accounts could borrow if they wished to do so. High levels of borrowing capacity show that accounts would not be forced to sell if prices began to fall, and they indicate that speculation is not as intense as it could be.
The third chart seems to indicate a fundamental shift in that regard. Margin account holders could, if they wished, increase their borrowing by 35 percent. That is down from a peak of 44 percent, but double the low point reached in early 2000.
There are, of course, a myriad of other ways to take on leverage. Derivative securities like options and futures have built-in leverage, as do hedge funds. Many investors can borrow against their homes, and more sophisticated ones can take on low-interest-rate debt in Japanese yen, a maneuver known as the carry trade. It is impossible to know just how much leverage is being used.
But the rise in margin debt — a form of leverage that is among the easiest to arrange — does show that investors now are far more confident and willing to borrow than they were just a few years ago.