Short-Sellers Set-Up Shop As Sentiment Starts To Shift

Short-Sellers Set-Up Shop As Sentiment Starts To Shift

“It’s dangerous to be short still, but we might be building toward a moment where the market becomes quite vulnerable,” warns Bill Fleckenstein who is finishing up the documentation on a new short fund he is about to start marketing. With the

Jim Chanos, president and founder of Kynikos Associates and one of the most prominent short sellers, said the market is primed for people like him and as a result he has gone out to raise capital.

Now I think is not a bad time to be raising capital for what we do. When we got a rough going in the mid-90s, that was exactly the time to raise capital,” Chanos said, adding it was better to do this when critics viewed him as “like the village idiot and not an evil genius.”

Already, there are signs 2014 may be different.

“We’re about done with the document and I’ll be marketing it officially very shortly, like within a week,” he said.

That’s not to say he is brimming with confidence – not yet.

“It’s dangerous to be short still, but we might be building toward a moment – whether it’s two weeks from now or 10 months from now I don’t know, where the market becomes quite vulnerable,” said Fleckenstein.

“There’s growing interest on (shorting) a number of stocks, concentrated in areas that did well last year,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.

“Biotech is in full bubble mode, meaning companies that have no prospects of a drug continue to grind higher,” said John Hempton, chief investment officer and founder of Bronte Capital, a Sydney, Australia-based asset management firm that often takes short positions.

Short sellers say they believe bulls may be getting too confident. The S&P 500’s forward price-to-earnings ratio is at its highest since mid-2007.

“Short selling over the last two years has been a hedge against profits,” said Douglas Kass of hedge fund Seabreeze Partners Management Inc. But he said recent disappointments from companies as varied as Ford, Intel, and Elizabeth Arden are signs that the “tide might be turning.”

For shorts, it appears to be the opposite of “blood in the streets” time…

Charts: Bloomberg, Goldman Sachs, and @Not_Jim_Cramer

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