Short Sellers in Danger of Extinction After Crushing Stock Gains

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Short Sellers in Danger of Extinction After Crushing Stock Gains

Bloomberg06-04

The business of betting on stock declines is shrinking as bearish investors face threats on all sides.Jim Chanos quit after failing to raise capital. Carson Block’s firm launched its first long-only ...

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Carson Block’s firm launched its first long-only ...</p>\n\n<a href=\"https://www.bloomberg.com/news/articles/2024-06-03/jim-chanos-leads-short-seller-retreat-after-markets-surge?srnd=homepage-americas\">Source Link</a>\n\n</div>\n","source":"lsy1584095487587","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Short Sellers in Danger of Extinction After Crushing Stock Gains</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nShort Sellers in Danger of Extinction After Crushing Stock Gains\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-04 19:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://www.bloomberg.com/news/articles/2024-06-03/jim-chanos-leads-short-seller-retreat-after-markets-surge?srnd=homepage-americas><strong>Bloomberg</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>The business of betting on stock declines is shrinking as bearish investors face threats on all sides.Jim Chanos quit after failing to raise capital. Carson Block’s firm launched its first long-only ...</p>\n\n<a href=\"https://www.bloomberg.com/news/articles/2024-06-03/jim-chanos-leads-short-seller-retreat-after-markets-surge?srnd=homepage-americas\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"GME","symbol_name":"游戏驿站","start_time":0,"source_url":"https://www.bloomberg.com/news/articles/2024-06-03/jim-chanos-leads-short-seller-retreat-after-markets-surge?srnd=homepage-americas","article_id":"1178681870","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=1178681870","pubTimestamp":1717500334,"sourceInfo":{"source_id":"lsy1584095487587","name":"Bloomberg"},"weMediaInfo":null,"summary":"The business of betting on stock declines is shrinkingas bearish investors face threats on all sides.Jim Chanos quit after failing to raise capital. Carson Block’s firm launched its first long-only fu","collect":0,"end_time":0,"defaultTopTitle":"bloomberg.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"GME":"游戏驿站","AMC":"AMC院线"},"translate_title":"卖空者在压制股市涨幅后面临灭绝的危险","themeId":"","isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AMC":1.1,"GME":1.1},"content_text":"The business of betting on stock declines is shrinking as bearish investors face threats on all sides.Jim Chanos quit after failing to raise capital. Carson Block’s firm launched its first long-only fund. Andrew Left dubbed his kind “a dying breed.”These are bad times to be a bear on Wall Street.After taking hits on multiple fronts, short sellers — who borrow and then sell stocks in a bid to profit from price declines — are in retreat. Thank the gravity-defying bull market, lingering regulatory threats, a day-trading horde randomly squeezing shares like GameStop Corp. ever higher, and more.Short interest in a typical member of the S&P 500 is hovering around the lowest levels in more than two decades, according to Goldman Sachs Group Inc. Assets in funds with a short bias have slumped to $4.6 billion from $7.8 billion in 2008, HFR data show, during a period when equity hedge funds overall nearly tripled in size. Activist campaigns like those pursued by Block and Left — where investors seek company flaws and bet against them before making their findings public — launched at the slowest pace in a decade in 2022, with only a tiny uptick last year.Against that backdrop, a succession of high-profile players has dialed back their short-selling activity, and some have turned away from the business — including the most famous of them all.Jim Chanos in New York, in 2023.Photographer: Victor J. Blue/Bloomberg“Our fund side of our business was just dwindling — people just didn’t want to invest,” says Jim Chanos, the legendary short seller renowned for calling Enron Corp.’s demise. “Investors — primarily institutional investors — have just given up on the fact that there’s going to be excess returns on the short side.”Chanos announced late last year he was converting his hedge fund into a family office after almost four decades. The lack of interest among investors to put cash into a bearish strategy meant the fund “just wasn’t covering the overhead costs,” he says. Assets had dropped to less than $200 million from over $6 billion in 2008.It’s part of the reckoning for this divisive corner of the investing world, which is feted by some for uncovering corporate scandals at companies like Wirecard AG, and vilified by others for everything from harming investors to compounding market turmoil. The short-bias hedge fund index from HFR boasted 54 constituents in 2008, but after years of losses and outflows for many strategies that’s been whittled down to just 14.Short sellers aim to buy back the shares they borrowed (and then sold) at a lower price, returning them to the lender and keeping the profit. But that can be tough to do in a market where stocks seem to do little but rise. The capitalization of the S&P 500 has surged by about $30 trillion in the past decade, more than doubling its size, powered first by the era of ultra-low borrowing costs and more recently by an artificial intelligence-fueled frenzy.This “massive expansion” of the equity market has made it hard to sustain short positions, according to JPMorgan Chase & Co. strategist Nikolaos Panigirtzoglou. It’s not necessarily that short calls are wrong, but the upward march means any bearish thesis can take much longer to play out, and all the while the bears must pay borrow fees for the stocks they have sold. Small wonder the median short interest in companies on the S&P 500 now sits at about 1.7% — only just above lows posted in 2001 — and below the long-term average in every major equity sector, according to Goldman Sachs estimates.But the run-up in the market is just one in a string of challenges. In 2021, it emerged that many activist short sellers were under investigation by the US Justice Department and Securities and Exchange Commission for potential market manipulation. No charges have been forthcoming, but the SEC also finalized rules last year that require hedge funds and other big investors to report gross short positions in certain stocks on monthly basis, increasing scrutiny on the business.It’s part of a global pattern of regulatory tightening that has also seen short selling restricted in countries like China and South Korea. It’s also a formal expression of the widespread suspicion that follows traders seeking to profit from declines, who have long drawn the ire of the companies they target, investors in those stocks, and the financial establishment. (The former head of the New York Stock Exchange once famously described them as “icky” and “un-American.”)“It’s a bad business,” says Left, the founder of Citron Research, who has been caught up in the Justice Department investigation. “You just put yourself at the middle of a constant lawsuit from the company, potentially from the government. Like why am I doing this?”Left doesn’t believe he’s done anything wrong, but as yet there’s been no outcome from the investigations either way. Meanwhile, he was also among those burned in 2021 during the chaotic trading of the pandemic, when retail traders organizing in online forums squeezed bearish firms — most notably Gabe Plotkin’s Melvin Capital Management — by bidding up shares in the likes of GameStop and AMC Entertainment Holdings Inc.Andrew Left in Boca Raton, Florida in 2023.Photographer: James Jackman/BloombergDespite suffering heavy losses, the short sellers wound up presented as the bad guys in the fallout — a role they’ve long been used to. But the episode brought a fresh barrage of negative attention to the industry. Chanos is scathing about the whole affair.“It was absolute insanity that retail investors would buy these worthless equities and then blame short sellers for the problems,” he says. “Short sellers were the ones run over by the GameStop phenomenon.”Retail traders have flexed their muscles again in the past two months, with shares of several meme-stock favorites including GameStop surging anew. Bearish investors overall may have dodged the worst of it — data from analytics firm S3 Partners LLC show short interest in the video game retailer never rebounded following the events of 2021 — but it was a reminder of the danger. At one point a Goldman Sachs basket of the stocks most-shorted by hedge funds flipped from a year-to-date loss of almost 10% (which was good for the short sellers) to a gain of over 13% in less than a month.Left says these meme-stock dramas demonstrate a “gamification” of the market that has undermined the whole short-selling industry. He says he has once again been betting against GameStop amid some of the recent turmoil, but only with a small position and for “fun.”“You can’t be short in size,” Left says. “People realize now, post GameStop, the stock can go up for so many different reasons.”It’s all helped curtail activist short sellers like him, who launched only 110 campaigns in 2023 compared with 280 in 2015, according to Diligent Market Intelligence.Practitioners say it’s getting increasingly difficult to attract new cash for a risky bearish approach (the downside of short selling is theoretically limitless), whether for an activist firm or simply a short-biased fund. Russell Clark shut his own vehicle at the end of 2021 after betting against stocks for more than decade. Assets in his RC Global Fund, which wagered against tech companies both in China and the US, had dropped to $200 million from about $1.7 billion six years earlier. The Asia positions had paid off, but going against mighty American megacaps hammered performance.“If the big allocators can make their money being long the S&P 500, why would they take that career risk of allocating to a short bias from a hedge fund?” says Clark. “You really need a change in the dynamic of the leading shares before you really see any demand for hedge funds.”Chanos says the current downturn is part of a cycle, similar to what was seen in the build-up to the dot-com bubble. The trouble is, such downturns can last a long time — and he reckons this one has been running for 15 years. In that time, Goldman’s basket of most-shorted stocks has posted an average annual gain of more than 9%. HFR’s short-bias index has lost an average of over 10% every year in the period.“The longer the cycles go, the more short selling seems to be questioned and out of favor,” Chanos says. “But that’s generally right before it’s made a lot of money for people.”The idea is that a relentlessly rising market not only creates the kind of overvalued companies short sellers will ultimately feast on, it also masks badly run and sometimes fraudulent businesses. That may be especially true when short selling is at such a low ebb, since bearish activity has been shown to act as a brake on bad corporate behavior and keep the prices of companies with questionable financial statements in check.Chanos reckons big investors are missing “amazing opportunities” by pulling away from short selling. Clark has hinted he may consider a return to the business when he judges conditions are right. Even Left has published at least two reports in the past seven months, though he said he only plans to do so rarely and for companies he judges aren’t “consumer-driven names.”Last month shares of several meme-stock favorites including GameStop surged anew.Photographer: Bing Guan/BloombergGlen Kacher stuck with the business despite his hedge fund suffering heavy losses in the original GameStop saga. He’s been using more custom baskets to gain broader exposure to bearish bets, and his shorts have been helping boost returns at Light Street Capital Management LLC this year alongside long positions in tech companies including Nvidia Corp.“A larger part of the market is passive funds that don’t analyze what’s going on,” says Kacher. “That creates opportunities for the people on the short side.”There are some signs of a tentative pickup from historic lows this year, with short interest in the US increasing by $76 billion, about half of which is fresh short selling, S3 says. (The other half is simply rising share prices.)In a review of 2023 short campaigns, data-tracking firm Breakout Point highlighted the number of newcomers entering the industry, noting that the year’s top call was from the relatively unknown Dirty Bubble Media. The firm has also counted 47 new short calls in 2024 through April, and projects 150 by the end of the year if the pace holds, 15% up on 2023. Ivan Cosovic, Breakout’s Dusseldorf-based founder, reckons SPACs, Chinese IPOs in the US, and ESG-focused investments are all presenting “exceptional opportunities” for activist short sellers.Yet even as central bankers around the world have lifted interest rates back to levels not seen in decades — usually a handbrake on equity markets — stocks have generally churned higher, making it difficult to sustain bearish bets for any length of time. Most short bets by hedge funds nowadays are against the indexes through ETFs and futures, not individual stocks, Goldman Sachs says. Those are more likely hedging tools than wagers on market direction or single-stock inefficiencies.Meanwhile, it has become historically expensive to borrow shares in some corners of the market, according to Acadian Asset Management — creating yet another headwind for short sellers.Some bearish investors are finding alternative ways to express their views. The rationale behind Muddy Waters Capital LLC’s new long-only fund targeting Vietnamese stocks includes a view that China is “uninvestable,” founder Block told Bloomberg Television in March. He sees Vietnam as a potential beneficiary of redirected capital flows.To Fahmi Quadir, the founder of Safkhet Capital LP, the key to surviving and even thriving as a short seller is figuring out a strategy that can profit even when broader conditions are against you. She’s had some notable wins, including a 2015 bet against the drugmaker formerly called Valeant Pharmaceuticals when it was near its peak, and against Wirecard before it crumbled in 2020.“You have to be able to adapt to market conditions, or at least try to remove the impact of market conditions on your own portfolio,” says Quadir. “There’s never a good time to be a short seller.”","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"hasMoreComments":false,"newsSizeData":{"likeSize":16,"commentSize":0,"repostSize":0,"favoriteSize":1,"likeStatus":false,"favoriteStatus":false}}