Short sellers fear the small investor mob

The retail investor revolt against Wall Street short sellers appears to have made a lasting impression on hedge fund professionals. Their standard way of betting on the failure of companies and the price losses of their stocks has fallen to its lowest level in nearly 17 years. In these short sales, stocks are sold that the seller does not own but has only borrowed - in the hope of being able to buy and return them later at a cheaper price. According to data from the investment bank Goldman Sachs, companies from the US leading index S & P500 are currently only selling stocks short on average with a value of 1.6 percent of their market capitalization (i.e. the value of all shares in a company added together). In Europe, this so-called short rate has plummeted as never before, as Bloomberg reports, citing data from Morgan Stanley. From the point of view of hedge funds, there are currently good reasons to bet against at least some industries and companies. While the pandemic is still spreading in many parts of the world and burdening companies, stock prices have risen to record levels in many places. The ratio of share price and profit for many companies is at a level that is reminiscent of the dot-com bubble at the turn of the millennium. Even optimists expect that there could be price drops, at least in the short term. The share of option transactions to hedge against price losses of the S & P500 has recently increased compared to those that rely on price gains. Still, hardly any fund manager is currently venturing short. "Nobody wants to have their heads ripped off by a short sale," Bloomberg quotes Benn Dunn. The head of the financial advisory firm Alpha Theroy Advisors is referring to the billions in losses that some hedge funds suffered with shares in the games retailer Gamestop. The stock was one of the most frequently sold short on the US stock exchanges due to poor business activity and the even worse prospects for brick-and-mortar retail in the opinion of many investment professionals. Thousands of small investors, including avid gamers and customers of Gamestop, saw things differently and made an appointment via the "Wallstreetbets" forum on the Reddit online platform to jointly invest in the share and drive the price up. They got the hedge funds on the wrong foot. They had to buy the short sold shares at horrendous prices. A so-called shortsqueeze was created and catapulted the paper, which last year was still under five dollars, to more than 480 dollars at times. Currently the shares are still trading for a good $ 158. What some condemned as unfair price manipulation, others celebrated as a victory by small investors over the machinations of elitist Wall Street circles. In total, institutional short sellers lost more than $ 14 billion. As the drop in the number of such bets shows, the horror of these losses lingers on.