Daily Brief - Short sellers on the rise

Say one thing for the pandemic, say it’s a survivor.

We’ve thrown vaccines and lockdowns at it, and yet the virus has mutated and kept apace with our efforts. The recent mutations are - however - a sort of truce.

COVID is becoming an endemic but less aggressive version of itself - a regular companion of our seasonal flu and colds. The emergency will soon be over, as Fauci himself said.

If COVID is waning, what does that mean for markets?

For one, less QE. With no pandemic and inflation on the rise, there is truly no excuse to avoid normalising monetary policy.

Secondly, a lower level of retail participation. This is arguably a result of heightened market volatility, cue the previous point. ‘Adults are back in charge’, writes a condescending Bloomberg.

Finally, short sellers are back. Once cowed by the mobbing hordes of Reddit, the conditions are becoming more favourable for short sellers.

A weaker bull market and fewer retail traders make for a more pleasurable ride when short selling companies.

As Bloomberg notes in a recent piece, “hedge funds tracked by Goldman have boosted short positions in every week but one since early November” - as you can see in the image above.

The jury is still out on whether the risk of a short squeeze has been reduced. Short interest data is out there for all to see, at the end of the day.

And the days of the retail trader are far from over.