UK Banks

To short or not to short - that is the question!

A little bit more on short selling financials in the UK.  One reader sent in this article from Investors Chronicle.   The point is made that the fundamentals of the banks lead to a continuing decline even (32% decline since the ban) without the ability for traders to short sell, so why would the reintroduction lead to a flood of short sales?

 

Sector or industry challenges and asset quality declines are two key considerations for fundamental short sellers. Clearly the financial sector still is an industry that is truly under siege and asset quality isn’t improving.  UK banks would seem to be good short candidates here.

Look next at the bank short data from Short Stories earlier in the week.   They examine the shares on loan for Barclays (3% of outstanding shares on loan), HBOS (4.47%) and Lloyds (1.19%).   These are all down significantly since the ban came into effect, so presumably there is room to add more shorts as there is substantial stock available for loan.

 Take all of these together and it looks like there will be scope for some shorts to get added.  I have no doubt that shorting will increase, but I believe the rise might be offset by the risk/reward scenario.  Continuing with the Barclays, HBOS and Lloyds examples, they currently trade at the following levels:  Barclays175.50p, HBOS 74.3p and Lloyds 126.60.  I’m not convinced there is a huge amount of long term potential in shorting these stocks, but no doubt people will jump when things open up again on Monday.

Dr Doom Returns

You really need to listen to the interview with Marc Faber on Bloomberg.  A really interesting guy who has been gloomy - and correct - for so long, that you need to hear his opinions.  And anyone that is completely against government intervention can't be all bad.