Citigroup Preferred Arb ... Not preferred any more

I was speaking with a hedge fund manager the other day about shorting stocks.  One of the key comments he made was that there is a myth that every directional short decision that hedge funds make is somehow mystically blessed and that they are always correct.  Thus, everyone should indeed fear the prescient hedge fund manager when a new short position is disclosed, for they are all-knowing and all-powerful. 

In reality, as with most things in life, your objective is to try to be right more often than you are wrong.  As he pointed out, a 55/45 election outcome in the US is a landslide victory, when in fact that is only a +/- 5 % swing from a dead-heat.

Given that fundamental trading decisions are not generally taken lightly, what could possibly go wrong?  First, there are external factors which might occur that are not possible to research.  Second, there is information which is not available to people outside the company.  Third, timing is always an issue.  Maybe you get in too early and you can’t ride the trade until your projections come true, or you short s stock and get recalled before it becomes profitable. Fourth, well ... you could just be wrong.

At the end of February I wrote about Citigroup’s new preferred share issue and the borrowing demand related to it.  So how has that trade gone? 

Read Tyler Durden’s story in Zero Hedge.  Utilisation on Citigroup stock has absolutely skyrocketed since the end of February as have the fees.

P.S.
I've had a few people ask me about the Global Custodian Magazine videos that I was doing earlier in the year.  I haven't done any for a few weeks, but taping begins again today.  We are on a  new schedule and will be doing them every two weeks.  Thanks for asking.