Short Interest Data

Data came out yesterday from the NYSE showing short interest data has reached its highest level since mid-September last year – the day Lehman defaulted.  The data release is always delayed so the numbers are actually from 13 March almost exactly months after Lehman.  The figures are still down over 1 billion shares from the September numbers and for most of the post Lehman period have been down 2.5 billion shares or more from that date, and still remain 2.5 billion shares below the peak in mid-July 2008.   Click on the picture below and you will see the chart for the past year.

Even though the numbers are still down from the peak – and the market levels declined while the short interest also declined rather than expanded – short selling is still under pressure and will no doubt get undue attention at the G20 in London this week.  There has been some suggestion that Monday’s massive rally was due in part to short covering in the face of Geithner’s plan on toxic asset relief and the cooling off we saw in markets yesterday might add support to this view.

So let me be sure I understand this – the market rallies decisively on Monday partly due to buying by shorts.  Everyone is happy (except presumably shorts that lost money).  To me that looks like an artificial price rise because it wasn’t based on fundamentals or even the Geithner plan.  If it was either of these, then presumably markets would have carried on rising yesterday or this morning.  Yet when short sellers make money from companies that post increasingly negative performance figures and therefore are showing fundamentally weak performance, everyone is against them.

Clearly what people really want is artificial price rises when it benefits them, and they want poorly performing companies to be protected so that their investments are artificially subsidised.  Now I get it.

Watch this Jim Chanos CNBC Interview.  He discusses the toxic asset plan amongst other things.  Quote “Accounting is Destiny, Joe”.  My grade 10 accounting teacher would be happy.