Why do talking heads hate short-sellers?

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One of the more enduring mysteries of investment is the special hostility that is reserved for short-sellers. Most (if not all) of the major investment talking heads never offer short calls and more often than not spend their days trying to have them banned.

It’s a mystery for two simple reasons:

  1. shorts are the smartest players in the market and it is they that take out the rubbish
  2. why would anyone restrict themselves to only one half of the gains available in investment?

Of course it’s not a mystery at all. The hostility is a result of three generations of a credit-driven rise in asset prices that has entrenched a long only ‘buy and hold’ dogma from which it is very easy to extract rents.

A good example today is Robert Gottliebsen:

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It’s always great to see the shorters get routed. And that’s exactly what happened when the Chinese central bank caught everyone by surprise when it lowered interest rates.

The hedge funds were shorting resource shares, punting on depressed global growth, led by a slowing China. But if China is cutting rates to stimulate consumption and economic expansion, being short the resource producers becomes very dangerous.

…To see Myer and JB Hi-Fi with so much stock shorted is an indication that the shorters think it is going to be a bad Christmas.

Imagine the panic if the Reserve Bank followed China and lowered rates in December. That’s not a forecast, but too big blows to shorters in a few weeks would be an absolute joy.

Dearie me, Gotti, have you never heard of a “market”? Bad companies that make bad investments should be punished. Shorters do it. They are like the sharks on the reef, preventing excess and ensuring the health of the eco-system.

Why waste your breath hating on the shorters that have been making money hand-over-fist on falling iron ore stocks (including yesterday’s lousy bounce) when you should be recommending that your readers join them?

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Time to join the new normal or retire, Gotti.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.