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Seattle Times - Bill Fleckenstein, a well-known Seattle investor who bets exclusively on falling stocks, is shutting his 12-year-old fund and starting a new one that will buy equities, too.
Fleckenstein said he doesn’t think the worse is over in the U.S. stock market. Yet he no longer wants to limit himself to so-called short bets.
"I’m not wildly bullish right now," he said. "The market hasn’t reached its ultimate lows, but we might be in a trading range for a long time."
Short sellers have been the best-performing hedge funds this year, up 32 percent through November, according to Chicago-based Hedge Fund Research, whose data show an industry average decline of 18 percent during that period. Fleckenstein, founder and president of Fleckenstein Capital, declined to comment on the fund’s size or its returns.
Reuters - Hedge fund managers are reluctantly preparing to disclose their short positions to U.S. regulators on Monday, a move set to give a rare public glimpse into their secretive trading strategies two weeks later.
For shareholders who have blamed short sellers for driving down company stocks, it will be a chance to see who is targeting their firm.
It is also an experiment by U.S. securities regulators, putting short sellers briefly on a similar footing to large investors who accumulate stocks and are required to regularly disclose their positions publicly.
Under a temporary Securities and Exchange Commission order, big money managers will have to reveal the number and value of securities sold short each day last week.
Reuters - John Paulson, a U.S. hedge fund manager who gained a superstar reputation with a big bet against the U.S. housing market, was shown holding a 1 billion pound ($1.9 billion) bet against UK banks as short sellers were forced to disclose their positions.
Paulson & Co., run by John Paulson and based in New York, said it had a 1.2 percent short position in Barclays, worth over 350 million pounds, a 1.8 percent short position in Lloyds TSB, and short positions of just under 1 percent in Royal Bank of Scotland and HBOS.
The stakes were unveiled on Wednesday after Britain’s regulator imposed a ban on short-selling financial stocks last Friday, which was followed by similar moves in the United States and elsewhere.
New York Post - As the Securities and Exchange Commission continues its assault on short sellers, hedge funds are discussing legal action to challenge Chairman Chris Cox’s recent moves - just as funds in the UK are considering lawsuits against their government regulator.
Since Friday, Cox has enacted a hodgepodge of emergency rules in an effort to give struggling Wall Street firms time to recover from their recent battering, including a widespread ban on shorting of financial stocks, and requiring hedge funds to disclose what they short.
That has prompted debate in the hedge fund world about what, if anything, might be done to temper efforts they say hurts good players along with the bad. Talk of legal action is still in the discussion stage, and no lawsuit may emerge.
"There are just a lot of questions right now," said an industry insider.
Interactive Investor - Investors are cheering the temporary ban on shorting financial stocks which came into play on Friday morning.
The Financial Services Authority introduced the four-month freeze on profiteering from falling share prices after the markets closed last night in a bid to stem the chaos in the financial sector. The new rules, which cover 29 shares, prevent investors from taking out new short positions or adding to existing ones in all publically listed financial firms.
Investors currently shorting more than 0.25% of a financial company’s shares have until Tuesday to either close their position or declare it to the regulator.
Short-sellers have been blamed for sending share prices in the financial sector plummeting in recent weeks with HBOS the latest victim of speculators looking to make a quick buck from its demise.
Hector Sants, chief executive of the Financial Services Authority, says: "While we still regard short-selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets. As a result, we have taken this decisive action, after careful consideration, to protect the fundamental integrity and quality of markets and to guard against further instability in the financial sector."
Bloomberg - The U.S. Securities and Exchange Commission may require hedge funds to disclose their short-sale positions and plans to subpoena the funds’ communication records in an effort to stem turmoil in stock markets.
Hedge funds and investors managing more than $100 million in securities would be “required to promptly begin public reporting of their daily short positions,” Chairman Christopher Cox said in a statement yesterday. The proposed disclosure is in addition to three SEC rules that took effect today aimed at reducing manipulative trades betting on a drop in share prices.
Lawmakers including U.S. Senate Banking Committee Chairman Christopher Dodd and executives such as Morgan Stanley Chief Executive Officer John Mack say short sellers may be spreading false information and using abusive tactics to attack companies. Hedge funds say poor business strategies are to blame and an industry spokesman said the SEC announcement was “abrupt.”
“The consequences of a hasty or ill-considered rule in this environment could be extremely harmful to the capital markets,” said Jim Chanos, chairman of the Coalition of Private Investment Companies, which represents 20 funds with assets in excess of $120 billion. “Such a requirement is akin to the government suddenly requiring Coca-Cola to disclose their secret formula for free to all their competitors.”
International Herald Tribune - In May, David Einhorn, an outspoken hedge fund manager, took the microphone at a large industry gathering and laid out his case against the investment bank Lehman Brothers.
The firm, he told the crowd, had used "accounting ingenuity" to avoid large write-downs and remained tainted by bad commercial real estate investments. Einhorn stood to profit by convincing people of his view: He had been betting against Lehman’s stock, which stood at around $40 when he spoke, since July 2007.
In the four months that followed, the tactic known as short-selling, in which an investor bets on a decline in a stock price, played a role in hastening a fire sale of Lehman’s shares - an erosion that ultimately helped bring the venerable 158-year old firm to its knees.
At emergency meetings led over the weekend by Timothy Geithner, the president of the Federal Reserve Bank of New York, and Treasury Secretary Henry Paulson Jr., the heads of major financial institutions said they feared short-sellers would now capitalize on the climate of fear surrounding Lehman and target other financial firms. They raised the idea of having the Securities and Exchange Commission reinstate a temporary rule to limit short-selling, according to two people who were briefed on, but did not attend, the meetings.
Globes - Priority Investments Ltd.’s Israeli hedge fund index, Hedge Fund Priority Index (HFPI) fell 0.85% in July, compared with a 4.66% drop by its benchmark, the Tel Aviv 25 Index. However, the Hedge Fund Research Inc. (HFRI) fund weighted composite index fell 2.17% compared with a 0.98% drop by the S&P 500 Index.
During the first half of July, high oil prices continued to trouble the US economy, and weighed down financial stocks, which weakened the dollar against other currencies. The US government bailout of Fannie Mae (NYSE: FNY) and Freddie Mac (NYSE: FRE), plus the restrictions placed on short sellers, contributed to gains in the second half of the month.
Financial Times- Even as politicians and regulators accuse hedge fund short-sellers of trying to bring down banks in Britain, the US and Australia, top hedge managers are providing rescue capital to prop up the ailing corporate world.
The latest bail-out backed by hedge funds is the £4.5bn cash raising by Britain’s Barclays, where five big managers are ready to provide just under 10 per cent of the new money - with sovereign wealth funds providing the majority of the rest.
Hedge funds are important backers of the current wave of rights issues, too, according to investment bankers close to the deals. In spite of publicly-declared short positions - where hedge funds hope to profit from falling prices - several big hedge funds are sub-underwriting the rescue rights issue by HBOS, the biggest mortgage lender, guaranteeing to buy the shares if the rights are not taken up.
"Although equity underwriting currently looks difficult, hedge fund participation in this market has increased as their asset base has grown," says Jim Renwick, vice-chairman at UBS. "This has been the case for more than five years now."