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Short sellers coming up short

Monday, April 20, 2015 - 02:33

The resilience of the U.S. stock market, despite a number of global headwinds, has created a tough environment for investors who bet against stocks they believe to be overvalued. Bobbi Rebell reports.

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Short-sellers, those who bet against the market., have been suffering. The U.S. stock market has overcome many potential pitfalls, including sluggish global economic growth and concerns that Greece and Ukraine could default on their debts. But even after a selloff on Friday, the major indexes are still close to their all time highs. Reuters U.S. markets editor David Gaffen: (SOUNDBITE) DAVID GAFFEN, U.S. MARKETS EDITOR, REUTERS (ENGLISH) SAYING: "The big short index that Credit Suisse tracks has them down about four percent so far this year, and, really, it's kind of the same old story. The Fed and other central banks are in there and there's a lot of monetary stimulus, and, so, there is not as much volatility, markets keep going up, and it's just not much of an environment for short sellers." Several stocks that have been popular for short-sellers have continued to climb, despite sky high valuations. (SOUNDBITE) DAVID GAFFEN, U.S. MARKETS EDITOR, REUTERS (ENGLISH) SAYING: "Shake Shack sells hamburgers, perfectly nice. They are really good. Is the stock worth what it's worth now? Probably not. The price to earnings ratio is some unfathomable 1200, or something to that effect. If you are looking at the forward earnings coming for the next year, but, again, that doesn't mean the stock is going to go down, it might continue to go up for some time." Another favorite of short-sellers is Zoe's Kitchen, which Markit says has 36 percent of its shares being sold short. It has a forward P/E of close to 600. Even energy stocks, a popular sector to bet against, have rebounded. And when stocks rebound... short-sellers often have to buy the stock to close their positions and limit their losses. That drives the shares even higher. And many short sellers are coming to grips with a reality that volatility, measured by the CBOE Volatility index, remains at relatively low levels, limiting opportunity. That trend will continue says eVestment Vice President of Research Peter Laurelli: (SOUNDBITE) PETER LAURELLI, VICE PRESIDENT OF RESEARCH, EVESTMENT (ENGLISH) SAYING: "That is not necessarily going to stop anytime soon. So, I think, whether or not we'll see increased volatility, it doesn't feel like, you know, with historically low interest rates, with central bank money available that that situation is going to change anytime soon." One short that has paid off -Tesla. Even though the stock has been up more than 350% over two years, its been heavily shorted recently, and is down 27 percent from its high, a rare win for short sellers.

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Short sellers coming up short

Monday, April 20, 2015 - 02:33