1/ With markets riveted by the action in $GME, attention has been turned to evil short sellers, which is natural. The action in $GME is made more compelling by the breathless reporting in the media that it was so heavily shorted, with more than 100% of its float short. Ooohhh.
2/ You know why investors get involved in heavily shorted names, and keep shorting them?

Because it works.

From March '08 through March '20, the most expensive to borrow US equities underperformed the least expensive to borrow shares by an average of 1.3% per month.
3/ Except for now. January 21 was the worst month in history for the most-heavily-shorted stock factor. And it hasn’t just been January. The rolling 12m average spread between high and low fee shares turned positive recently for and has remained there since.
4/ Including the MTD return through January 28th, the highest fee (in terms of borrow cost) US equities have outperformed by 2.6% per month on average over the past rolling 12 month period.
5/ This most recent 12-mos period is the only instance in the last 12 yrs when shorting the most shorted basket has hurt, as you can see from the chart below.
6/ In every other rolling 12 month period, you were rewarded by shorting the most shorted basket. Gee, what’s happened in the last twelve months that would change things?
7/ According to IHS Markit, the most heavily shorted names outperformed the least shorted by 23.9% MTD through January 28th.
8/ The nearest competition for "worst month for short factors" consists of April 2009 when the most shorted outperformed +15%, and April 2020 (most shorted outperformed by +21%), per the IHS Markit Research Signals database.
9/ Ranking by the percentage of shares on loan yields a similar result for January, with most-borrowed outperforming by 23.6% MTD. This is record outperformance, never seen before. And I’ve got a secret for you: it ain’t just $GME and $AMC.
10/ If both $GME and $AMC were removed from the analysis, the relative outperformance of high-fee US equities would still be more than 25% for MTD January as compared with the lowest-fee shares, according to HIS Markit.
11/ “GameStop” and “short squeeze” are now inextricably linked in lore. GME was at $19 on Jan 12th, $31 on Jan 13th, $43 on Jan 21st, and $347 on Jan 27th. According to IHS, the 5.6m share reduction in shares on loan tied to settling Jan 13th trading. . .
12/ . . .had only declined slightly in reaction to this first large single day increase in price, suggesting short covering wasn’t that big of a catalyst.
13/ In other words, the majority of the short position remained in place as of Jan 15th. The number of shares on loan declined by another 19m shares from Jan 22 - 28, suggesting that a larger portion of the short position was covered amid the surging share price during that week.
14/ Total short interest (or shares on loan) for GME was only a tiny fraction of the traded volume during this time. Clearly, short covering in GME had AN impact at specific points in time, but short covering (as usual) can only go so far in explaining the sharp jump in price.
15/ This wasn’t a stick-it-to-the-man-short-squeeze. No no. It was the man, in the form of a mid-sized hedge fund and institution, jumping on the momo train and flipping shares to unsuspecting retail who performed it’s role as buyer of last resort perfectly. Congrats Reddit!
16/ Wait, it gets better. “The supply of shares from beneficial owners in securities lending programs can be tracked as a real-time indication of availability from institutional owners of shares. . .
17/ . . . while the gap between the exchange short interest and borrowed shares provides an indication of shares sourced by broker dealers away from the traditional securities finance channel.” They mean retail.
18/ As institutions sold into the insane rally, they called their shares back from stock loan and the gap was made up from retail brokers and customers supplying shares into the short. I.e., buying at the top. Thanks Guys!
19/ DDD is another example of when short covering may be a catalyst, but is rarely the lasting catalyst. On January 7, shares on loan in DDD declined by 14.8m shares (out of 197m shares of traded volume that day).
20/ But DDD share price has increased by another 65% since January 7th, with only a 5m share reduction in borrowing, suggesting that short covering has had rather minimal impact on the trend higher after the initial squeeze. Thanks Retail!
21/ Back to my original point: The academic research on the outperformance of shorting the most expensive basket is deep and compelling. Here are a few snippets from just two papers, which show that on average, the most shorted basket has outperformed by 1.3% gross PER MONTH.
22/ And it’s only the most shorted basket that works like this. Shorting the average stock is pointless, or at least it has been for the past twelve years. Thanks Vanguard! Thanks Blackrock!
23/ And our old pal Merton Miller explained a long time ago, that doing away with shorting results in, get this, overpriced securities, yuk, yuk. Who knew?
24/ And for you media types, the academic research even looks at returns from companies that ACTIVELY TRY AND FIGHT BACK AGAINST SHORTS. You’ll never guess, but the firms that put up the biggest fight against evil shorty perform even worse than the average highly shorted name.
So in this day of Alice in Wonderland, where up is down and down is up, there is only one answer:

Get Shorty.

Or, maybe better: get short, preferably a high cost basket of names. . .

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More from @cppinvest

31 Jan
The con runs deep. Amazing how stupid and gullible people can be.

$TSLA Image
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18 Dec 20
Covid isolation is negatively impacting the elderly.

Been visiting my 85 y.o. father-in-law this week. A month ago he fell and broke his hip, had surgery the week before Thanksgiving. Was ornery post-surgery and making slow progress on recovery. His only contact has been with
my mother-in-law and the in-home nurse/aide. He's been sleeping in a hospital bed downstairs in what used to be the living room. He was spending too much time in the bed and in his wheelchair and grouchy. He wants to be in FL and is mad that he isn't. He's mad that he fell.
All perfectly normal and understandable. We show up two days ago, one week after he got home from the hospital. At first he was listless and uncomfortable we were there. We moved the furniture around that was piled up to make room for the bed and other medical equipment.
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14 Nov 20
1/ For you youngsters that are unfamiliar with the inner workings of our business, let me translate this. All public registered vehicles are required to have a distributor by statute. Your distributor handles your broker dealer relationships (managing the various platform
2/ requirements and regulatory compliance), and they oversee your factsheets and public communications (as does internal compliance). For that, most statutory distributor relations cost between 5-10 basis points per year. Kelso/Resolute was Ark's distributor.
3/ In addition, many firms also hire distributors or third-party marketing firms to push their products through the broker dealer channel. It used to require a pretty heavy monthly retainer plus a portion of the management fee as compensation. Howevah. . .
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14 Nov 20
1/ Here’s an interesting Covid dilemma brought to you by the fucking idiots in local government that can’t think their way out of a paper bag:

85 year old man falls and breaks hip and requires surgery. Leaving aside for the moment the limited to non-existent visiting hours and
2/ the issue that creates (ask any doctor what the typical elderly reaction is to post surgery anesthesia recovery and how being around familiar faces helps), family of said 85 year old is now faced with a dilemma.

What’s the rehab plan?
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11 Nov 20
1/ I just listened to a fascinating call arranged by our friends @TweetMacro with John Fund, the Wall Street Journal columnist and author of books on voter fraud. Here’s the punch line: there was undoubtedly fraud in this presidential election but not enough to move the needle.
2/ Fund’s basic point was this election was rife with improprieties – probably more than most – but it’s too much for Trump to prove it in a short timeframe, and then get the establishment that has attempted to thwart him at every turn for four years to do anything about it.
3/ So Trump needs to run the process through to the December meeting of the electoral college, and then concede. But, that doesn’t change Fund’s other important point: we spend too much time on who is in office and not enough on how they got there.
Read 22 tweets
8 Nov 20
1/ Last week The Second Biggest Idiot to Occupy a State House (BIOSH2) mandated that all MA residents MUST wear a mask at all times when outside the home, else one risks getting fined $300. You’re probably sitting there wondering, “how stupid can he be?” Allow me to show you.
2/ In the past two weeks, we’ve had 16,000 positive cases and 164,000 total since The Worst Plague of All Time graced our shores. BIOSH2 probably looks at this chart and says: “How many dumb conclusions can I draw from it?”
3/ Of those 16k cases, 83% were in the 0-59 age group. Those 16k cases have resulted in a grand total of. . . 185 hospitalizations. 73% of the hospitalizations over the past two weeks were in the 60+ cohort and 10% in the 50-59, proving that younger peeps don’t really suffer.
Read 21 tweets

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