Markets are endlessly inventive. And sophisticated financial speculators, who have played their part in HBOS’s collapse into the arms of Lloyds TSB, are the most inventive of all.
From midnight last Thursday the Financial Services Authority banned all short-selling of financial stocks until next January.
In addition, existing short positions in such stocks had to be declared every day to the Stock Exchange to improve transparency.
So what’s happened? The hedge funds have just turned their dark arts elsewhere.
Bad news for battered retailers in particular, because word from the world of the Mayfair and Knightsbridge brass plate boys is that they think that sector is ripe for a bit of ‘shorting’ _ or gambling that a stock will fall farther.
You can see why. Apocalypse Now in financial markets. Fears of a global depression, never mind re
cession. People worried about their jobs.
Quoted retailers have already proved vulnerable to consumers cutting their spending and so cutting those companies’ earnings. And it looks likely to get worse.
You don’t have to be a mastermind to think retail stocks will head farther south, and so the ‘shorters’ betting on such a likelihood are likely to be out in force.
The difference, of course, is that there will not be the opprobrium attached to speculators driving retailers’ shares down as the raid on bank stocks like HBOS and Royal Bank of Scotland attracted.
Making a profit out of retailers going belly-up or flirting with it is one thing. But it does not have the wider impact for the rest of us as hedge funds undermining the whole financial system as a side-effect.
Also interesting and hardly coincidental: fixed-odds betting on financial markets has soared this week.
Hedge funds have their own drug. If they can’t get their profit fix from their regular dealer they will seek out another.
So playing the financial bookies’ is an obvious way to score. BetsForTraders.com says volumes are up more than 400 per cent since last Thursday’s shorting ban.
A heavy part of that activity is believed to be in ‘wagers’ against banking stocks. Apparently Lloyds TSB is the most heavily bet-against banking share.
More than four-fifths of open bets on Lloyds are forecasting a fall in the shares following its agreement to buy HBOS.
The FSA’s decision was right, only regrettably late. But the shorting drug, in one guise or another, is strong. The hedge funds show no sign of going cold turkey.
