Cynical short-sellers are targeting some of Wall Street's most famous short-sellers. Amid plunges in the stock prices of David Einhorn's Greenlight Capital and Dan Loeb's Third Point reinsurance entities, Bloomberg reports that bearish investors have piled in pushing short interest (as a percent of shares outstanding) to its highest since 2009.
The money managers helped build the reinsurers and took them public years ago, partly to expand their investment portfolios. But, as one trader notes, the firms also created a trading opportunity for short sellers who are seeking to guard against losses in their hedge fund holdings.
David Einhorn's reinsurer's short interest is the highest since 2009...
And Dan Loeb's reinsurance entity has reached its highest short interest on record...
“The way the model is intended to work has not worked out in their favor,” Ken Billingsley, an analyst at Compass Point Research & Trading, who has a buy rating on Third Point Re, said of the reinsurers.
“It’s a double whammy. You’re losing money on the assets-and-investing side of the portfolio. You’re losing money on the risk-taking, the insurance side of the business. It’s obviously not conducive to generating good returns for shareholders.”
However, as Bloomberg adds, investors who trade the reinsurers’ stocks could be at risk if they think they’re getting a simple route to bet on a gain or loss in the affiliated hedge funds, said Brian Jacobsen, chief portfolio strategist at Wells Fargo Advantage Funds.
“People always have to watch out for the short squeeze,” where stocks jump and investors have to close out their positions betting on a decline, he said. “It can be triggered by just about anything, when you have high-profile individuals at the helm of these companies.”
We wait the call for a ban on speculative short-selling from these hedge fund managers.
Charts: Bloomberg