For short-sellers in U.S. stocks, the agony just piles on

Sun Apr 19, 2015 8:11am EDT
 
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By Jennifer Ablan and David Gaffen

NEW YORK (Reuters) - In January 2014, veteran short-seller Bill Fleckenstein said he was readying a new fund to bet on falling stock prices. More than a year later, he's still waiting to launch that fund.

Despite lackluster U.S. economic data, a world grappling with slow growth, concern that Greece and Ukraine could default on their debts, the U.S. stock market has been more than resilient. Even after a selloff on Friday, major indices are less than two percent from all-time highs and volatility measurements have been close to their lowest levels for 2015.

"How are you supposed to actively short stocks in this environment? It has been impossible," Seattle-based Fleckenstein told Reuters.

His frustration is shared by others dedicated to betting on declines, if not for the broader market then for individual stocks that look overvalued. Outside of the hard-hit energy industry, most sectors have performed well over the last several months, and dedicated short funds have been stung.

Equity markets continue to benefit from ultra-low interest rates and other moves by central banks aimed at stimulating demand in major economies.

"It all comes down to free money and that old saw - 'don't fight the Fed,'" said Jeff Matthews, who runs Ram Partners, a Naples, Florida-based hedge fund.

Through the end of March, Credit Suisse's index that measures the performance of short-biased funds is down 4.4 percent, while its market-neutral index - measuring funds that match long and short bets - is off by 1.6 percent. In comparison, CSFB's broad index of all hedge funds is up 2.6 percent.

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Traders work on the floor of the New York Stock Exchange April 17, 2015. REUTERS/Brendan McDermid