I am short. Markets are inherently biased long. Short is not comfortable.

In a US market capitalised at circa $16 trillion (with a ‘t’) there is only $20-$25 billion (with a ‘b’) controlled by specialist short sellers. Many hedge funds go short and long of course. But specialist shorts are a rare, unloved breed. Long is strong.

Asset prices rise, that’s good. Everyone says so. Good central banks keep money cheap. Naughty central bankers, like Mr Trichet who in the last hour reminded everyone that dearer money is possible, are not loved (at least in their own time). Did Paul Volker get a medal at the end of his stint?

The fetish of rising asset prices, momentum, turnover and Cramer are not bad. The dearth of short sellers is. For when economic fundamentals go pear shaped; or systemic risks arise; or you are one of those spending half your wage on food and don’t “get” the buzz surrounding the commodity super cycle as it applies to agri; it’s then that timely price discovery suddenly looks desirable. Opportunity cost driven equilibrium alone is not ideal for an optimistic system during unstable times.

A reminder that European Central Bank rates can rise as well as stay put should not surprise anyone. How to explain it other than as another example of markets proving to be a place where wealth is moved regularly from the hands of the Panglossian active to those of the patient?

There is useful employ for more half-empty attitudes in the market. No one wants to know yet, though.

Related links:
European Bonds Drop After Trichet Said Rate Increase `Possible'
ECB on high alert over high inflation -Trichet

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  1. Macro Man // 6/05/2008 10:13:00 PM

    Rawdon, I want to know, as I am short and left wondering what the f*** has to happen for equities to go down for more than a couple of hours, or a couple of days in extremis.

  2. RJH Adams // 6/05/2008 11:34:00 PM

    Right now I'm leaning towards an act of God. As in tectonic. Or the appearance of a fleet of alien spacecraft above lower Manhattan.

    On second thoughts, aliens means interplanetary commerce....that's a positive!

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