We aren’t sure what to make of the ASX’s new Short Sell Report. After seeing just two days of statistics there isn’t much to go on.
But our first reaction was this. There isn’t much that is short. Of course short selling has only been made available again after a two month ban, so many that were short prior to the ban have probably closed out their positions.
For all the fuss about how short sellers were driving down the market these statistics – at first glance – put a damp squib on that argument.
But let’s take a look at some of them. Specifically those that were supposed to have been targeted by rampant short selling:
- ABC Learning – 0.0015% of shares are short
- ANZ Bank – 0.24%
- Babcock & Brown – 0.04%
- Challenger Financial Services – 0.02%
- Centro Properties – 0.004%
- Fortescue – 0.09%
- Macquarie Group – 0.03%
It’s peanuts. And remember these are gross short positions, so it doesn’t take into account a synthetic trade that may actually mean a trader is actually neutral. For example, a trader could be short the stock and long a call option to give them a synthetic long position.
It is still early days for the ASX’s Short Report so we will revisit it in another couple of weeks to see how it compares to this week.
Danke Schoen Babcock
To be honest, if we were running HypoVereinsbank (HVB Group) I would do the same thing too:
“Sorry, Babcock & Brown, but we don’t think you’ve got a chance of paying the money back so we are going to keep the cash you’ve got on deposit. Danke schoen.”
As has been the case throughout this whole sorry saga the people at B&B have only themselves to blame. They will probably come out and say that everything would have been fine if it wasn’t for the Germans. That won’t wash.
We have no idea about the full details of the arrangements B&B has with its banks. However, we would guess that its preference for non-recourse borrowing may have something to do with HVB’s decision not to hand back the cash.
As we briefly mentioned in yesterday’s Money Morning, the difference between assets and liabilities at B&B is too close for comfort. In fact, the odds are pretty firmly pointing towards B&B being in negative equity given the fall in asset prices during the last twelve months.
We just can’t wait for the claims from management that B&B had “great assets”, “a good business model” and “good people.” It is certain to be ‘market conditions’ that are blamed rather than cowboy investing.
Is Macquarie Next on the Chopping Block?
Amongst all the carnage yesterday it was interesting to note one stock in particular had a positive day. It was the other King of Infrastructure, Macquarie Group.
Investors seem to believe that Macquarie now has a monopoly on infrastructure funds and structured investments. Well, here’s some breaking news. That model is dead. Don’t get too excited about it.
Yesterday when we browsed the B&B annual report it looked precarious. A very small net asset position, big debts and assets subject to lower valuations.
Is the Macquarie Group balance sheet any different?
In some ways yes. But in a crucial way no. As of the 30th September the company had a net asset position of $10 billion. It sounds like a lot, but that is against ‘assets’ of $167 billion and liabilities of $154 billion.
That means it only takes an 8% fall in Macquarie’s assets before the company has negative equity.
“Ah, but it’s a cash generating machine” the market will argue.
Yes, but only if it can find enough new investors to keep filling the coffers. In some ways it is like a Ponzi Scheme. It requires a constant inflow of new investors and new money in order to grow. Once the inflow stops there is a chance it could collapse back in on itself. Especially if it and its funds have borrowed against future growth to pay current distributions.
Any reduction in fees and commissions will have an immediate impact on Macquarie’s cash flow, plus any devaluation of assets will have an impact on its equity position. Despite what the market seems to be thinking, Macquarie Group isn’t out of the water yet.
Cheers.
Kris.
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