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zerohedge.com / By Tyler Durden / September 16, 2013, 10:56 -0400
Just over a year ago, in “Presenting the most shorted stocks” we showed a simple chart highlighting the most hated/shorted Russell 2000 names with an even simpler expectation: in a market in which all the risk is being onboarded by the Federal Reserve, there is simply no more idiosyncratic risk, and as a result for those so inclined, and preferably running other people’s money, a clear “alpha-generation” strategy in which hedging risk is no longer a concern, was to go long the most hated named.
Specifically we said:
What is one supposed to do with this data? For the overly aggressive out there, and those who are tired of watching paint dry, one option is to create an equal-weighted basket of the 20 most hated names, and hope for the arrival of the one catalyst that forces a massive squeeze. No doubt one or more companies in this list will file for bankruptcy and end up without any value: after all they are shorted for a reason. Yet, all it takes is for one name of 20 to jump tenfold in order to offset the full wipe out of half the names in the basket.Are we saying this will happen, or any one company will perform as suggested? Of course not: we are not Cramer. This is simply the math. And since fundamentals don’t matter in a world where Austrian monetary theory rules (i.e., the only thing that matters is the amount of liquidity entering or leaving the market at any moment), taking advantage of people who still naively believe that there are traces of rationality and efficiency in a market that is broken beyond any slavage value and short the worst names out there, may be one of the few “strategies” that work, besides of course predicting with 100% accuracy what side of the bed Mario or Ben will wake up on.