Crescent Park & Recreation – Where is the Interest in Short Interest?

Dear Partners and Friends,

The purpose of this monthly email is to share insights we have gleaned from our reading of articles, books, and/or industry research. We recognize you likely receive a litany emails so our goal is not to simply further congest your inbox. We intend to keep this short and sweet and appreciate any and all feedback.

 

I. Where is the Interest in Short Interest?

Short selling proved a difficult area for most equity hedge funds during the first quarter of 2021. Whether short losses were driven by the “meme stock” phenomenon in January or the headwinds created by the Archegos media stock feeding frenzy in March, the quarter proved to be a difficult for short alpha. As a result, memories have become “short”-term in nature. The following Bloomberg article’s title speaks for itself.

https://www.bloomberg.com/news/articles/2021-04-19/stock-shorts-collapse-as-no-hedge-fund-wants-head-ripped-off

In case you are “short” of time, here are two of the most interesting charts from the above story. We believe this could prove to be one of those times where it pays to be greedy while others are fearful.

 

 

II. Reading: Meltdown: Why Our Systems Fail and What We Can Do About It

– By Chris Clearfield and Andras Tilcsik

This is an interesting book about how systems, when both highly complex and tightly coupled, are at much greater risk of catastrophic failure / “meltdown”.

Key take-way (and interesting statistic)

Dissention. The authors contend that it is difficult to be a dissenter as human beings have a natural inclination to go along with what others in a group think. This problem is made even more acute by hierarchy. In 1994, the National Transportation Safety Board in the US found that 75% of all major airline accidents between 1978 and 1990 happened when the captain was flying the plane (even though typically the captains and first officers alternate flying). Captains are not poorer pilots, but they are far less likely to be questioned by subordinates. https://www.meltdownbook.net/

 

III. Time to Travel Again?

Morgan Stanley recently created an activity tracker which includes high frequency data on travel (hotels, air, cruise, rail), leisure (gambling, foodservice, pubs, restaurants, cinema, gyms) and mobility (working from home, commuting, education) to map humankind as we come out of our Covid lock-downs around the world. While I continue to hear stories of business travel coming back online, capacity is still well below pre-Covid levels. According to Morgan Stanley, global airline capacity improved to -53% in April vs -55% in March.

 

IV. The Not so Golden Archegos

Most of you likely followed the story of Archegos and its impact on markets throughout the first quarter of 2021 (culminating in a monumental collapse during the second half of March). I found the article below to be a great summary of the history of Bill Hwang, the leader of Archegos Capital Management, as well as the trades that ultimately led to his firm’s demise. As the article below points out, Archegos was able to build a massive, levered, position in a number of media-related stocks through swap agreements held across the Street.
https://www.bloomberg.com/news/features/2021-04-08/how-bill-hwang-of-archegos-capital-lost-20-billion-in-two-days

The fallout from the Archegos collapse continues to be felt by certain banks.
https://uk.finance.yahoo.com/news/credit-suisse-group-stock-share-price-q1-results-archegos-capital-profit-loss-fundraising-mandatory-convertible-note-075124689.html
https://finance.yahoo.com/news/archegos-capital-credit-suisse-agm-andreas-gottschling-083504099.html

 

 

All the best,
Pete