Short Stories

Wachovia

Short interest is continuing to rise in Wachovia (WB). The percentage of the bank's Market Cap out on Loan to short investors has risen by 100% since mid-March this year; from 6% then to 12% today. Fool.comsaid Wachovia deserves a big "DUH" for just now realising that letting borrowers pay so little is a bad idea (with regards to WB announcing on Monday that it is eliminating the "pay less" option on its Pick-a-Payment mortgage loans).

Utilisation is at 38%, up from 20% earlier this year, and there are 16.76 Days to Cover.

Marks & Spencer

Despite a dividend payment on May 30th which has caused a spike in the short interest in Marks & Spencer (MKS), you will see from this graph that the general short interest has continued to rise in the UK retailer over the past six months. The percentage of the company's Market Cap out on Loan (%MCOL) to short investors has increased from 3.8% in January 2008, to 7.21% today.

Breakingviews.com this morning reported that MKS' shares "plummeted after it warned on profits," saying that the company's clothes and food are "too expensive for these stagflationary times." MKS' shares have dropped from 550p in Jaunary to 255p today.

Utilisation, or the percentage of the available float on loan to short investors, has risen from 7% in January to 20.61% today. However, this is a low figure which means there is still plenty of supply remaining. For those investors who believe that MKS' shares will rise, there are 11 Days to Cover.

Recruitment

We blogged on Michael Page (MPI) back in April, when the percentage of the Financial Recruiment company's Market Cap out on Loan (%MCOL) to short investors was 15.5%. It is now at 18.6%, and appears to be rising, as you will see from this graph documenting the company's short interest since that date.

Hays (HAYS), another recruitment company, has only 3.67% MCOL, and despite some short covering since mid-May, this figure has risen in general since January, which suggests that the recruitment industry could be going through a difficult period at present. The company's share price has also dropped from 310p on May 19th to 238p today.

Merrill Lynch - %MCOL at a two year high

New High for Merrill

Our screening tool alerted us to the fact that Merrill Lynch's market cap on loan today reached a new high today of 6.74%. The utilisation of lendable stock has risen to 21%.

Please see the chart below:

Banco Popular

As you can see from this graph of Banco Popular (POP), investors have been shorting this stock continuously since January this year. Then, the percentage of POP's %MCOL was 7%. Now, it has reached 10%. This morning, Fitch Ratings said it had downgraded POP's individual rating to 'A/B' from 'A', citing the bank's challenges in managing its construction and real estate exposure and defending asset quality amid a slowdown of the Spanish housing market and economy, while defending customer spreads and liquidity.

Utilisation is incredibly high at 81%, which means that it is now incredibly difficult to borrow this stock, and with a %MCOL of 10% (which is significant but not record breaking) there was probably little to borrow in the first instance. There are 7.52 Days to Cover. Despite the recent bounce, the Lendable Quantity has also seen a general decrease - from 79M shares in May to 72M earlier this month and then back up to 75.5M shares today. This means that long only investors are in general selling their shares.

DSG International

This blog focuses a lot of attention on global retail stocks - and with good reason. This morning, DSG, the owner of Currys, Dixons and PC World confirmed an expected 30% slump in full-year underlying profit and reiterated its 'very cautious' view on the outlook for consumer spending. "The economic backdrop continues to be difficult and the group remains very cautious about consumer confidence in many of the markets in which is operates," the group said.

The troubled electronics retailer has been the target of short investors since November last year. Then, the percentage of the company's Market Cap on Loan to short sellers was 7%. Today, it is 28.44%, and rising. It is the second most borrowed stock in the Retail sector after HMV (HMV) at 38.03%, and also in the FTSE 250, where HMV is also the most shorted stock. Utilisation is high at 66%, presumably because the demand to borrow this stock is high. There are 15.47 Days to Cover.

Barclays: The Short Side

Barclays (BARC) today announced its long-expected cash call to raise £4.5bn and bring in new investors, say the FT. The move is designed to lift Barclays' core equity Tier One capital ratio from about 5%, one of the lowest among European banks, to 6.3%, well aboveits 5.25% target. As you can see from the attached chart, Barclays paid a big dividend in March this year hence the spike in the percentage of its Market Cap on Loan for dividend yield enhancement reasons. However, you will see that there has also been a general increase in short interest too. Since June 6th the %MCOL has risen from 6.1% to 7.2% today, juxtaposed with a fall in share price from 342p on June 17th to 308p today. There are 7.57 Days to Cover. Interestingly, Utilisation is very low at 15%, so it is still easy to borrow the stock.

Have short investors given up on Rio Tinto?

A report on the front page of the Financial Times this morning says that Chinese steelmakers have agreed to pay Anglo-Australian miner Rio (RIO) up to 96.5% more for their ore supplies this year, the largest ever annual increase and well above the 9.5% increase last year. This is a move likely to boost the cost of cars, machinery and other products, says the paper.

This rise suggests that demand for commodities from emerging economies remains strong in spite of the US slowdown. Our Best-Timed Shorts document for the first half of this year has something to say about this sector, among others. Please email me at jessica.johnson@dataexplorers.com to find out more and receive your copy.

In the meantime, let's look at the short position in RIO's ASX listing. Since July 2006 RIO has been a target for short investors. At that time, the percentage of its Market Cap on Loan ebbed between 7% and 9%, and since then it has increased steadily but surely to 14% at its peak in February this year. However, RIO did not make the cut for our best-timed shorts document because as short positions in the mining company continued to rise, so did the price - from 75AUD in July 2006 to 155AUD at the end of May (please see the top graph graph for Rio Ltd ASX listing). Since May, the price has dropped from 155AUD to 138AUD today, rebounding from 130AUD on June 12th. Short sellers have now closed out their positions on RIO, perhaps because of today's story, and the %MCOL has decreased from 12% in January to 9.4% today.

In RIO's FTSE 100 listing, the short interest is significantly lower, with 1.7% MCOL today. You will see from this graph of RIO's London stock that the change in the borrow has been fairly low, ebbing around the 1% to 4% mark in the last two years. Experts say this could reflect investors who have been long London and short Australia reacting to the steel price news or anticipating the July 4th 2008 antitrust deadline for the BHP Billiton bid for RIO. The European Commission said last month that it would either rule on the mining giant's hostile takeover of its rival by this date or open an in depth antitrust probe into the deal. Short interest may have ebbed off in the Sydney listing as investors leave the trade ahead of the announcement.

There are resemblances in both BHP's Australian and London listings to RIO's equivalent. As you will see from this graph of BHP's ASX listing, investors have also increased their positions in the bidder and then closed out positions in the last three to four months, juxtaposed with a rise in price.

Like Rio, BHP's London listing is barely shorted at all, ebbing from 0% to 2.3% in the last two years, aside the spikes in the %MCOL for dividend yield enhancement, which is not genuine short interest. Please see the chart below for BHP's London listing.

Blacks Leisure Group

Retail stocks in FTSE markets have been heavily borrowed in the last year, but little has been heard of Blacks Leisure Group (BSLA), despite its Market Cap on Loan having risen from 0.5% in July 2006 to 7.64% today. In January the %MCOL was at 10%. This is not at the top of the short interest charts, but it is a big increase nonetheless. Moreover the short has been well-timed, as investors have held on to the stock (where the Market Cap ebbed and flowed between 6% and 10% between July 2007 and now) as the price tumbled from 370p to 175p today. Utilisation is at 57.31% and there are 51.39 Days to Cover; a lot of time for those short sellers who are eager to return shares and take profits. Institutions have also been selling their long positions, as the Lendable Quantity has decreased from 9.7M shares two years ago to 4M today.

List of issuers in a rights issue period as at 19th June 2008

In connection with the FSA's short position disclosure requirement announced on 13th June 2008, below are the short interest charts of issuers with securities admitted to trading on a prescribed market that, to the FSA's knowledge, are in a right's issue period as at 19th June 2008:

AEA Technology plc

Credit Agricole S.A.

UTV Media plc

Wagon plc