Sunday, July 13, 2008

Shorts socked newspaper stocks

Investor bets against Lee Enterprises and McClatchy were more than twice as big last month as those against the shares of Fannie Mae, one of the mortgage giants whose perceived instability jolted the financial markets.

The wagers placed against a stock, which are known as short sales, give new insight into the long-running selloff that drove seven newspaper stocks to record lows in a single day on Friday.

A short sale occurs when an investor sells shares she doesn’t own in the expectation that a stock’s price will fall and enable her to cover the position by buying shares at a lower price. In other words, she sells high and buys low.

The percentage of short shares is a barometer of market sentiment, because the shorts unwind their positions if they think a stock is going to go up. But the indicator is imperfect, because the numbers are not updated daily like stock prices. Instead, the data are issued only episodically by the securities exchanges.

As any newspaper publisher will attest, you have to be careful about projecting future outcomes by relying on historic information. Still, the short data published on June 10 makes for some interesting reading.

As you can see from the table below, a staggering 38.6% of LEE’s stock was sold short in mid-June. That is 2.7 times greater than the 14.1% of Fannie Mae sold short at the same date. And it is almost identical to the 37.2% short position at the same time at IndyMac Bancorp, the insolvent bank seized Friday night by federal authorities.

The 28.3% short position at MNI was 2.2x greater than the percentage of shares shorted at Freddie Mac, the other federally-chartered mortgage insurer, whose shares last week plunged along with those of Fannie Mae. Only 12.8% of Freddie Mac was sold short in June.

The average percentage of short shares at the 14 publicly traded newspaper companies in June was 15.5%. Short positions were in double-digits at nine of them.

By comparison, the short positions were respectively 13.7%, 6.0% and 3.8% at Lehman Brothers, Starbuck’s and Yahoo, three companies that have faced their own share of bad news in recent weeks.

When the new data comes out, we'll take another look to see if the shorts are done spanking newspapers. If you watch the ticker in the meantime, you will get a pretty good idea of which way things are going.


Anonymous Anonymous said...

It seems like especially for a stock like Lee Enterprises that has been battered down to a $3 stock with heavy short selling and a short ratio of around 20 that with any good news in the market or if the SEC chooses to extend the short sale restrictions placed on the financial services industry which it is posterting to do that the newspaper stocks heavily shorted might come back strongly as short sellers scramble to cover. Anyone have any feedback on this thinking?

4:56 PM  
Anonymous Anonymous said...

When I attended the NAA mid year media review in June 2007, Every analyst in the place told me to short the hell out of every stock EXCEPT The Washington Post. If they practiced what they preached, everyone in that room made a killing.

4:49 PM  

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