Nigel Lawson did have a point as this piece in the Telegraph about Interserve shows. That point being that the newspapers, especially the financial pages, aren’t necessarily written by those who actually know how things work. A facility with words does not, alas, a great economist make. So, when those finance pages were criticising what Lawson was doing as Chancellor he dismissed them as mere teenage scribblers. A proof of which we have today:

A Scottish multi-millionaire who made his fortune as a dealmaker in the pub industry is spearheading an unlikely rescue bid for troubled outsourcer Interserve.

Alan McIntosh is the serial investor behind Emerald Investment Partners, a private equity vehicle emerging as a key player in the FTSE 250 contractor’s refinancing discussions. He is said to be worth more than £100m.

Emerald has spent tens of millions of pounds scooping up Interserve’s debt in the secondary market. Existing lenders including Barclays and Lloyds have been selling down their positions for as little as 50p in the pound, keen to reduce their exposure to the outsourcing sector after Carillion’s implosion.

No, that’s fine and a perfectly reasonable – time will tell if sensible – investment strategy. The company survives and the debt will rise in value. It fails and if you own enough of the debt then you’ve a blocking vote on the disposal plans, possibly being able to negotiate a debt for equity swap etc. The bones could well be worth picking.

That’s all fine and this isn’t:

Interserve’s survival would deal a blow to a gang of hedge funds that have waged multi-million pound bets on it following Carillion on to the scrap-heap. Four hedge funds have upped their stakes in recent weeks, betting that its share price will fall even further, despite already trailing at all-time lows.

Those hedge funds have all reduced their negative stake further, not increased their positive one. If you think a share price is going down you do not then go long by buying shares, upping your stake. You go short, sell shares you don’t own, reduce further your stake that is.

Yes, we’ve still teenage scribblers on the finance pages. Those still not yet with the maturity of years to know when they’re spouting cobblers.

On the other hand, things do get better. Lawson himself started out as a teenage scribbler, didn’t he?

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Ducky McDuckfaceDanTim WorstallBloke in North DorsetRhoda Klapp Recent comment authors
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bloke in spain
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bloke in spain

And if hedge funds have been shorting the shares, someone must be going long For every seller must have a buyer. Market price is a reflection of competing opinions.

Hallowed Be
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Hallowed Be

BIs yes that’s must be the logic. The shorter borrows shares for a time period, sells them, buys back the same amount at the end of the period and if its less than they sold the originals for they’ve made profit.

The borrower is the shorter, the buyer of the shares they immediately sell is long. But one thing I’ve never been quite clear on. There’s also the lender of the borrowed shares. Do they do this for a fixed fee, and are thus neither long or short?

Ducky McDuckface
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Ducky McDuckface

Fixed fee- % ‘age of value of the position. Depends, but lending duration (term) was usually quite short, based on the old account/settlement period under Taurus(?). Not entirely sure what happens under T+3, but a borrower would normally expect to refresh or make new arrangements about twice a month. Cash (usually ) , sometimes collateral. Biggest stock lenders are usually pension and life funds – simply because they are the largest natural longs. Note that stock borrow arrangements do not normally include voting rights or rights to receive divis.

PF
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PF

“A facility with words does not, alas, a great economist make.”

Or anything else.

I’m reminded Tim of something that you and others have often said before: We read something in a newspaper on a subject in which we are personally knowledgeable, and often realise that the writer hasn’t got a clue, ie it’s nonsense. And then fail to make the logical link with regard to the rest of the newspaper’s content.

“On the other hand, things do get better. Lawson himself started out as a teenage scribbler, didn’t he?”

Because he stopped being a scribbler?

Rhoda Klapp
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Rhoda Klapp

Shouldn’t that ‘often’ read ‘invariably’?

bloke in spain
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bloke in spain

@Hallowed Be
“Opportunity cost” would say that any holder of shares is “long” in the sense they are holding those particular shares rather than any others or other form of investment. It’s just an arbitrary distinction of time scales.

Bloke in North Dorset
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Bloke in North Dorset

Is naked shorting allowed on the FTSE 250?

Dan
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Dan

It seems like they have used stakes in the common gambling sense, so are really just talking of the absolute size of the bet. Probably fits with the hedge fund equals casino analogy