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As Short Sellers Go Extinct, An Unintended Consequence Emerges

One of the intended consequences of the Fed’s now relentless intervention in markets, has been the gradual eradication of all stock and ETF shorts, which as the following chart from Deutsche Bank shows, have collapsed to near all time lows (the Y-axis is inverted), thanks to the market’s relentless grind higher which has made shorting stocks an especially masochistic ordeal (and a source of recurring alpha for all those who take the opposite side).

One of the unintended consequences of this near-extinction of market bears is that financial companies that traditionally make money from lending out shares to shorts are hurting, badly, as the collapse in short has resulted in a sharp revenue drop for those asset managers and brokers who mediate such trades.

According to Reuters, which uses figures from research firm DataLend, stock lenders’ revenue plunged almost 15% in the year to Sept. 30 from 2019, while revenue for the September quarter alone was $1.8 billion, the lowest in the four years of comparable records.

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