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Hedge funds' short sales at year-high levels amid volatile market due to US budget impasse

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October 14
5:26 AM 2013

Hedge fund bets had closed to a year-high amidst the rising volatility in the stock market due to the ongoing partial shutdown of the US government.

ISI Group LLC last week compiled a manager bullishness gauge of within 0.2 point of its lowest reading this year. S&P 500 index posted a 19% increase this year thanks to a record rally of stocks. However, the benchmark increase had short sales by hedge funds backfired. Futures decreased 0.7% in the morning trade on the Tokyo bourse, reducing the biggest two-day rally of stocks due to investors' sentiments about the prolonged US budget impasse. The daily average on futures had arrived to 0.82% for the month of October, which is higher than the futures daily average of 0.45% in the third quarter.

A bearish market would see investors attempting to cash in from a decline in the stock market index, like the S&P 500. The US stock market increases 11% on average over the last 100 years. A single, prolonged bear market would lose money. Data gathered by Goldman Sachs Group Inc had shown investors forced to buy shares in stock rallies by speculators, who had also borrowed shares and resold them.

Denver-based Cambiar Investors president Brian Barish said Thursday last week, "There still are people out there who are convinced the whole market and financial system is some house of cards. I think they wind up shooting themselves and their investors in the foot with the permabear mentality, but it persists."

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