What are the hedge funds shorting?

Katie Martin (0:06)

Pushkin. The mood in markets right now remains decidedly wobbly. Stocks have generally had a pretty good year after some early shocks, but now up at these heights, they're finding the air a little thin. The big worry, of course, is an AI bubble. Are we in one? And if we are, when does it pop? And what happens next? Regular listeners will know we've talked about this a lot lately, and spoiler alert, we're very likely to keep on talking about it too. But today on the show, we're trying to find out what the supposedly smartest people in the room are thinking. Heaven knows, that's not us. But we want to know, what are the hedge funds betting against? And what does that mean for the rest of us mere mortals? This is Unhedged, the markets and finance podcast from the Financial Times. I'm Pushkin, I'm Katie Martin, a markets columnist at the FT in London, where everyone is pretty nervous about this week's budget from the government. Hooray for us. But I have an unusual co-pilot today, Robin Wigglesworth, the editor of FT Alphaville, who despite his very English sounding name and pretty English sounding accent, is actually half Norwegian, more than half given that he lives all the way over there in Oslo. First of all, for our listeners who may not be aware, like what is Alphaville? What is this thing that you edit? It's basically Nerdsville, right?

Robin Wigglesworth (1:30)

Yes, that's a pretty apt description. But it's basically our finance blog. So we dig into anything that's kind of weird or fun or interesting in finance, economics, business, markets, investing. We can do kind of whatever we want, whatever we want in any way we want. So we try to have fun with it because you and I know that this stuff is actually genuinely really fun and we try to maybe let that get reflected in how we write as well.

Katie Martin (1:55)

Yeah, exactly. And there's an awful lot of nerds out there. And like a proper nerd, you are very excited that you've launched on Substack this week. What's that all about?

Robin Wigglesworth (2:05)

Yeah, that is actually quite exciting. I mean, Alphaville has had newsletters in the past, but they've been kind of, dare I say, sort of simple half-assed efforts. But this is something a bit more ambitious, a bit more fun. We don't really want to be beholden to Elon Musk and X or any other social networks. We don't want to depend on search, and frankly, it's just getting into people's inbox is a good way of writing and talking directly to people. So, Substack kind of worked well for us, and they have little video capabilities. We can start little forums there. We let people know about drink stews, pub quizzes, stuff like that. So, it's kind of perfect and exciting, and most exciting of all, I don't have to write it myself. It's my colleague Bryce doing that.

Katie Martin (2:47)

Exactly. Just hoof it off to Bryce.

Robin Wigglesworth (2:50)

Yeah, he gets us in so much legal trouble anyway, so I just figured just make him do it.

Katie Martin (2:55)

Exactly. But listeners, if you are deep down a nerd and you wish to express that in your life, then there is a Substack for you, FT Alphaville. Very easy to find. Robin, so people who listen to this show are well accustomed to the thing that we do at the end called long short. So that's where you go long things you love and short things you hate. And we call it that because in the real world of markets, that's what hedge funds and other sort of speculative investors do, right? If they like a stock, they buy it. If they really like a stock, maybe they borrow money to buy loads of it. And maybe they even buy options that pay out loads of money if the stocks keep climbing. But if they don't like a stock, they go short, they bet against it. What does that involve?

Robin Wigglesworth (3:39)

Basically, like two main things. One thing is short selling in that you borrow the stock rather than buy it and then sell it. You're actually selling something you borrowed. And if that stock then falls in value, well, you can buy it back and return it to the original owner and pocket the difference, essentially a profit. So if you borrowed something at $100 and it drops to $10 and you sell it at $100, it drops to $10, you buy it back at $10 and hand it back to the original owner at the $10 value, and you've made $90. Another way is doing it through options. So we talked about like calls, this type of option that you gain upside exposure. You can also buy puts. So that's the right to sell a stock at a certain price if it drops enough.