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One revered hedge fund manager gave up on his bearish bet against Canadian banks but overall short positions on the Big Six lenders remain high relative to their long term average. And, with the collapse of Home Capital Group's stock price highlighting a potential pricking of the domestic housing bubble, we can expect bearish positions to remain popular among global speculative investors.

David Einhorn, billionaire hedge fund manager and founder of Greenlight Capital, announced that he had closed short positions on three unnamed Canadian banks in his most recent letter to clients. Mr. Einhorn, however, is only one of many hedge funds managers betting against Canadian lenders and for most of the major banks, short positions as a percentage of the total stock float remain well above their 10-year averages.

The chart below shows current short positions and the 10-year averages for each major Canadian bank. TD Bank has been the biggest target with short positions accounting for 4.3 per cent of the total stock float, almost double its 10-year average of 2.26 per cent.

National Bank has high short positions at 3.8 per cent, but that number is only marginally above its long term average of 3.2 per cent. CIBC is the only major bank where short positions are below the long term average.

Home Capital Group's travails have heightened fears that the domestic housing market is cooling, and that record household debt levels will soon lead to credit stress and defaults throughout the financial system. Mr. Einhorn aside, hedge fund managers with bearish bets on Canadian banks are likely emboldened by recent events and, at the very least, will maintain current positions.

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