The year 2016 for stocks has been a terrible start. Everyone watched in horror as the market just continued to fall and fall. However, there has been at least a small uptick in the last week. This is important because it may indicate that there is still some value in certain names.
One individual from Highland Capital Management by the name of James Dondero says that he believes that a lot of the rally may be nothing more than short covering. That is to say that he believes that people are mostly just buying to cover their short trades in this market. That of course translates to the idea that this is not a legitimate rally, but rather just a result of the fact that people were so short the market to begin with.
Jim Dondero is someone to listen to consider his greater than 30 years of experience in the capital markets. He is not some talking head on the television, but rather an experienced money manager with a lot of funds under management to back up what he has to say about the markets. He should not be viewed as just another voice in the crowd but rather someone who has the record to back up what he has to say.
Jim works in various parts of the market such as CDOs, real estate, mutual funds, and other types of investing. He takes a larger world view than most who are market hawks just watching the ups and downs of the market on a day to day basis. Rather, he is someone who can better view how one element impacts the other elements in the market. This in turn gives him a better chance to see how all of the pieces connect.
If Jim Dondero is saying that this rally is largely about shorts covering their trades, then he is probably right about that. At the very least, he has a better sense of what is going on than what most people do.