Hedge Funds Shorting S&P 500 Futures like Mad?

According to acclaimed Bear Doug Kass, the tail might be wagging the dog. Ironically, he has become bullish because he sees excessive shorting of the S&P 500 futures. In his theory, this is being done to hedge against potential losses on long positions that aren't as liquid. Has the world gone mad? Perma bull Jim Cramer has been suggesting that investors sell, sell, sell and perma bear Kass has actually become bullish.

Beginning last Monday, I began to see a number of big hedge funds in the S&P 500 futures pit, boldly selling futures to hedge their core long holdings. As the market dropped precipitously on both Friday afternoon and Monday afternoon, they got ever more aggressive -- according to my sources, more aggressive today than at almost any point in a decade or more.

This strategy is a classic tactic one sees at panic/capitulation lows as hedge-hoggers sell short what they can sell easily -- the S&P futures market is deep and liquid -- while they retain what they can't sell easily (i.e., large blocks of individual equities).

That's what I see happening recently in the S&P futures pit, and even if I am only half correct, those hedge-hoggers could be on a sinking ship without a life preserver as the stock market might have bottomed under the weight and intensity of their aggressive short selling of S&P futures.