“I’m a little worried that this could cascade.”
By Wolf Richter for WOLF STREET.
Last night, I had a long conversation with Mark DeCambre, MarketWatch’s markets editor, about the short positions I took out on December 30 because, as I said at the time, “the setup is just too juicy.” This was the first trade in my life that I had published to the entire world [I, Who Vowed to Never-Ever Short Stocks Again, Just Shorted the Entire Market]. DeCambre had reported on this trade on January 2.
This contrarian trade came near the peak of market euphoria after the S&P 500 had surged 30% in 2019, when nearly everyone said that stocks could only go up, and that the Fed would do QE-4 forever to make sure that stocks would only go up, and that fundamentals, no matter how crummy, didn’t matter.
Publishing a trade that’s so utterly contrarian and so against what so many people are saying produces two risks:
- I could get my face ripped off by the market
- And if #1 came to pass, I would also be ridiculed.
And the responses – the article got 334 comments, and many more comments about this trade have been posted on other articles on WOLF STREET – varied, often depending on how the market went that day. Early on, on a day when the market fell, I was hailed as a genius; the next day when it rose, I was hailed as a moron, then the following day as genius, and the rest of the week as a moron….
Over the past two weeks or so, the short positions have made money. But I’m full of doubts and I’m edgy about the positions, and I’m nervous about them to the point that when the market plunges, as it did today and on Monday, I’m tempted to cover the short and get out of it. But for now, the patterns of a bear market hold, and I’m sticking to it.
This morning, MarketWatch published DeCambre’s article about our conversation interwoven with his own market insights. So here some tidbits. The whole article is great because it combines the outside view and the inside view of my contrarian trade and the issues surrounding it, and the problems facing the market and the economy. So here is DeCambre:
But on Monday, Richter felt that too much negativity had overwhelmed the market which could manifest in a washout in stocks, a major slump that might signal to him that he should unwind his bearish bets and count his winnings.
“During the day I was looking at [the market] and keeping my eyes on it, and it was distracting me from my work,” he said. “But though I thought about covering, I never got close enough to opening my brokerage account,” he said.
Richter said Tuesday’s 1,200-point gain for the Dow, erasing some of its 2,000-point slide in the previous session that was marked by the S&P 500 triggering a rarely used circuit breaker that kicks in when the index stages an initial 7% plunge, confirmed his bearish view of markets.
The market pro told MarketWatch that Tuesday’s rally for stocks was indicative of a bear-market rally. “The down days are more frequent, and the up days are more violent,” he said.
You can read DeCambre’s whole piece on MarketWatch, including my views of what this market might look like under the coronavirus – “I’m a little worried that this could cascade.”
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Wolf
Would you be willing to share it when you Long the market with us just like you did with the Short?
I mean it’s only fair now that you told us about your Short one day after it happened to announce you Long too.
Ghassan,
I’m thinking about it. I have to be careful. I don’t want to fall into the trap of just talking my book. I will definitely report when I cover the short, for sure.
The discussions in the comments that came out of this short were really good and helpful to me — including those that called me a moron. So I think there should be a way where occasionally I can discuss a trade if it’s significant in some manner.
Keep them guessing. It’s more effective if it’s a secret.
Yes I remember the discussions and even comments on other articles asking you sarcastically about your short till 3 weeks ago, I thought tone of those comments were unnecessary regardless of the outcome.
I knew nothing about stocks until started reading your blog among others just few months ago.
Have some cash set aside to purchase a house next year but will see were the market goes, I might end up paying some stock instead.
Yes I remember the discussions and even comments on other articles asking you sarcastically about your short till 3 weeks ago, I thought tone of those comments were unnecessary regardless of the outcome.
I knew nothing about stocks until started reading your blog among others just few months ago.
Have some cash set aside to purchase a house next year but will see were the market goes, I might end up buying some stock instead.
The real question now is what will the Fed and Treasury do?
Not sure they can avoid the blood letting.
Based on the idea that so many corporations cannot take on much more debt to pay out dividends or for stock buybacks; especially, considering the unlimited fed money will have to end at some point. And the stock market was already insanely over-valued, even if those other things didn’t exist. And the bubble might be about to burst.
My personal guess is that the true value of the stock market, assuming the value would be actually based on dividends that didn’t require debt or schemes to pay out, is that the stock market is really worth 3-5 times less than current evaluation.
So, it might be awhile before anyone should buy in, unless they are expecting it go up again, before it crashes.
It would take a lot of math and research to figure out real approximate value of the stock market, so 3-5x times less is a very rough guess.
does 5x less mean 1/5th? What are you multiplying? The current drop? If we are down 20% then 5x 20% would be 100%.. or Zero?
I think the market will drop in waves.. We are in the first one.. It should end soon.. exhaustion. Maybe at the 38% Fibonacci. I guess it could go to the 50% Fib? Why not?
Then there will probably be a rally.
The next one will be after the junk bond defaults start showing up..
Stair case up, express elevator down.. This was was over due.
20% to 33% of what it is currently. So as I’m writing this the DJIA is 21,200. Assuming that accurately reflected the entire stock market “which it doesn’t”. I’m putting the true value of Dow Jones Industrial Average at 4240 to 6,996. So the entire stock market would be worth about 1/5 to 1/3 of what it currently is.
It’s a very rough guess, but, it’s probably more accurate than most are willing to admit.
it would take a lot of math.
it’s called arithmetic.
jeez, i’m all in at half price.
Wolf, so far so good! Tonight the Dow and NAS futures are limit down!!
Even though you’re making money, you’re wrong about 1 thing. Things can go to heck in pretty much a straight line! Rare but true.
lol
I would expect a drop down to 2008 levels … The Fed will agree to drop rates at one condition only , which would be closing the repo window altogether. I consider the bloodletting is far from over and we are bound to see more volatility into the markets. Algos will probably amplify movements too. We might see a modification to HFT access to market … if not we are having a situation à la 2008. Few people realize that HFT work with low or null end of day positions allowing for high leverage they are not market participants and their trade is parasitic at best. If the Repo window closes despite null interest rate they lose their footing for most of their strategies.
Scary wolf,
I’m buried but got cash and I will be paid, I don’t need the principle now. Yikes! Gonna wait out the 20th or so. Good for you Wolf. Stay safe.
I found your blog when searching for anything that would validate the position I took – hundreds of SPY put options, very long dated, very out of the money. Started in November and pulled my hair each day as the markets marched higher, Bought more, doubling down, but at much cheaper prices. Cashed out on Monday when the DOW dropped 2,000 – just had to, even though I initially had a higher price target in mind, and over a year to wait for it. But, yeah, I get it – sometimes it’s hard to feel comfortable with the profit … FOMO, I guess.
William I Negle
I’m curious, If you don’t mind revealing how much of your original $ you lost percentage wise?
Options pricing is tricky – the bid/ask is often not the actual bid/ask you can achieve. Often, I was able to buy contracts for just a few pennies over the bid, far from the ask. And if bids dried up completely, which I saw on a number of days, the entire position was essentially worthless. So, conservatively, I’d say that the worst day I saw – at the bottom I had lost somewhere between 50% – 60% of my total investment.
Wow more than I thought, Sorry to hear that. At least you are out while it seems heading lower, plenty of opportunities to make up for it once bottomed.
Ghassan, I appreciate the sentiment, but don’t get me wrong – my low point was hit before the COVID-19 scare went into full swing. When I cashed out the day the DOW dropped 2,000, I quadrupled my initial investment.
Those kinds of intraday loses are not uncommon when playing in the options pits. You have to learn to cope with it emotionally and tactically to be successful.
I laid a strangle in February on a special situation issue angled to the long side in terms of duration. The long side thesis didn’t hold true (yet) and the long currently trades at a deep loss. The short side had reached 900% gain at the open this morning equating to a 50% gain on the play overall.
Another day at the office.
Hi William. How do you price your bid for the options? Also, does your broker even allow a bid if its far off from the market price? I had looked into buying options many times earlier, but the pricing for non-liquid options is way off for retail investors.
Pricing for infrequently traded options can be ridiculously expensive. The first week or so of buying, I just blindly paid whatever the ask was. Then I quickly learned that, more often than not, I could get a price about mid-way between the bid and ask. Then when the sellers become over-confident that the strike price would never be met, they were willing to write and sell options much closer to the bid. My broker is Schwab, and they don’t care what bid you submit. I still have bids in that are now well below the highest bid. If somebody, sometime, bites, great. If not, well, I don’t care at this moment if my bid isn’t picked up.
Congrats on the visibility.
Don’t forget us little people when your media empire expands to CNBC. ?
Read the article this morning and before I even clicked the link, I was thinking, is this Wolf?
Thought the same thing when I saw it in my thinkorswim platform. Is it terrible I thought of Wolf Blitzer before Richter?
Is it too late for us to bet against this machine?
I just have a feeling that US is going to pull a rabbit out of a hat again.
Shorting S&P, hair-raising? Ha! Wolf can confirm that on Dec 20, 2019, I e-mailed him as follows:
Just opened a short position on TSLA … strictly gamblin-money-sized, strike $300, date May 15th, my birthday. If stock pops more I may add to it. I hope Elon thanks me now that I’ve guaranteed the stock will hit $500 in the coming 6 months.
LOL, I thought the late-2019 spike to $400 was ridiculous at the time, and $500 was even more so … stock doubled from there in a little over a month and almost hit $1000 before retreating.
Anyhow, given the utter insanity of the early-year moves I p*ssied out on adding to my short, so still holding the $300 strike one. We are still a long way above that, but the recent pandemic-related market whipsaws have added a speculative premium even on top of the hefty one that was in play when I bought my puts. Still underwater, but by a lot less than I was a month ago.
Yes, I remember that email :-]
.. now you can buy some Telsa’s for free ;o)
I thought it just started.
I had hopped over to Marketwatch earlier today, and Lo & Behold, there was Wolf’s picture! I know this guy! Woo hoo!
I read DeCambre’s piece and thought it quite good. Perhaps I’m mis-remembering one of your points, but I agree that this choppy action is NOT indicative of an imminent rebound. I think you should stick with your shorts a little longer. I’m staying in cash for the time being. Let’s see what happens.
Wolf you could be forever known as the guy who called the top of the “Everything Bubble”.
Bobber,
Ha… I wasn’t the only one. There was all kinds of shorting going on. I just happened to publish my trade — which was a humbling experience for the first six weeks, to tell you the truth. Trading is very humbling. Even when things go right, it’s humbling.
Mr. Richter, if you still have a lot of theta left stay with it. You should be rewarded even more today, March 12, 2020.
PS:
I was listening to Larry Summers on Bloomberg today, he thinks the US is now going to follow Japan.
It’s simple: wait for Larry Kudlow to say it’s time to sell – then buy.
Same logic as shorting the market if Larry says it’s a great time to buy…
Once NYC and SF are locked down, might be a good time to sell. That said, the economic impacts haven’t even started to come in yet. Really tough call right now. I’m heavily short and worried about the SEC coming in and doing what they did in 2008 – ban shorts on 1,000 financial stocks right after Lehman collapsed.
And all the talking heads are STILL BULLISH.
Never saw one person say ….get out! Worthless….Bloomberg or CNBC or Fox Business…..not one. They all pull these people from the same well.
Why not have “fair and balanced” in financial shows like some provide in politics?
Turn off the volume.
Mohamed A. El-Erian had some fairly cautious mildly bearish words of wisdom on Bloomberg
What happens when the ETFs go ex-dividend by the end of this quarter?
More selling?
I certainly respect that you publicly put your money where your mouth is. I admire it greatly and hope you do well by it. The only thing that troubles me is the general notion that your gain is someone else’s loss. It would be great if we could pick the losers, but there will be many many regular folks who swallowed advice for their 401s/RRSPs etc and they are going to be hurting in this drop. Rough racket. You could have lost it all, and publicly. Another ‘Big Short’!! It must have been stressful as this progressed.
Good luck going forward.
This has been a real education for me reading Testosterone Pit and now WS. I really appreciate the knowledgeable commenters. Very interesting.
Don’t worry about it Paulo,
my older retired friends say they are up SO far on their various long term 401K, (or is it 409 now?) type of plans, that they tell me they could lose 40% and still be way ahead.
The younger folks I know, 50 or so and under, will have plenty of time to work back up to where they want to be, and with the inflation almost certain to follow this event, even if a washout, they will likely be ahead in USD soon enough, even if down in value…
But, that’s pretty much the way the whole game is set up these days, and why i have preferred dirt for the last 4 or 5 decades.
I’m in dirt, too. :-) Woodlot, gardens…the whole shebang. Even my neck is getting redder by the years, or should I say ears?
Take care.
Don’t worry about it Paulo,
my older retired friends say they are up SO far on their various long term 401K, (or is it 409 now?)
Looking more like 419 plans!
Shorts should not be covered. Another month of this and there won’t be any need to.
I happen to think a short position was an easy call. The market was going to crash anyway.
The actual economics haven’t hit the markets yet. The worst is yet to come. People are going to wish they had taken my advice and planted potatoes.
The good news is that Jim Bakker, the televangelist, has a cure for cov-19, and has made it available for a very reasonable price.
“I happen to think a short position was an easy call.”
Oh boy. No comment.
On a much less impressive scale, I pulled my 5-year-window IRA money out of the conservatively-defensive managed account two weeks ago and went all-cash until I can figure out what to do with it. The money managers were not happy at all, especially when I mentioned that it was a gut feeling.
I’m not bragging; I’m getting my ass kicked on my 25-year-window IRA and don’t really see the point of selling now. What to do, and when?
Wolf,
You are sure getting mileage out of your short position headline. Would you like to inform us readers if the brave move involved more or less than 1% of your net worth.
Are you the kind of investor who likes to hedge the bejesus out of your entire portfolio so that it barely moves on days like this ?
Your portfolio Beta to the S&P 500 of < 0.50, < 0.25 ?
kind regards.
akiddy111,
Look, at my age, I want to be able to sleep at night. Inflated stocks are immensely risky, as we can see. I have been through three crashes, starting with 1987 (I opened my brokerage account in 1986), and this might be #4.
Check out a 15-year chart of the Shanghai Stock Exchange Index (-50% from peak in 2007), or a 33-year chart of the Nikkei (-50% from 1989), or most of the major European stock Exchanges.
In terms of the German indices, as you know, the DAX is a total return index that includes dividend returns, so it is not comparable to the S&P 500. The DAXK is a pure price index, such as the S&P 500. The DAXK peaked in early March 2000 at about 6,200 and closed today, 20 years later, at 4,640 (-25% from 2000).
You see, buy-and-hold has screwed people all over the world. The US stock markets have been the exception. But that may now change.
In terms of risky assets: Some of my money is in my business — and that was a risky thing to do when I embarked on it in 2011 and it was tough for a few years, but it’s doing very well now. So that has been a great investment so far.
Plus, at the moment, I also have this short position — and you’re right, it won’t kill me if I lose 20%.
I have liquidity waiting for opportunities, such as long positions in some beaten down bonds or stocks, and I’m eyeing some other things outside of financial assets, and I might make a move if prices fall enough. If not, I won’t make a move. Fine with me. I’m not going to sink my hard-earned money on a wing and a prayer into some overpriced crap.
My seven-days-a-week job is my business — this site. I love doing it, and I want to make it grow further. That matters a lot more to me, than individual trades, and that’s where my focus is.
However, I deal with economic, financial, and business data something like 100 hours a week as part of my job of running this site researching stuff, and all of this data coagulates in my mind into various scenarios that might unfold, and so I occasionally use this info to make a trade or a long-term investment.
Well Wolf, thanks to the wise words of our illustrious CINC. Your bet is going to pay off a little more tomorrow. I do wonder if the coronavirus is acting as a shield of sorts for the current blood letting. Seems like a good idea to let the excesses out. But sadly, part of this is going to turn into a story on demand destruction in the next few weeks.
Your shorts are better. The TLT puked. I thought that would ride longer but it didn’t.
Long time listener, first time caller. Congrats on the short Wolf. I distinctly remember reading that piece in December as part of my routine and would’ve done the same but I’m not a gambling person. :)
I’m aware of your position on cryptocurrencies but I’m curious what you think of gold, physical or ETF’s, not as an investment but as a store of value, somewhere to park your money in the short-term.
I like gold. But beware of the long cycles. They’re measured in decades. If you get the timing wrong, you’re in a losing position for a very long time, much longer than my time horizon for investments. Here is my article on this from 2018, but it’s still relevant:
https://wolfstreet.com/2018/09/04/my-theory-about-gold-and-silver-for-long-term-investors/
Gold is countecycle to equities. Daniel Amerman recently discussed this. Gold during the 60s and 70s beat stocks handily. Why does no one seem to remember that stock slumps can last a long time? For that matter, look at stocks vs gold in the 21st century. Gold beat stocks for the first decade and right now I wouldn’t be surprised to see that it has beat stocks for two decades.
Michael Gorback,
“Why does no one seem to remember that stock slumps can last a long time?”
Yes, totally agree with: beware of the long cycles of stocks :-]
And I remember too. As I pointed earlier here:
Shanghai Stock Exchange Index: -50% from peak in 2007
Nikkei 225: -50% from 1989
Most of the major European stock Exchanges are still way below their respective peaks in 2000 or 2008.
In terms of the German indices, the DAX is a total return index that includes dividend returns, so it is not comparable to the S&P 500. The DAXK is a pure price index, such as the S&P 500. The DAXK peaked in early March 2000 at about 6,200 and it’s today, 20 years later, at 4,200 (-32% from 2000).
So yes, the long cycles of stocks, totally agree. And buy-and-hold has screwed people all over the world. The US stock markets have been the exception. But that may now change.
That may be but the bonds, indexes and metals have been highly correlated all week.
The screens are Alice In Wonderland surreal.
Thanks Wolf. Informative, as usual. Interestingly, gold is falling along with the stock market right now, margin calls in equities being cited as the leading theory. Even the liquidity injection this morning by the fed isn’t stopping the bleeding. I wonder if the possible rate cut next week or earlier is going to do any better. What if it doesn’t? Are we then looking at a worse crash than 2008?
Ah, when to buy, when to sell, that is the question.
You gotta know when to hold ’em.
Know when to fold ’em.
Know when to walk away.
Know when to run.
(Y’all know who that’s from.)
I have always remembered the Bernard Baruch quote: “I made my money by selling too soon.” (To paraphrase more relevantly, by buying too soon…) Apparently Rothschild said something similar, that he never bought at the bottom and always sold too soon.
Anyway, mad props Wolf, it takes major cojones to short stocks. Care to share what your stop-loss tolerances were?
Wolf, I encourage you to hang in there and stay short. This thing is just getting started. This is the mother of all bubbles, and it’s only started to pop.
Part of my thesis is this: back on August 15th, Harry Markopolos issued his Whistle Blower report on fraud at GE. While being interviewed on CNBC, he accused them of holding “tens of billions in Off Balance Sheet financing”. I e-mailed GE’s IR three times, with the words OFF BALANCE SHEEET FINANCING in all caps in the subject line. They will not respond.
It is everywhere. I like to look at Chipotle’s 10k & 10q’s to see what real transparency looks like, and to see what a simple business ought to look like in SEC filings. Note 1 of their 10k reads: “We do not have any off balance sheet liabilities.” The auditors who recommended that note as a selling point work for the rest of corporate America too. You can’t find that claim in anyone’s SEC filings.
Stay short, you’re playing with profits. I’m adding to mine all the way down to 90% correction, beginning with bad balance sheets: AAL, SPR, GE, WLL and BA. I’m cleaning up and nearly done with WLL.
Also: we haven’t even seen the first high profile bankruptcy yet. There’s gonna be a lot.
Should you really be taking a victory lap? Your rationale for shorting didn’t include a global pandemic in February. Without that trigger who knows how long you would have had to wait, and would you have been able to hang on? You could have easily been squeezed out. I would guesstimate that the virus pulled the financial collapse process forward by 5+ years in just a month.
The rich and powerful will go to any extent to maintain their status. They know the system needs to change but for the past decade they’ve been trying to figure out how to cut one of the legs off the table without it falling over and spilling them off. They were by no means out of ammo when you went short.
I really expected everything to go pear shaped years ago, but then Draghi tossed out an off-the-cuff remark about doing anything to save the euro and it kicked the crap out of my gold profits.
As a well-respected financial commentator says, nothing goes to heck in a straight line. Even in the Depression there were significant rallies all the way down.
Although I have long held the belief that an unexpected input would have a large nonlinear response that would unravel the financial world, I never would have dreamed the process would go this far this fast and “plague” was not on my list of possible triggers.
Who predicted that some folks catching a virus in China would cause Italy to shut down a month later? Who cornered the market in N95 masks in January? Those are the people I want to hear from.
So while I’m happy for your gain, just the fact that a trade goes your way doesn’t mean you were right. I owned Qualcomm back in the 90s because I liked their OmniTracs technology. OmniTracs was based on CDMA but the cell phone industry was leaning toward TDMA. I was pleasantly surprised to see the stock take off going from $5 to $90, totally unaware that it was not because of OmniTracs but because of their successful push to make CDMA the cell market standard. So great pick for a totally unexpected reason. In my field we often say it’s better to be lucky than good.
Michael Gorback,
When SARS became an issue in 2003, stocks didn’t crash because they’d already crashed from 2000-2002 and were at stable levels. Now we have a new virus that hit stocks at the most exuberant levels in my lifetime. And the results are in.
My thesis for the short was based on stocks being hyper-inflated amid the biggest, most insane, craziest, most intense stock-market euphoria I’d ever seen in my life, as I pointed out in the original piece, where anything can blow them down. Hyper-inflated stocks are immensely risky.
Wolf,
What valuation metric were you using to determine that stocks were hyper-inflated. I had a go-round today with a finance guy who stated that the S&P was 19.5 times forward earnings at the peak, earlier this year. That didn’t sound right to me.
I fully agree with what you said about fragility. As I mentioned I’ve been anticipating an event of this sort for years. However, your timing imho was a lucky punch, indistinguishable from market timing. There’s no way you could have seen this global shock coming. The same argument could have been made during the past few years and the bubble could have still persisted for years through rate cuts and other false props. Indeed, several investing firms started selling off their stock holdings two years ago.
Since I use trailing stops I’ve been a net seller of stocks for at least 5 years. This was mostly due to owning individual stocks. As many are aware, the S&P 500 is really the S&P 495 + FANGS. So while SPY was going up, I had a front row seat at what the ugly underpinnings were. I could see what was coming but not when.
The main reason for net selling is that once a stop triggered and I sold I couldn’t find anything reasonably priced to replace it. I kept buying bonds and gold and sitting on big wads of cash. I don’t suffer from FOMO. I just follow my buy/sell discipline. Was I early? Yes. Sorry? No. Rule #1 for us old codgers is don’t lose money. I put a lot of money with Jeff Gundlach making a 3.5+% dividend to beat inflation.
Nowadays I appreciate risk management more than beating the indexes. The big boys (DoubleLine, Guggenheim, Pimco) underperformed last year by avoiding corporate bonds while their peers made about 13%. Now that these bonds are largely in the junk pile I appreciate risk management even more.
The best market timing is slow and boring. You buy value and wait for the fat pitch. That kept me out of the dotcom bubble and the subprime bubble. It got me into oil royalty trusts when oil was $17/barrel and out as oil was falling from $140.
Perhaps it saved me from this crash and what I suspect will be a depression. Then sitting in cash because there was nothing to buy will prove its value.
Your notoriety for calling the top of the market will probably be worth more than your short.
You weren’t contrarian, merely well timed. Timing is a gift, how you manage your position is the clarifying moment, and we wish you the best. The beauty of the short is that nothing is lost. In a market selloff without short sellers money disappears. Shorts capture some of that money, provides liquidity at the bottom. Good job.
US personal tax take = way down
US corporate tax take = way down and falling by the second.
US deficit is likely to balloon. Already US$23T could be US$25T this time next year.
How to stimulate the economy. Interest rates, ineffective.
Only solution is lots of quantitative easing. Look at what the Australian’s have just announced today
Frankly Wolf, I respect you for making your trade public but fear that too many inexperienced investors will take your word as the gospel and get into something they really don’t understand….Their responsibility of course but….
I luckily got back to even after a year of sleepless nights on a few Short trades I had no clue doing but followed the experts…live and learn.
Now I risk very small and do well, not needing the extra funds (58, debt free, very liquid). Hitting singles vs homers..
Hang on, hang on, Wolf… Are you “a little worried that this could cascade,” or are you “extremely hopeful that this could cascade”?
I am a short-seller by nature and it always fascinates me that even short-sellers talk about how “the market had a terrible day today”, when they mean, “the market had a fantastic day today”.
It shouldn’t matter to anyone whether the market is going up or down. What should matter is that you, as an individual, are correctly positioned for the market’s coming antics.
I shouldn’t say this, of course, but half the fun for me of actively partaking in a bear market is the pleasure at seeing the greedy fcuks getting slaughtered.
Richard,
I hate short-selling. It’s a bad deal, with the risk-reward relationship out of whack. It makes me very nervous. Years ago, I swore I would never-ever do it again. And now, here I am, back in it because it was the only good trade I saw at the time. I feel terrible about the economic issues now spreading in bits and pieces across the US. If this drags out, it could get nasty for real people with real jobs, not just Wall Street.
So when does the real estate bust start ? And I’m talking Eugene, Topeka, Richmond,,not NYC or SFO.
Real estate crash will start soon. The layoffs are on their way. I’ve been waiting on this for a LONG time. I need a new car too. Can’t wait.
Quick question: Why did you no buy some Jan-2021 Puts on the SPY? You would be 5x to 10x times in the money now. I know the premium were high even back in December but the downside risk would have been much less and the capital needed very limited.
I was reading your article in January and I more than liked it – great content, great analysis and the balls to invest against the market (btw your Tesla analysis and why shorting them did ot make sense even nailed it more – Respect ! ) Your article gave me the final kick to open a Strangle on the SPY which worked very nice.
Looking forward to more great content from WolfStreet
Kind regards – The-Strangle
Dear Wolf! Thank you for the original article (I, Who Vowed to Never-Ever Short Stocks Again, Just Shorted the Entire Market). I did not follow your example, but it confirmed my own sentiment – I sold all instruments in my portfolio by mid-Feb, which turned out to be hugely beneficial.
Partially close the position, Wolf, in chunks as it falls.
Wolf, I hail you not as a moron nor as a genius, but as a moron genius.
All hail the moron genius!
Also now that you’re a bazillionaire and all, wanna invest in my kickstarter social cryptocurrency unicorn? No?
Well Done Wolf! I read someone said it was an easy call. Intellectually yes, especially when you just throw a few chips into the pot. Not so much when you push all your stacks there.
It was easy with hindsight for sure. With hindsight, I shoulda bet the farm :-]
So Wolf, does this mean free beer mugs for everybody?
Reads exactly like The Big Short. I was surprised how scared they were during that trade. I guess I should have expected that and your indecision because a lot depends on your bet.
Only fools are sure of future outcomes.
The rest of us, no matter of our unshaken faith in our logic, know that the real world and real people are not logical.
The knock-on effects are going to be severe. One thing that has had me worried for a long time is the stock buy-back phenomenon.
In the good old days, you bought back stock when it was cheap compared to what you thought the price should be.
Now they do buy-backs to enhance executive return on stock options or bonuses for meeting price targets.
Now we have the day of reckoning. The value of the stock they bought back has fallen, and they shot their wad borrowing to make insane buy-backs. Now they just have debt to pay off and a paucity of lenders.
Boeing is the poster child for this and there’s a lot of hatred for Boeing right now to the point that people wish them ill. But it’s not really Boeing, it’s the executives and their financial engineering you should hate. However, those guys are going to walk off with a bag of swag and leave their employees and the local economy twisting in the breeze.
They say you shouldn’t hate the player, hate the game. Yeah, the game sucks but the croupiers are vermin.
Wolf,
Are there any late statistics out on margin calls? I remember these as a bit of a crumbling foundation that suddenly gives way when for a more sustained period, the market goes from up and down, to just down. Or have they become irrelevant in this market correction.
Curious about your opinion on this.
Congrats Wolf! Of course you were right about the market being overhyped and glad that it didn’t turn on you. I’m also patting myself on the shoulder for not diving in with this one. I got out of some positions in November and others in January thinking it could go another 10% higher or drop 10% in two days on a whim. In February I often wished I hadn’t pulled the trigger on the sales but boy am I glad now that I did. I would have not dared a short though. Instead I was toying with the idea of vix futures a month ago and boy would that have been the best trade! It seems to me an interesting alternative to shorts, that can make you more but you have to be pretty close on the timing. So that’s the risk. And I don’t like risk. That’s why I read Wolfstreet.com. Thank you for your voice of reason to help us keep a cool head.
To be fair to “Everyone”
Everyone was right about one thing – namely, that the Fed would do QE-4 forever to make sure that stocks would only go up
As we are seeing right now!
Wolf, I thought you made a seriously gutsy call when you announced it. You are now The Designated Official Clairvoyant. Have you seen any need to get your car seat altered to make room for those large brass ones you’re hauling around?
Nice trade. Good luck on your exit, whenever you decide to do it!
Great job Wolf, congrats! ;)