I, Who Hates Shorting, Just Shorted the Entire Stock Market. Here’s Why

I’m sharing this trade for your future entertainment so you can hail me as the obliterating moron that infamously shorted the greatest rally floating weightlessly ever higher above the worst economic and corporate crisis imaginable.

By Wolf Richter for WOLF STREET.

I hate shorting. The risk-reward relationship is out of whack. It feels crappy. I lost a ton of money shorting the worst highfliers a little too early in late 1999. It’s just nuts to short this market that is even crazier than in late 1999. But this morning, I shared in a comment in our illustrious comment section that I’d just shorted the SPDR S&P 500 ETF [SPY]. My time frame is several months.

I’m sharing this trade so that everyone gets to ridicule me and hail me as a moron and have fun at my expense in the comments for weeks and months every time the market goes up. And I do not recommend shorting this market; it’s nuts. But here’s why I did.

The stock market had just gone through what was termed the “greatest 50-day rally in history.” The S&P 500 index had skyrocketed 47% from the intraday low on March 23 (2,192) to the close on June 8 (3,232). It was a blistering phenomenal rally. Since June 8, the market has gotten off track but not by much. It’s still a phenomenal rally. And it came during the worst economy in my lifetime.

There are now 29.2 million people on state and federal unemployment insurance. There are many more who’ve lost their work who are either ineligible for unemployment insurance or whose state hasn’t processed the claim yet, and when they’re all added up, they amount to over 20% of the labor force. This is horrible.

But stocks just kept surging even as millions of people lost their jobs each week. The more gut-wrenching the unemployment-insurance data, the more stocks soared.

Then there is the desperate plight many companies find themselves in, and not just the airlines – Delta warned of a host of existential issues including that revenues collapsed by 90% in the second quarter – or cruise lines – Carnival just reported a revenue collapse of 85% in Q2, generating a $4.4 billion loss, and it is selling some of its ships to shed the expense of keeping them.

These companies are in sheer survival mode, and they’re raising enormous amounts of money by selling junk bonds and shares so that they have enough cash to burn to get through this crisis.

This crisis hit manufacturers whose plants were shut down. It hit retailers and sent a number of them into bankruptcy court. It crushed clinics and hospitals that specialize in elective procedures. It shut down dental offices. It sent two rental car companies into bankruptcy court – Hertz and Advantage. It has wreaked untold havoc among hotels and restaurants, from large chains to small operations. And yet, stocks kept surging.

The situation has gotten so silly in the stock market that the shares of bankrupt Hertz [HTZ] – which will likely become worthless in the restructuring as creditors will end up getting the company – were skyrocketing from something like $0.40 a share on May 26 to $6.28 intraday on June 8, which may well go down in history as the craziest moment of the crazy rally.

There were stories of a new generation of stuck-at-home day-traders driving up the shares looking for their instant get-rich-quick scheme. And those that could get out at the top made a bundle (but HTZ closed at $1.73 today).

The smart folks at Hertz and their underwriters, Jefferies LLC, saw all these sitting ducks ripe for the taking, and they came up with a heroic plan to sell up to $1 billion in new shares into this crazy market, while informing investors that those new shares would likely become worthless in the bankruptcy proceedings.

The bankruptcy judge – likely shaking head in despair – approved it. As HTZ began plunging, the size of the offering was reduced to $500 million. This would have been like a donation to the company’s creditors, who now run the show.

Hertz would have likely been able to pull off this stunt in this crazy market, but then someone at the SEC woke up and asked some questions, which put the whole escapade on hold. But you can’t blame Hertz. They need money badly, and they’re just going where the easy money is.

Even during the crazy dotcom bubble in late 1999 and early 2000, the day-trader frenzy hadn’t reached these levels. But back in 1999, the economy was strong. Now this is the worst economy of my lifetime.

This kind of frenzy has been everywhere in recent weeks. They bid up nearly everything unless it filed for bankruptcy – and even then, they bid it up, as Hertz has shown. This would have been an inexplicable rally in normal times. But these are not normal times.

These are the times of record Federal Reserve money printing. Between March 11 and June 17, the Fed printed $2.8 trillion and threw them at the markets – frontloading the whole thing by printing $2.3 trillion in the first month.

And in this manner, the otherwise inexplicable frenzy became explicable: The Fed did it. And everyone was going along for the ride. Don’t fight the Fed. Spreading $2.3 trillion around in one month and $2.8 trillion in three months – in addition to whatever other central banks globally were spreading around – was an unprecedented event. And the fireworks probably surprised even the Fed.

Credit markets that had been freezing up for junk-rated companies suddenly turned red-hot, and speculators started chasing everything, including junk bonds sold by cruise lines and airlines though their revenues had plunged 80% or 90% and though they were burning cash at a stunning rate. The Fed’s newly created money went to work, driving up stock prices.

But over the past six weeks something new was developing: While the Fed was talking about all the asset purchase programs it would establish via its new alphabet-soup of SPVs, it actually curtailed the overall level of its purchases.

Then in the week ended June 10, the Fed’s total assets of $7.1 trillion increased by less than $4 billion. And in the week ended June 17, its total assets actually fell by $74 billion (you can read my analysis of the Fed’s balance sheet here). This chart of the week-over-week change in total assets shows how the Fed frontloaded its QE in March and April, and how it then systematically backed off:

And there is another big shift in how the Fed is now approaching the crisis. It’s shifting its lending and asset purchases away from propping up financial markets toward propping up consumption by states and businesses, and ultimately spending by workers/consumers via its municipal lending facility, its PPP loan facility, and its main-street lending facility. These funds are finally flowing into consumption and not asset prices.

So the superpower that created $2.8 trillion and threw it at this market, and that everyone was riding along with, has stopped propping up asset prices.

And now the market, immensely bloated and overweight after its greatest 50-day rally ever, has to stand on its own feet, during the worst economy in my lifetime, amid some of the worst corporate earnings approaching the light of the day, while over 30 million people lost their jobs. It’s a terrible gut-wrenching scenario all around.

And so I stuck my neck out, and I’m sharing this trade for your future entertainment when it goes awry, and you get to have fun at my expense and hail me as the obliterating moron that infamously shorted the greatest stock market rally of all times as it was floating weightlessly ever higher above the worst economic and corporate crisis imaginable.

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  429 comments for “I, Who Hates Shorting, Just Shorted the Entire Stock Market. Here’s Why

  1. Raymond Rogers says:

    My guess is you are aiming for an August timeframe.

    Hopefully the munis wont borrow from the vehicle, BTD in anticipation of the infrastructure bill that will most likely be in excess of 2 trilliom, and buy the SPX with a second wave of institutional and retailers following.

  2. Hugo says:

    Ok guys here is what is going to be happening. (*Om*)

    My dream pair Simon Prop and his dream tenant Macy’s, they stopped hiking double digit every day. Then they stopped even single digit. They start dropping single digit now. Little.

    Volume is dropping day by day. Quadruple was a no-burner. Volume after Quadruple will drop further.

    That is what is going to happen: Nothing is going to happen. The markets are just dropping into a sleeping beauty sleep.

    For a very long time, boredom will reign.

    Look at oil. No need to short. What should happen there? Levels are just fine. Nothing is going to happen.

    Look at lunatic techs. What else should happen there? Nothing is going to happen.

    Noone is going to fly. Take an nap. A long one.

  3. MonkeyBusiness says:

    Just think of us people shorting the market as doing God’s work.

    We are doing this so that Uncle Warren can enter the market again. Bring balance to the market!!!

  4. Mike says:

    This article will initiate hundreds of people like me to start shorting the market after doing due diligence. I will buy SPY puts for December on Monday 6/22 with 2% of my portfolio and will add few percentage every week, as long as I am making money. Thank you Wolf.

  5. saskatoon says:

    dude, no!

    make your short AFTER the election :)

  6. CCC says:

    Makes perfect sense. It should go down a lot. But the fighting the Fed propping up the bubble scares me.

  7. RkD says:


    Interesting. My view is that the bear market rally has transformed into a correction. Breadth in some cases hit highs similar to that of 03 and 09 when those bears ended. However it is possible that Fed distortions is causing a lot of charts and a lot of analysis show strange or incorrect readings.

    Curious to your position:
    Straight shares or PUTs?
    Stop loss?

    • Wolf Richter says:

      Sold short SPY. No stop-loss. SPY tracks the S&P500 which isn’t going to jump 50% in one day, so no stop-loss needed. I can cover any time. It’s not on margin. In this setup, there are nearly no costs/fees involved.

      • gordon n. says:

        Wolf- it’s end of quarter MARKUP soon by the Boyz! Probably stays up and 4th of July WILL BE RIGGED by Trump/Mnuescum higher imho. (Nat’l security) Powell can offset using injections . Watch. See Lee Adler twitter feed of liquidity changes.

        • gordon n. says:

          Meant Powell will use REPO injections to offset drop in bal sht. most likely.

  8. Richard K. says:

    Hi Wolf,

    When you say you shorted SPY does that mean you bought something like the ProShares Short S&P 500 ETF?

    Many thanks!

  9. Fat Chewer says:

    Wolf, I’ve come to understand you’re a man who really understands his shit. I can see the long play going on here, but shall remain silent as to what it is. You will win either way and possibly both ways. All I can say is respect, sir, you are an inspiration! Also, SunTzu, The Art of War, chapter 1, verse 18…

  10. piker says:

    When the current administration took power there was an observable increase in confidence and exuberance in the market. Whether it’s well founded or not remains to be seen but the political energy of the last three years has translated into some portion of today’s seemingly rich value’s. I wonder if you could quantify that. If confidence in the current administration by the segment of investors who exuberantly support the president effects the market, when that confidence ends, what happens?
    Seems to me the emperor had no clothes in Tulsa Saturday night and people are going to start to notice.

  11. Kind_of_day_its_been says:

    June 19th just entered short positions myself. Market is flashing short term overbought. Trading position for me is a 2 month timeframe. I believe people are forgetting that special unemployment insurance benefits expire at the end of July. Unlikely that Congress will get its act together to the same extent they did with the CARES act. As well, when does payroll protection program end? Its coming to a close in the next quarter. I’m expecting a lot of trading opportunities like this over the next couple of years. Markets just don’t go straight up.

  12. Andre Surkis says:

    Great article and analysis. I’m sorry that you say: ” and hail me as the obliterating moron that infamously shorted the greatest stock market rally of all times as it was floating weightlessly ever higher above the worst economic and corporate crisis imaginable.” Who would know that such a force majeure would come in the form of a pandemic.

  13. Silly Me says:


    Please, advise.

    How much will shorting be worth, when the whole racket called the stock market collapses?

    Based on what you are saying, it’s on the way. Me best guess is that the controlled demolition will be incremental, and you will be able to collect before the final collapse.

    Yet again, what can you do with the money that will likely go down super fast in hyperinflation?

  14. ers says:

    I am short the Russell 2000. My only thought…. if every G20 has the printing presses running…is it even happening? We all think what is happening is crazy, and it is, but coordinated CB efforts to this scale have never been done before. While I believe the efforts will (and should) fail, the timing, however, will be much more difficult to judge.

  15. David says:

    Like every thing is the market, it is all a matter of timing. My feeling is that you may be a little early. The market is totally overvalued but that means little these days. The S&P hit its 200 day moving average on Friday which was a quad witching day. The sell off was to be expected as the boys rendered all the near the money call options worthless. The bounce off the 200 MA probably means that we have a short term bullish bias in the market.
    As for the Fed, you are correct that the Fed has pulled back but there are indications the PBOC is about to flood its market with 3-4 trillion dollars in liquidity. Somehow all markets seem to benefit when any central injects liquidity.
    Anyway, we have a Bradley turn date in mid August and Sept. and October are always interesting months. Good luck with the short and I hope the timing works out for you.

  16. MLK says:

    Funny. Charles Nenner said the will turn hard this coming week. We’ll see

  17. fajensen says:

    People are done with isolation, particularly young people.

    “The Second Shoe“ yet to drop here is that COVID-19 can have long-term effects the heart, brain, kidneys, liver and lungs. Even in people who did not get seriously ill, like “young people”: Some unpleasant percentage of the “recovered” COVID-19 patients will never fully recover!

    This will percolate up into the shared consciousness over the next 6 months, causing the next crisis.

    This is Not “the flu”.

    • Martok says:

      Gandalf made several excellent posts about COVID-19, and the ACE2 receptors makes this a huge problem. – IMO it’s a disease. – This info is so valuable I have to repost, – all credit goes to him!



      Jun 19, 2020 at 7:37 pm

      Also, the COVID pandemic is accelerating again. This is still the FIRST WAVE, not the dreaded second wave, which never really was completely suppressed, but eager politicians re-opened too soon, with too few restrictions on mass congregations of people eager to get out and have fun and socialize again.

      I’m seeing waves of people coming in to get chest x-rays for all sorts of symptoms, and daily rising numbers of COVID like lung infiltrates (patchy fluffy rounded peripheral opacities). This time, it’s mostly people under 40 years old, with lots of 20 and 30 year olds. The oldsters and really sick people are doing the right thing and staying home and taking all precautions.

      Many of the chest x-rays are normal, but a few return two weeks later, and voila, COVID lung infiltrates on the next chest x-ray! Yep, we know that’s what happens. You get infected, get a few minor symptoms, get a clear chest x-ray, but your lungs don’t blow up with pneumonia right away, so you keep partying and vocalizing at the local bars and spreading all that finely aerosolized COVID virus to others, and so goes the pandemic.

      Expect the Tulsa rally to be the next super spreader COVID event. Expect Florida to be the next New York with overflowing COVID patients at the hospitals.

      Yah yah, the youngsters don’t get as sick and die at the same rate as the oldsters and preexisting conditions people who get COVID, but seriously folks, this virus is a really NASTY bug that can attack EVERY. ORGAN. IN. YOUR. BODY, because every cell in your body has the ACE2 receptors that the virus attaches to. The long term damage to young people who have recovered from COVID is yet to be determined, but yes, there will be long term permanent damage to many young people, and a certain percentage of people with chronic post COVID abnormalities. It’s early still in this pandemic, but the medical literature already shows this to be true.

      So Wolf, I think it’s a good bet that this insane market ain’t going to keep levitating for the rest of this year. Sooner or later Mr. Wile E. Coyote is going to discover that he’s run out of cliff and gravity will do the rest.

      The open air is more likely to disperse and dilute the viral load shed by vocalizing infected people. And if the sun is shining, that kills the virus fairly quickly.

      Recent studies have all shown that the biggest locations for COVID transmission are in enclosed spaces – multigenerational family homes, offices with closely spaced workstations, meat packing plants where the workers are working right next to each other, tightly packed restaurants and bars.

      Opening up beaches shouldn’t be the big worry. It’s the enclosed bars and restaurants next to the beaches that will be the big super spreaders.
      It’s not correct to blame the new outbreaks on “young people” generically. Young people can follow laws, learn how to drive and follow the rules of the road like everyone else. They just need the proper rules of the road.
      The problem has been the utterly false messaging that has flooded out there about the COVID pandemic, the massive politicization of the pandemic, and the drawing of sharp tribal lines in the sand about what works and what doesn’t to control the pandemic.

      As a result, lots of Americans of ALL AGES are confused, misinformed, or twisted by their political beliefs into doing things that only make it more likely that they will either get COVID and/or help spread it further. Here’s a sampling

      1. Masks – wow, what a political sh–storm this turned into. The CDC first said they didn’t work, then said they sort of did, and their guidelines still don’t make it mandatory. The Denier-In-Chief (DIC) and his Lapdog-In-Waiting continue to refuse to wear one, setting huge examples for their followers. As a result, NOT wearing a mask has become an emblem of Personal Freedom and Liberty for Americans of this political persuasion.

      For well over a hundred years, the sanitary requirements of the operating room has meant that everybody inside except the patient absolutely wears a mask. Doesn’t that tell you something? Recent studies have confirmed that masks help a lot. Masks can even help you avoid getting COVID, not just prevent an infected person from spreading it, depending on how good of mask you’re wearing. So yeah, you don’t need to self-isolate, go ahead and go out there and mingle with people, but WEAR A MASK!

      2. Young healthy people don’t get COVID, or, if they do, it’s a minor illness and goes away quickly. Ugh. What sheer stupidity. Young people get COVID just as easily as old people and people with pre-existing illnesses. Statistically, they are more likely to have no symptoms or very minor symptoms, and fewer get the severe disease version. But fewer does not mean ZERO, and that message needs to get out there strongly. A severe infection can mean permanent lung damage, brain damage, heart damage, kidney damage, or even loss of a limb. All of that has happened, to young COVID patients.

      3. If you screen out the people with fevers and who are coughing and sneezing, that’s good enough. No, that’s not good enough. We know now that people infected with COVID and have only minimum symptoms can transmit the disease. We know now that vocalizing – speaking, chatting with friends, singing in a choir, is a GREAT WAY to aerosolize virus particles into the air and transmit COVID.
      Saw a couple of recent news stories – one about a group of 17 young people who went out to a bar and had a great time socializing and talking, and ALL of them came down with COVID and nobody knows who gave it to them.
      Another news story, about one of the DIC supporters waiting to attend the Tulsa rally – he said he had a mask in his pocket ready, and would wear if somebody near him was coughing or sneezing, cuz he ain’t stoopid, but otherwise he wasn’t planning on wearing it. Right, that means he won’t be wearing it when that minimally symptomatic COVID infected person near him breaks out in a full throated roaring cheer for the DIC along with everybody else and aerosolizes all those virus particles into that convention center. And after that cheer, everybody has to take in a few breaths and there go those virus particles.

      3. We need to re-open the economy, we can’t let COVID defeat the mighty American economy. Er, well just look what happened with the meat packing industry. When a third or more of your entire workforce comes down with COVID, and the plant has to shut down completely, that is a defeat for the American economy also.
      Re-opening the economy makes sense if it is done correctly. Workers need to wear masks, good ones, and need to be regularly screened.
      Some businesses are just NOT going to work well with the requirements of preventing COVID spread. Bars, for example. People go to drink and chat with friends in an enclosed space. That means wearing face masks is impossible, and virus aerosolization and spread in bars is inevitable.

      Beaches and outdoor activities are probably OK. Especially in sunny areas. The sun kills the virus, the open air disperses and dilutes any virus particles in the air, and reduces the viral load that people might inhale. The data isn’t all in about this, but everything we know about other infections says that getting a few bugs usually doesn’t result in a significant infection.

      So yeah, go out there from your cave and live your life. Exercise outdoors. Wear a face mask. Just don’t stay too long in an enclosed space chatting with people not wearing face masks.

  18. Wolf: Just a gut feel, but your timing might not be too far off this time. It is sure one sickly bull market that’s going to need a respirator soon to keep climbing those steep slopes! Of course, there is also the long gold trade, haha.

  19. kitten lopez says:

    i know i could’ve written you privately but i want it PUBLIC! i smacked my forehead for forgetting and crawled out of bed and wrote Happy Father’s Day to you on my site. don’t know if you subscribed as i cannot look at the list or i’ll get stagefright. my version of looking beyond the lights into the crowd and seeing blackness so i can psych myself into doing what i end up doing publicly by accident anyhow. (smile)

    and Happy Father’s Day to YOU as well, Mr Wolf Richter, even though i already said it to you on the side, i say it HERE OUT loud!

    and Happy Father’s Day to you Paolo, Canadian Father Extraordinaire.


    good night!

    (and let’s see if we can get this comment thread up to 400 just for KICKS. you got something better to do, like re-inhaling your own panic?)

  20. John says:

    We don’t have to do anything but hold like the banks holding all that capital! Bank lending rates ticked up a bit. Banks again in control. Happening all over again. Nothing changes if nothing changes. Whatever happens it’s all on the banks, and the way things are going, statues coming down are not the most of it.

  21. Tom says:

    This discussion chain is absolutely fantastic. Lots of contrary opinions, lots of comments that are over my head, but I have learned so much. Thanks to everyone, especially Wolf.

    Caveat: The following comment is meant to be 100% apolitical. This is a financial forum. Let’s not argue about Democrat vs. Republican here. But let’s talk about what happens in the short to medium term under one political scenario…

    One topic that I find amazingly absent from the discussion is the scenario where the Democrats sweep the White House and the Congress. I don’t know what the odds are, but it seems to me that the odds are non-zero and are growing daily. If that happens, both corporate and individual tax rates are certain to increase substantially (see Joe Biden’s public statements on tax policy). If tax rates go up significantly, then all other things equal, asset values of all types will decline as government takes a bigger share of future earnings and capital gains. What would be the smart financial move right now if you knew that Democrats would be in full control of the White House and the Congress by the end of 2021? Would you dump assets now, move into cash (or fancier alternatives for the more experienced participants in this forum), wait for the tax-driven decline in asset values, and then get back in the market? Note: I have *never, ever* been a market timer in my investing life, but this isn’t a timing thing. Taxes *would in fact* go up under Democratic leadership. Help me think this through.

    I look forward to your enlightened comments. Let’s keep it apolitical and learn something from each other.

  22. My guess is the DOW will drop more than 2,000 points on July 29th (a one day drop) this year. The real crash in the stock market I’m guessing will be in April 2021.

  23. Yertrippin says:

    It’s a good play Wolf.

  24. Brian says:

    Is the market really up or is the dollar just diluted? Given long term inflation is going to be massive, even if businesses continue to tank, the stock market may continue to rally solely because these newly created dollars continue to flood into assets.

    Keeping your money in dollars while you short the market exposes you to massive inflation risk, does it not?

  25. GirlInOC says:

    Good luck Wolf!! I’ve got my fingers & toes crossed for you. Certainly not for me- I have yet to enter the casino of Wall Street. But I’d place my bets with you anytime ?

  26. Marc D. says:

    Wolf could be right here. After the big rebound in the markets since March, they’re probably due for a pullback in the next month or two. I don’t think they’ll be re-testing the March lows, though. Too much Fed money sloshing around.

  27. Paul Schuyler says:

    Me thinks Señor Wolf will be doing all the laughing!

    The good news, it was a perfectly timed excellent call. The bad news, where he lives in SF will be like a Zombie Apocalypse. OK, fair enough like a **newer version** of a Zombie Apocalypse.

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