I, Who Vowed to Never-Ever Short Stocks Again, Just Shorted the Entire Market
wolfstreet.com
wolfstreet.com
Yet the latter are the kind of items used to measure inflation.
Maybe stocks aren’t really getting over-valued, maybe it’s the dollar that’s getting de-valued.
Quantitative Easing.
What I am trying to say is that I’m not confident that a correction is imminent.
So the only question is, how long can they be papered over? How long were they successfully papered over before the last blowup?
until the administration changes.
Or, until china becomes so potent a force that their purchasing power cannot be checked and no amount of papering over in the US works - thus leading to WW3
That’s assuming China isn’t also papering over the cracks. I see no reason to believe that, given all the ghost towns full of crumbling high rises and the enormous amount of effort the CPC puts into their nationalistic propaganda.
Why?
> one can expect that prices rise for things that rich people buy (stocks), but not for things that poor people buy (food, gasoline, rent).
Is it bad if things that poor people buy don't increase in price? Also, these things are fundamentally different - I can sell a stock after I have held it for some time and used it to get the dividend - I cannot sell food, gasoline or rent after using it. And not just rich people hold stocks - maybe they are more likely to hold it directly but even in a country like South Africa where I'm from some of the poorest people benefit from gains in stock market through pension funds.
> Maybe stocks aren’t really getting over-valued, maybe it’s the dollar that’s getting de-valued.
One of the best measures for value of stock, PE ratio, is not even mentioned in the article - so I would take it with a grain of salt.
I nearly stopped reading after this. In hindsight I should have done exactly just that.
Despite that ridiculous 83% growth, Apple's P/E is only just inline with S&P average at 24. With high amount of Net Cash. It is basically the market buying into Services and Finally admit Apple is not dead, and wont be any time soon. ( But the stock is now used to manipulate the wider indices )
And in the Tesla and GM example, it is simply Tesla was one of the stock trading at very high vs GM trading low.
At the current growth rate and tension between China, may be a P/E of 24 is a little optimistic, but they are by no means a bubble. The first sentence in the article:
In my decades of looking at the stock market
Bubbles happen when everyone in the market is stupid. Stupidly believe nothing could go wrong. Housing wont fall, Stock will go up. I dont see any of these at all. It seems to me investors are still very cautious, and talk about the 2008 crisis as something happened a few years before, when it has been 12 years now.
The only risk I see right now is China. Simply because the market is so opaque we have no idea what is really going on.
No. Bubbles happen when interest rates are low or via other mechanisms ( QE, etc ) excess capital is created.
> Stupidly believe nothing could go wrong.
No. This is just standard nonsense we teach entry level financial analysts who know nothing or something the business news parrots. The "stupid" masses don't create bubbles. The highly "intelligent" financial masters do - FED/banks with the help of politicians and media.
> The only risk I see right now is China. Simply because the market is so opaque we have no idea what is really going on.
Another one of these. Once again, somebody has to link china with something that really has nothing to do with china. Also, the chinese markets aren't any more "opaque" than any other markets. Really, you have no idea what's going on there? I thought china was collapsing because of all the "ghost cities"?
The anti-china crowd is so hilarious. On the one hand, china is a risk because we know exactly what's happening there. On the the other hand, china is a risk because they are "opaque" and we have no idea what's happening there. Sometimes it's hard to tell whether these comments are from propagandists or those mindlessly parroting the propaganda.
But in the meantime, people who know nothing will argue about silly nonsense PE, EPS, Beta, etc. There is a bubble because the big boys want there to be a bubble. APPL rose 84% because the big boys wanted it to. The bubble will pop and there will be a recession when the big boys decide.
"I nearly stopped reading after this. In hindsight I should have done exactly just that.". Amen to that. Should be the HN motto.
No. Bubbles happen when excess capital is put into the stock market. Which isn't exactly what is happening here. It is certainly rolled into other asset, mainly property.
>The "stupid" masses don't create bubbles.
No one said masses, especially your masses here implies general investors. The market create bubble, not some singular or multiple financial institution. You could have throw hundreds of billions into market and if the market dont follow you are just another masses.
>Another one of these. Once again, somebody has to link china with something that really has nothing to do with china. Also, the chinese markets aren't any more "opaque" than any other markets. Really, you have no idea what's going on there? I thought china was collapsing because of all the "ghost cities"?
Strange you mentioned all of these when none of it was implied or mentioned. Have you been to those so called Ghost Cities?
>There is a bubble because the big boys want there to be a bubble. APPL rose 84% because the big boys wanted it to. The bubble will pop and there will be a recession when the big boys decide.
What you are suggesting is big boys resulted in everything. And I will leave it at that.
No. Bubbles happen when interest rates are low or via other mechanisms ( QE, etc ) excess capital is created."
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Nobody has or can define a bubble.
Nobody can see 30+ years into the future.
Right now, 30 year treasury bonds are paying about 2.3%.
If the capital markets are efficient, then there is no free lunch, so you can expect returns of stocks in the next 30 years to be essentially the same or about zero if inflation stays low and all nominal income will be from dividends.
Is that a bubble in stocks or bonds? Well, I think what will determine if people call it a bubble in hindsight is if inflation goes up and interest rates as well. But that is not expected by most.
He sold short SPY and QQQ. Those are very liquid and he will have no problem being able to cover if the market moves against him. He's not shorting individual stocks.
I just did something similar. I bought puts on both SPY and QQQ. As the author notes, I had to pay a put premium. I will exit quickly if the market continues to go up at the beginning of the new year.
There is one advantage to buying puts instead of shorting. If the price of puts (the implied volatility) goes up, the put becomes a leveraged bet. A put can go up in value even if the market goes sideways. Of course that is just short term, longer term there are many other factors such as time decay involved.
i have not understood what the repo market is - anyone care to give a laymen's explanation?
Why? Probably better to not look too closely at that Leviathan, citizen!
Or if you're a true believer, then you'd roll over your options, and keep throwing money down.
But as they say, the market will stay irrational, longer than you can stay solvent.
Yes the timing is tricky and decay is a bitch.
My thesis is that the market will begin to drop in January. Perhaps as soon as January 2. The puts are to protect my portfolio from that scenario. If the market doesn't drop I will quickly blow out of my put options.
The time decay over a few days or even weeks on a 90 day option isn't that significant. Of more concern is that the price of a put will decline if the market continues to move up away from the strike price. It's a double whammy because, as a market moves up, the inherent cost of options (the implied volatility) usually goes down as well.
Or if you're a true believer, then you'd roll over your options, and keep throwing money down.
Yes it's foolish to keep rolling put options in a rising market. You must use them tactically for when you expect an inflection point might soon be at hand.
You can also use put options for more practical reasons. E.g. in my case I need to periodically sell stocks because I have tuition to pay for my daughter currently in college. Two scenarios:
1) stay in the market, buy puts, lose some of the upside because of cost of puts.
2) sell stock now against future tuition needs, lose all of the upside.
On a side note, some people think that they could've timed the Big Short of 2008. If only they had bought a Put. Or go naked, and short the SPY stock directly.
But from my analysis, this was an impossibility. At least to a normal trader. There were just too many fake-outs, too many dead-cat bounces, that the likelihood of you fulfilling your original trading thesis, is nil. The whole thing took place over a 12 month span, which is far too long to execute a derivative trade. So, you would have to short the stock naked, and hold it for 12 months, and hope and pray that your thesis was correct. But, you can only borrow so much money, thus the benefit of such a trade, was not worth the risk. If you made any money, then it would be a rounding error.
Now, if you had insider information (especially on when critical actions were being taken by the government and key players), and if you have significant financial resources, then that might be a different game. And you would've benefited significantly from that once-in-a-lifetime trade. But for the rest of us normal folks, shorting the market in 2008 was impossible.
Anyways, good luck! This market needs to correct. The bigger they are, the harder they fall.
This QE insanity has impoverished us all. Except for the rich elites. They're like vampires that suck on the souls of the poor unwashed masses, and the middle class that hopes to be rich like them but never will, and laugh at us all, as they lounge around on their 3rd yacht.
1. If you’re positive the market is going to crash in a specified point in time, you would want to be more aggressive and buy some puts or vix futures.
2. Beta almost always has positive returns and betting on entire market crashing is almost impossible. You would need to be very confident for it to mathematically make sense, and if you were that confident, you might as well go big or go home (using vix futures, etc).
3. Negative beta exposure historically has been a very bad investment philosophy. While it can make sense to hedge market crashes (though not as often as you would think, puts as portfolio insurance are almost always a bad deal), I don’t think it makes sense to actually try and make money off of it. Either you hedge out all market risk or you take on some market risk. It’s a suckers game to try and profit from negative beta.
Some other stuff he says is suspect too. Saying that Tesla can’t crash because the short-sellers will always take profits is a strange thing to say. It’s like saying a stock with a lot of long-interest can’t go up because investors will always take profits: historically untrue.
With the current QE, there will be more dollars printed. I'm not holding my breath. However, day-to-day workers and young people will be destroyed by this asset inflation.