Jump to content

RBS Warns: Sell Everything


LowIQinvestor
 Share

Recommended Posts

  • Replies 82
  • Created
  • Last Reply

Top Posters In This Topic

The real question is: who actually has the balls to go net short here?

 

I am sure there's a number of people on this board who are net short. :)

 

As for me, I keep going long (actually I don't short period, but I'm not even raising cash, I am lowering cash). You can take this as evidence that market will keep dropping lower.  8)

Link to comment
Share on other sites

Adding my 2 cents:

 

1) Greek situation is still not going away. Last year's problems were temporarily resolved for another day. I still don't see how the financial situation there improves.

 

2) Refugee crisis and easy entry points for migration ie-Greece to Germany/Scandinavian countries.

 

3)  Growing disparity between have and have-not EU members. Former Eastern Bloc nations are displaying growing revulsion towards the have-nots lackadaisical attitude towards fiscal restraint.

 

4) Technological innovation continue to cause disruptions especially in lower wage industries.

Link to comment
Share on other sites

Adding my 2 cents:

 

1) This is a 1 1/2 week correction without any shocking news.

 

2) If you listen to RBS or SocGen macro analysis you deserve to go broke.

 

3) Just a reminder: stocks got cheaper, not more expensive.

 

Why the **** are we even talking about going net short?

Link to comment
Share on other sites

3) Just a reminder: stocks got cheaper, not more expensive.

 

Oh, but noes, there's Elliot wave reversal and the core of the Earth stopped spinning ( http://www.imdb.com/title/tt0298814/?ref_=nv_sr_1 ) and there's an Arquillian Battle Cruiser ready to attack ( http://www.imdb.com/title/tt0119654/?ref_=nv_sr_3 ), gotta go, sell everything.

 

I am not selling. There is no Hindenburg omen or sighting of Halley's comet yet.

 

Link to comment
Share on other sites

Guest Grey512

I'm not net short, but quite close to that, and will probably be net short as the party begins.

Why would I be net short? Because of global liquidity considerations. Because the regime changed. Because at 5% unemployment, weak Euro, low interest rates and weak currencies in exporting countries, the U.S. consumer never had it better, and the only way is down. Because when the regime changes, the folks who got accustomed to doing well by buying the dips are taken out and shot. Because the global policymakers are completely out of ammo (save for legalizing all the illegal immigrants, but hey, that's a political non-starter). Because the stronger dollar and low commodity prices have started a cycle where the ultimate asset allocators (Gulf countries) will be moving their assets to cash to pay their bills, and everything illiquid - SPY included - will lose, and is already losing. Because if China devalues, everything that I just talked about will apply even more.

 

When food is plentiful - you go out and feast. That's what I was doing until last summer. You harvest your returns when QE is inflating assets and global misallocation of resources is winding itself up to 11, but the hangover isn't there yet. But then, once the signs of the hangover are visible on others' faces - you go towards secular growers and short the rest. And that's what I've done.

 

I'm not interested in convincing you. And I don't mind being wrong. Let's just come back and revisit in 3 years and see what actually happens.

 

 

Link to comment
Share on other sites

Let's just come back and revisit in 3 years and see what actually happens.

 

Not picking on you, but...

 

Nobody will remember to come back and revisit in 3 years. Nobody will actually care either.

Most likely you will change your opinion about 5-10 times in those 3 years. (Not that anybody will care about this either).

 

Again - I'm not picking on you - just illustrating that predictions such as yours are pretty worthless. (My predictions if I made them, would be equally worthless BTW).

 

If you want to talk predictions, "Superforecasting" is the only way to handle it. Make prediction, get evaluated against others, then you can actually claim that in 3 years your Brier score is in 10th percentile or something like that. Otherwise, meh.

 

And good luck with your prediction and position. I'd probably hope that you're wrong, but then I'm pretty sure you'll change your position in next 3 months or so (whether crash happens or not), so whatever. ;)

Link to comment
Share on other sites

The real question is: who actually has the balls to go net short here?

 

I've been "underweight" to net short U.S. equities for much of the last 12-18 months, but probably would never go net short for my entire portfolio. I made a large move from underweight to short after the chaos in August/September and scaled it up as markets moved higher. I'm straight short U.S. equities by about 8% of my portfolio (mixed between SPY and NFLX) and have about 17% notional exposure to LEAP puts on the SPY. So, about 25% of my portfolio is net short U.S. equities.

 

I have also been selling covered calls, opting to sell puts to outright buying names, and letting dividends accrue to cash instead of reinvesting. I also have about 9-10% of the portfolio in Fairfax.

 

It's not a disaster scenario. It's a respect for history and long-term trends in equity valuations. 

 

1) Margins are signficantly elevated from their historical average. Do I think they can afford to be higher than in the past due to efficiency gains? Potentially. Do I think they sustain at a level 50% above prior historical averages? Not a chance.

 

2) Multiples are elevated. I know everyone here questions the validity of the CAPE ratio, but it hasn't been the only ratio flashing extreme over-valuedness. Also, the argument on interest rates makes sense theoretically, but is all BS historically. The absolute level of rates has little to no correlation with P/E multiple - mostly just the direction that rates are moving (which is generally determined by inflation/growth).

 

3) The market action from August on was a massive warning sign. The majority of U.S. equities were significantly off their highs and the market was being held up by 4 stocks...4!

 

4) No sustained bull market has EVER started from the multiples that were witnessed at the lows 2009. There was only a single time in history where markets significantly exceeded the multiple that we were at in 2014/2015. It seemed highly likely that a correction would occur and then you have the Fed removing liquidity from the system while global growth and inflation slows!

 

So if margins contract back to the average, and multiples contract back to the average, then you're looking at index losses of 60% just to get back to average figures and you do not need a recessionary/depressionary scenario to get there. Just an average scenario. I think it's quite possible losses don't stop when we hit averages and that we spend an extended period below them.

 

So that's what I've been preparing for and that's why I've actually seen a lot of benefit in a portion of my portfolio over the past few months. That being said, my overall returns are still negative given my significant concentration in materials, emerging markets, and energy which is basically where I moved all of my exposure too and all were killed last year.

 

Link to comment
Share on other sites

I think Albert Edwards from SocGen actually is one of the best economists out there. He's being ridiculed as a perma bear but in my opinion he just always is far too early. If you've been following him an event like the current China/EM crisis and yuan devaluation didn't come as a surprise at all. He's been pro treasury bonds for years and people completely ignore what a great trade that was.

Link to comment
Share on other sites

I think Albert Edwards from SocGen actually is one of the best economists out there. He's being ridiculed as a perma bear but in my opinion he "just always is far too early." If you've been following him an event like the current China/EM crisis and yuan devaluation didn't come as a surprise at all. He's been pro treasury bonds for years and people completely ignore what a great trade that was.

HAHA.

You will always be right -- as long as you're allowed to be far too early.

Link to comment
Share on other sites

I do think that the situation in China is concerning. I know people argue that China's stock market is not correlated with the U.S., and that China exports are a small fraction of the U.S. economy.  Nonetheless, we haven't seen a real hiccup in China before since it became a major player in the global economy, so I'm curious how it shakes out.

 

Perma-bears I give little credence too (beyond wondering about the odd discrepancy in belovedness of perma-bears vs. specific short sellers), but I think that some more respectable names (Gundlach, Tepper, etc.,) have been warning that the market is frothy. I do think that there's a middle ground between the market could go down 20-25% and we're going to the bottom of 2008 all over again. 2008 (I hope) was a once in a generational event, bear markets are much more common....

 

(For reference, I hold put options in Valeant, Monster, and Athena Health.)

Link to comment
Share on other sites

I do think that the situation in China is concerning. I know people argue that China's stock market is not correlated with the U.S., and that China exports are a small fraction of the U.S. economy.  Nonetheless, we haven't seen a real hiccup in China before since it became a major player in the global economy, so I'm curious how it shakes out.

 

Perma-bears I give little credence too (beyond wondering about the odd discrepancy in belovedness of perma-bears vs. specific short sellers), but I think that some more respectable names (Gundlach, Tepper, etc.,) have been warning that the market is frothy. I do think that there's a middle ground between the market could go down 20-25% and we're going to the bottom of 2008 all over again. 2008 (I hope) was a once in a generational event, bear markets are much more common....

 

(For reference, I hold put options in Valeant, Monster, and Athena Health.)

 

2008 was a generational event. A 50-60% market doesn't require another 2008 and 50+% declines happen multiple times over one's lifetime. Evidently, it can even happen twice in a single decade.

Link to comment
Share on other sites

Its a lot harder to pick tops/bottoms then it is to find good companies priced at fair to (getting to good) prices. Im 100% net long and adding every month but also have ~30 years to retirement age.

 

I find it a lot less complicated to do this then figure out all the working parts of an economy and where it is going. How do you guys get to the point where you think you are able to predict/estimate this with a reasonable degree of certainty?

Link to comment
Share on other sites

Its all BS.  Camada is in a bear market now.  Subsectors In Canada, Oil and mining, are in a depression.

 

Stripping out a handful of high fliers, the US is probably already there as well.  And so is everywhere else of any import. 

 

Its yesterdays news.  Idiot analysts are always the last to know.  Why do we suppose there isn't a central bank in existence willing to raise rates? The fed did it once for some reason I cant quite figure out.  But it worked... No one is pushing them to raise rates anymore. 

Link to comment
Share on other sites

I am not shorting anything. Peter Cundil once said the market goes up 70% of the time. If you short, you better be very sure.

 

To me everything feels like a rigged game. Stimulation, govt debt. Debt eventually has to be repaid (usually).I have a feeling one day things will go pop. Maybe not this time, but sometime.I hope this isn't the case, and this is just my opinion. I think about what happens when the bullets run out? This I part of the reason I own a lot of Fairfax.

 

 

Link to comment
Share on other sites

2008 was a generational event. A 50-60% market doesn't require another 2008 and 50+% declines happen multiple times over one's lifetime. Evidently, it can even happen twice in a single decade.

 

Contradict yourself much in one paragraph?

 

2008-2009 was 50% drop. So was it a generational event or not?

Link to comment
Share on other sites

I think Albert Edwards from SocGen actually is one of the best economists out there. He's being ridiculed as a perma bear but in my opinion he "just always is far too early." If you've been following him an event like the current China/EM crisis and yuan devaluation didn't come as a surprise at all. He's been pro treasury bonds for years and people completely ignore what a great trade that was.

HAHA.

You will always be right -- as long as you're allowed to be far too early.

 

Yes. True. That's why I said he's a good economist and not a good trader/investor. What interests me are the arguments and what to conclude from them.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share




×
×
  • Create New...