According to Y! Finance report, Michael Burry, who famously shorted subprime mortgages during the 2008 financial crisis, closed his bets against the S&P 500 and the Nasdaq 100 in the third quarter. Michael Burry has been bearish on stocks for a long time but his shorts have not worked out since his subprime mortgage bet. I am very anti-short because it’s a leverage bet and investors can get wiped out easily. Also, I think structurally, it’s an upward battle to short because we are actually still in a loose monetary environment.
A couple disagreements 😁 sorry im advance for the rant. I get frustrated with talking heads in these videos that consistently share incorrect info.
Long stock market during QE statistically not risky. Long stock market during QT is statistically risky. 150B is getting drained from the financial system every month by the fed. The fed isn't even talking about talking about stopping QT. QT means risk assets decrease in value. Mortgage spreads widen. Corporate credit spreads widen. Equity values fall. The fed wanted RRP above 1T it fell below this level last week. Liquidity is getting drained from the system at a rapid pace. It's part of why Russell stocks are getting hammered and market breadth is super narrow with all liqudity crowding into the largest cap names at historically ridiculous multiples.
The treasury bill narrative is super silly. If you look at RRP it's continuing to fall at same pace it had before the announcement. People parking their money in RRP want no interest risk duration exposure for a variety of reasons. Two year bills had a great yield before the treasury announcement. They weren't buying two year then, why would they buy them now with more supply coming in? I actually stopped buying two year on the announcement because I now expect those yields to increase on excess supply. The treasury announcement was basically the equivalent of an emergency rate cut by the fed. Things are so bad with US debt demand that they can't issue more bonds. Absolutely horrible situation for the US but the market is celebrating. It's pretty funny to watch. It's like when people called BTFP QE or when the market believed "not QE" wasnt QE when it absolutely was.
Being naked short is definitely scary. I cap that at 25% and normally under 10%. You can hedge out long equity risk by buying ITM(in the money) index puts. Say qqq which is ridiculously overvalued on pretty much every historic metric at this point. 10% ITM puts out to say June 2024 would maybe cost 11% premium but the most you risk is 11% on the position and if it falls 40% then you make about a 400% return. And if it rallies 100% on some short squeeze then you only lose 11%.
I agree this guy (and anyone)'s market prediction is a bit iffy. But I think the liquidity increase is real, at least for the short term. Because RRP paid at 5.25% but you can get yields close to 5.5% for bills so the draining is for real and many investors move to 3-month or 6-month T-bills. bank reserves did go up slightly in the past few months while RRP is being drained. see https://www.ft.com/content/a1f061b5-da26-4828-a615-fe35b0b4a1c7
Some good stuff in there. The FT and Bloomberg have good stuff sometimes, but they are wrong in this article.
Analyts expect the new Basel III rules to further increase central bank (ie large US banks) holding requirements further. The build we are seeing on their balance sheet is them preparing for this. It's not Liquidity that is available to circulate broadly into the financial system.
People should be talking alot more about Basel 3 its going to force large banks to puke out assets that will no longer be profitable for them to other non regulated lenders and Mark to market their losses. I did a pretty comprenseive review on Basel 3 a few weeks ago. Happy to share if helpful.
A couple disagreements 😁 sorry im advance for the rant. I get frustrated with talking heads in these videos that consistently share incorrect info.
Long stock market during QE statistically not risky. Long stock market during QT is statistically risky. 150B is getting drained from the financial system every month by the fed. The fed isn't even talking about talking about stopping QT. QT means risk assets decrease in value. Mortgage spreads widen. Corporate credit spreads widen. Equity values fall. The fed wanted RRP above 1T it fell below this level last week. Liquidity is getting drained from the system at a rapid pace. It's part of why Russell stocks are getting hammered and market breadth is super narrow with all liqudity crowding into the largest cap names at historically ridiculous multiples.
The treasury bill narrative is super silly. If you look at RRP it's continuing to fall at same pace it had before the announcement. People parking their money in RRP want no interest risk duration exposure for a variety of reasons. Two year bills had a great yield before the treasury announcement. They weren't buying two year then, why would they buy them now with more supply coming in? I actually stopped buying two year on the announcement because I now expect those yields to increase on excess supply. The treasury announcement was basically the equivalent of an emergency rate cut by the fed. Things are so bad with US debt demand that they can't issue more bonds. Absolutely horrible situation for the US but the market is celebrating. It's pretty funny to watch. It's like when people called BTFP QE or when the market believed "not QE" wasnt QE when it absolutely was.
Being naked short is definitely scary. I cap that at 25% and normally under 10%. You can hedge out long equity risk by buying ITM(in the money) index puts. Say qqq which is ridiculously overvalued on pretty much every historic metric at this point. 10% ITM puts out to say June 2024 would maybe cost 11% premium but the most you risk is 11% on the position and if it falls 40% then you make about a 400% return. And if it rallies 100% on some short squeeze then you only lose 11%.
I agree this guy (and anyone)'s market prediction is a bit iffy. But I think the liquidity increase is real, at least for the short term. Because RRP paid at 5.25% but you can get yields close to 5.5% for bills so the draining is for real and many investors move to 3-month or 6-month T-bills. bank reserves did go up slightly in the past few months while RRP is being drained. see https://www.ft.com/content/a1f061b5-da26-4828-a615-fe35b0b4a1c7
Thanks for sharing the article.
Some good stuff in there. The FT and Bloomberg have good stuff sometimes, but they are wrong in this article.
Analyts expect the new Basel III rules to further increase central bank (ie large US banks) holding requirements further. The build we are seeing on their balance sheet is them preparing for this. It's not Liquidity that is available to circulate broadly into the financial system.
People should be talking alot more about Basel 3 its going to force large banks to puke out assets that will no longer be profitable for them to other non regulated lenders and Mark to market their losses. I did a pretty comprenseive review on Basel 3 a few weeks ago. Happy to share if helpful.