Incoming Black Swan Event - Beginning to the End of the 10 Year+ Bull Market
I've been closely watching the market for the past year or so and have been an avid trader since the 08 crisis. With so many people hyped up on the stock market, crypto and real estate, I believe the market is bound to crash soon. There are so many similarities from the crash in 08 and the dot com bubble that are reflected in today's market. One personal example is seeing my 12-15 year old cousins and nephews talking about dogecoin, crypto and trying to get in on the action. On top of that, I've visited my grandparents a few times at their senior care facilities and you have 80-90 year olds talking about gamestop, stocks, and crypto.
Yes, the markets have become a phenomenon recently but I can't think of a better time to short the market. Powell and the Fed keep reiterating the point that they will keep interest rates low even if they have to do so for many years in order to keep the economy running. This seems absurd and I think we'll see much more long term consequences due to the Fed's decisions. Therefore, I'm putting money where my mouth is and have loaded 40% of my portfolio in VIX and SPY put contracts. I am seeing over 95% of retailers are all in on stocks/crypto and so many of them are using leverage and margin to buy as much as they can.
What are your thoughts about the current market situation? Will we see a crash soon or will I lose 40% of my portfolio over the course of this next year?
So you're the one i'm selling spy puts to.
Didn’t the bull market end last year when COVID hit?
I think we're due for a correction but I don't think this is like 2008. People were very over-levered in 2008 and that's just not the case now. Something like 90% of homeowners in the US have equity in their houses. Average household net worth is up over 10% in the past year and the savings rate has doubled.
I think the crazy growth bubble will pop but not the whole market. Many names already have. Look at PLTN, ZM, or any of Chamath's spacs. I've given up on trying to pick a top in crypto, I just own some so I don't get the FOMO. I think at some point there will be a reckoning in a lot of the altcoins and the main few (BTC, ETH) will live on, but I don't see it taking down the stock market because a lot of the altcoins are held by retail traders that don't own the market anyway. As long as you own quality short-er duration stocks, you won't get wiped out by the reddit crowd.
With all that being said, I agree that vol looks cheap here so I bought puts, but I don't have the balls for 40%. Good luck!
Margin debt is at an all-time high, how are people not overleveraged?
Investors are but I am talking about the average person. Credit card debt has decreased over the past year. And I was making the argument that this isn't anything like 2008 because so many people have equity in their homes.
I agree with you but dont have the same conviction. But last week I did load 20% of my portfolio into spxs.
However one of the reasons I have been so successful in the market (over 200% annualized) is because of my discipline to never not follow my rules and putting 20% of my portfolio into spxs is doing just that so I am keeping a very tight stop loss on this.
Without a thesis on what exactly (or even roughly) the recession causing catalyst will be, you won't know how long to hold on. We could still have 2-3 years of a decent bull market. The government is levered, but many other institutions are quite healthy. The short term future will have low rates and may be moderately inflationary...not exactly a recipe for a large asset price correction or recession. The dot com bubble and 08 recession resulted from incredibly different factors. What similarities do you see between now and then? How far out are the expirations on your contracts? I have lots of friends/collegues whose thinking is similar to yours - none have put their money where their mouth is.
Some absolutely monumental catalysts from OP: "People hyped up," "12-15 year old cousins and nephews talking about crypto," and "80-90 year olds talking about gamestop." Practically '08 all over again, obviously!
spoken like a true shitbrain
You guys are responding to an account that's trying to manipulate the market. Might be a bot. A lot of brand new accounts coming on here to pitch their investment thesis then disapearing
shitty bot creators mistook WSO for r/WSB
WSO Monkey Bot has become a shill you say?
I don't get it
Trying to time the market is a wonderful way to lose money. 40% puts? damn
If you are predicting a Black Swan event, then you don't understand what that is.
I'm just trying to figure out how to hedge a little on this bull market. Even bond funds are looking a little dicey since I figure interest rates have got to head upwards at some point. Help
GME. With how many times it's been green on red days it's basically a safe haven asset at this point
Preach brother
A friend of mine went long big tobacco and bond call options.
His reasoning was sin stocks pay dividends + very recession resistant, and the prices of bond calls are super cheap relative to the odds of deflation.
I'm not sure big tobacco is that resistant, think it's getting displaced by kids these days going all in on the vaping
You could go money market and not take the duration risk
And get 0.5%? Man...
Best hedge in the market for over leveraged plays is amc and gme
you won't be able to time a black swan event so not sure that is the best approach.
better to constantly refresh wso and hope some monkeys give an insight on market crash before it makes the news.
bondarb's post from august 2007 was a bellwether moment for the 2008 crash-
https://www.wallstreetoasis.com/forums/just-so-you-guys-know
This was the most interesting thing I’ve read today. Thank you.
You can time a black swan event if you know the event. A handful of people knew about the subprime crisis and shorted ABX and made billions.
OP said “With so many people hyped up on the stock market, crypto and real estate, I believe the market is bound to crash soon.”
This isn’t really knowledge of a Black Swan event. It needs to be more specific. A gut reaction that the markets will fall that is not grounded in anything except ‘too much hype’ probably means that he will lose his shirt on the shorts. Even if he was right, it’s hard to time shorts like that without more information as to the catalysts for the predicted market decline.
wow - this is amazing!
I was living in NYC during 2008 and it was an insane time. It impacted a lot of my friends in the city.
Your about to lose 40% of your account. 08' was an anomaly due to fraduelent actions from banks/governments. everyone was cutting corners and selling subprime mortgages. yes we are due for a correction but nothing like 08'. goodluck and id trim that position to 10%.
as if that was the only major bear market
Lol. you don't need the world to collapse for asset prices to fall
Portfolio/position pics or didnt happen
A few disclaimers: I wasn't an investor in the GFC, I was a fat virgin HS freshman. I don't necessarily disagree with you - valuations and asset prices are insane and there is pure euphoria out there. I am also a cynic.
But I generally like to play devil's advocate/tenth man, I have no work to do at the moment, so I will do my best to argue against your crash hypothesis.
EDIT: After re-reading this, I may have inadvertently argued FOR a crash. woops.
1. Information is ubiquitous and the media spams stock/crypto/real-estate/risk asset related content
Social media and access to information is absolutely ubiquitous. Your nephews and nieces and your senile great grandparents are both plugged in to a 24/7 news cycle and exposed to crypto, gamestop, and stonk trading on a daily basis. Wasn't necessarily the case in 2007/2008 - I was 14 and didn't have a cell phone, and the iPhone was only just becoming a thing. My younger cousins and family in your referenced age bracket have all had iphones/androids/pocket supercomputers since <10 years old. It's popular culture now to talk about investing in stocks or crypto. Multiple unicorn tech companies exist to bring cheap/easy (and in some cases, broken) investing to the masses. Retail investors love to brag about their wins to other retail investors and its never been easier to do so. Media outlets report on one or more of the asset classes you referenced every day. It's unavoidable.
2. The pandemic fundamentally changed the landscape
The COVID-19 pandemic blew us the fuck up in 2020 and we had a crash. I was losing 7-10% PER DAY about a year ago. It was insane. It was around this time that all of my friends and family who were not sophisticated investors, who were not knowledgable about finance, who had never mentioned stocks before (etc.) began talking about it.
Then we started printing. Oh baby did we ever fuckin' print. Look at a chart of M0. Combine all this printed money with super low / negative rates and leverage and suddenly the amount of "usable" dollars to be spent on risk-assets is at all time highs. The geeks at the Fed says CPI is still low/near deflationary, so rates are staying low for the foreseeable future. Where does all this extra money supply go if inflation/higher taxes/insert-whatever-supply-reducing-mechanism-you-like isn't there to moderate it, when the entire world is/was locked in their homes with more spare time and savings than they've ever had in their lives?
3. You have to put money to work somewhere...
With bond yields and HISA's at all time lows, where do you put all this newfound money to grow? US equities have been the strongest performing asset class over X years, so there the money flows - It will keep flowing there even after US outperformance normalizes due to the momentum of it all. You could also make this argument for ANY equities over the last 18 months.
When 50% annualized returns become normal, you get bored and seek higher returns. That leads you to higher risk assets like crypto. Bitcoin goes from $10 to $50,000 in 10 years and young folks see fast money get-rich-quick scrubs on social media, leading them to chase newer, riskier, shittier altcoins like Safemoon (its actually fucking called safemoon, lol) to try to recreate BTC success.
Real estate has always been marketed as a phenomenal way to build wealth and hedge against inflation and equity market shocks. People want to invest in it without even really understanding it because of the ubiquitous information / media content referenced in #1 that constantly shoves it down our throats that we should invest in real estate.
4. The Dollar is depreciating
Kinda ties into the second part of 2. All USD priced assets are becoming 'cheaper', all else equal, thanks to all the printing. Not much more to say here that isn't redundant.
5. Everything is related to everything
Information is ubiquitous. Anybody can invest in anything from anywhere using the supercomputer in their pocket.
The price of borrowing is 0 and you're getting cheques from the government in the mail. You cannot go spend it all on butterface peelers and overpriced cocktails at the strip clubs cause you're locked down, you can't travel, you can't shop. Risk assets have been outperforming and with no immediate line of sight to so-called black-swan events (btw, they're not black swan if you can foresee them), and no media spamming FUD, so why not spend your discretionary dollars on easily accessible on risk assets?
You can get 5y fixed mortgage rates less than 1.5%, your prior home has doubled in value since you bought it, you can roll that equity to afford 2x the house you could before, so why the fuck not go out and buy real estate? Meanwhile, the price of input materials used in the new builds springing up to meet surging demand have doubled, so new supply is more expensive than it otherwise would have been in a vacuum. Higher prices lead to people FOMO-ing, thinking that RE investments are booming, leading to higher prices, leading to more FOMO-ing, leading to... what?
Now that I've typed out this fucking novel and read it back to myself, it actually reinforces your thesis in my mind. I've just described a boulder rolling down a hill, but is it headed towards an open field or a puppy orphanage? Who can say. But regardless, I'm staying long cause I am a goddamn risk-seeking missile headed to the fucking moon baby keep the gravy train rolling LFG
With RE you get it all, dont you?
Supply is low and ownership is concentrated, so prices will stay up as a result of demand and further decrease of supply
You get to ride appreciation on the demand side, with a fix rate mortgage you get to ride inflation, and that same inflation when selling/renting.
Indeed. In Canada (where I'm originally from and hope to settle down) its also a bit of a perpetual motion machine. I honestly don't know when/where this breaks or how prices correct at this rate. Its accelerating the wealth gap pretty massively and has interesting socioeconomic implications.
It's really a fucked up situation:
While we were down YoY, we didn't blow up nearly as bad as the US in the mortgage crisis.
A ton of foreign money has made its way into Canadian real estate. Quick googling on "Vancouver foreign money real estate" paints an ugly picture. People were all up in arms about it several years ago.
Canada remains top of the list for immigrants the world over. Rich and poor, and they all need a roof over their head.
Real estate and its ancillary industries are by far and away the largest contributor to GDP in Canada.
BoC's low rates, combined with surging demand due to exodus from cities led to a big jump in RE prices across major markets over the last 18 months. A big jump from an already unsustainable base. House price indices show this:
People who were in real estate even 10 years ago have seen their equity double. They can now roll that equity into a bigger/better place, and pay comparable/lower mortgage $'s due to rates measured in the tens of BPS. The people who sold the bigger/better place to them are doing the same thing. Like a line of upper-middle class hermit crabs trading up their shells.
Now the Canadian "economy" is heating up and BoC wants to pump the brakes. But they're trapped - if they raise the rates, the darling of Canada's economy will get hit hard. But an entire generation of Canadians is being completely priced out of ever owning a home in most major cities. "Real" inflation is running away but CPI remains low. If BoC implements measures to cool the housing market, how do they do so without sending a dagger into the heart of the Canadian economy? If there's a massive crash, you bet your ass the BoC/Trudeau&Co will bend over to save real estate and property values.
If you're lucky enough to be "in" on Canadian real estate, you're laughing. I can't see a case for things ever meaningfully going down. We literally can't even build condos in Toronto fast enough to meet immigration demand, and I can see 9 giant condo buildings being built from my bedroom window. The cost basis for new detached housing supply is way up due to lumber/steel/concrete/metal prices running. Where does the cycle start, and where does it end?
It's simultaneously fascinating and infuriating to me.
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