Down goes the Dow

1m Returns

Some of these are fudgy because of weird Morningstar data.

GME +1625%

BTC +18%

TSLA +12%

Hussman +11%

China +10%

Energy +5%

Emerging +4

Small Caps +3

8 yr TIPs +1

USA 0%

Value 0

Non-US devpd: -1%

Tech -1%

8 yr Treas: -1%

Gold -2%

Love to see Hussman up there.

Have to wonder if we're in some phase where story stocks will make huge money - more than usual. Started with BTC and TSLA, moved on to the Robin Hood names.

This will probably feed on itself for a while - catching onto one of them will be very profitable.

Otherwise, tech continues to lag and emerging continues to lead.

TIPS lead straight treasuries...inflation worries. And the yield curve is very steep...changes are coming - that's the big thing in investing now...what does inflation and fast growth mean to stocks and bonds?

1 year returns

GME +8,363

TSLA +510%

BTC +257%

China +75

VGT +38

Hussman +29

Small Cap +22

Emerging +22

USA +17

Gold +16

Non-US Devpd +11

8 Yr Tips +9

8 yr Treas: +6

Value +3

Energy -21

That value number is so sad. 10+ years of value lagging. So much wasted capital.

Tech looks much better over the longer time frame, but emerging clobbering the US now over 1 year. My bet is that EM continues to beat the US over many more years. Almost every new dollar of my personal money has been going into EM.

We can also see TIPS outperformance here...inflation boys.

agip wrote:

Have to wonder if we're in some phase where story stocks will make huge money - more than usual. Started with BTC and TSLA, moved on to the Robin Hood names.

This will probably feed on itself for a while - catching onto one of them will be very profitable.

I think this is a perfect storm and we probably won't see it again anytime soon (<- DGTD contrarian indicator of course).

It's weird how it's turned into an Occupy Wall Street movement all over again though.

I feel like the coming reversal will be fairly violent given the extreme exuberance lately. I'm comforted to be sitting on a decent amount of cash and bonds should the markets tank hard.

Dr. Racket wrote:

agip wrote:

Have to wonder if we're in some phase where story stocks will make huge money - more than usual. Started with BTC and TSLA, moved on to the Robin Hood names.

This will probably feed on itself for a while - catching onto one of them will be very profitable.

I think this is a perfect storm and we probably won't see it again anytime soon (<- DGTD contrarian indicator of course).

It's weird how it's turned into an Occupy Wall Street movement all over again though.

seems to me the fire has been stoked and is burning pretty brightly.

GME isn't the first of these...TSLA and BTC have been 's/rew the man' sort of rallies also.

I don't see a reason why that pattern will change.

And as you've pointed out, when they start, big money at institutions starts pumping in the same direction, amplifying the effect.

VXX 1 YEAR 30.12% YTD 25.55%

VXZ 1 YEAR 102.27% YTD 16.02%

Sometimes it pays to be afraid, or, as MultifractelFarol said, "Long vol is the new long bond."

agip wrote:

Dr. Racket wrote:

I think this is a perfect storm and we probably won't see it again anytime soon (<- DGTD contrarian indicator of course).

It's weird how it's turned into an Occupy Wall Street movement all over again though.

seems to me the fire has been stoked and is burning pretty brightly.

GME isn't the first of these...TSLA and BTC have been 's/rew the man' sort of rallies also.

I don't see a reason why that pattern will change.

And as you've pointed out, when they start, big money at institutions starts pumping in the same direction, amplifying the effect.

One thing I'm curious about is how this changes short selling. If ZIRP and QE means zombie companies, then what happens when short sellers give up?

Let's be honest, do we really want companies like AMC or GameStop taking up valuable real estate and lines of credit that could be used for like, idk, some cure for cancer clinic? Obviously exaggerating, but that's the gist right?

Although I guess in theory, with ZIRP and QE the idea is that you can easily fund GameStop and the cure for cancer startup since money is so cheap to borrow and abundant.

Yeah I think one of the indisputable things we've learned over the past while...there is a near infinite number of dollars to borrow and loan.

agip wrote:

Dr. Racket wrote:

One thing I'm curious about is how this changes short selling. If ZIRP and QE means zombie companies, then what happens when short sellers give up?

Let's be honest, do we really want companies like AMC or GameStop taking up valuable real estate and lines of credit that could be used for like, idk, some cure for cancer clinic? Obviously exaggerating, but that's the gist right?

Although I guess in theory, with ZIRP and QE the idea is that you can easily fund GameStop and the cure for cancer startup since money is so cheap to borrow and abundant.

Yeah I think one of the indisputable things we've learned over the past while...there is a near infinite number of dollars to borrow and loan.

i don't like the idea of doing away or even severely discouraging shorting one bit. It plays a critical role in efficient markets.

One reason i think you see bitcoin behaving so squirrely is because there is not a convenient, readily accessible way to short it.

Without the capacity to short, Manipulation becomes a lot easier for large shareholders to move a stock in a more unfettered way by simply dumping a bunch of their shares for the sole reason of moving the stock to better position themselves for their next move.

I guess you could say shorting keeps things a bit more 'real', and without it, things could fluctuate a lot more and consequently be more at risk of being manipulated.

not quite an accurate analogy, but the old classic is 'if you are going to let people gamble, you should let them gamble on both sides.'

agip, Seattle, Sjw, Doc R, muy loco:

My partner for most of my Saturday long run was the endocrinologist friend who diagnosed my lymphoma. Interesting guy who enjoys talking about anything from trout fishing to politics. His take on the GME story was similar to Racket’s point of Wall Street rage. He wanted to know the mechanics of shorting, which I explained, and the ethics of such a thing. His general impression was that shorting was counter to capitalism with its destructive potential. I am not sure how warm he was to my counter argument that shorting can uncover corporate fraud and excess. Certainly the hedge funds on the wrong side of the trade are incurring exponential losses, I would imagine that trade will flip against the Robinhooders shortly, giving a valuable lesson of the democratization of markets. You might say an equal opportunity for a financial spanking. IMHO the route cause of the disruption goes back to Fed policies of below market cost of money and excess liquidity. As they say “a bubble in search of a pin.”

Igy

geez

the vix started rising Feb 17, 2020...when we get to Feb20, 2021 those 1y numbers are going to start being mighty negative.

(Let's hope)

Long vol is not the new long bond...with bonds you get your money back...those ETNs destroy all capital over the long term.

The value demagogues also look at the high current statistical valuation of high-growth companies and ignore that this number is based on rear-view mirror earnings. They ignore that there is tremendous value in growth, and that value is unlocked when a growth company escapes its adolescence and enters maturity. Its costs start growing at a slower pace than its revenues, its margins expand, and its earnings skyrocket. This is why in our models we look at companies based on their earnings at least four years out. If we have a unique insight into the sustainability of a company’s future moat and exploding total addressable market, we are looking out farther than four years and then discounting back to today.

https://www.advisorperspectives.com/articles/2021/01/29/value-and-growth-demagogues?bt_ee=CuO4okKv0KUJ6MwNqPJoUMq9gICVmSCT%2BwTDY2oTT1zjI80XM%2B1GpLZND960UVqA&bt_ts=1612038997034&textlink=

I feel the same about Squid demagogues.

Shorting is just finance's way of nature taking it's course, on the down side of these things.

It keeps markets real. I know you know that.

As for Fed easing interest rates, i am okay with writing that off as inevitable, to whatever extent it effects the markets (though i don't think it is as significant as you make it out to be in the terms of purely speculative investing, and that is a major point as well), since the instruments at their disposal (interest rate manipulation) are broad/crude instruments at best and will have some effects beyond that which they primarily are targeting. Main street is the target, and wall street has been enjoying some benefits in the process.

I think one thing people underestimate about shorting is that the investor is putting their capital at risk by shorting. In general, they wouldn't do it unless they felt a company was overvalued. They are trying to right-size a companies market capitalization, which shouldn't be determined only by those willing to buy into it. It should also be subject to those willing to bet that the company and/or its prospects are being incorrectly valued, and without it, i fear that market caps for companies would become even more unhinged from reality.

I agree with most of that, especially the market function of shorting. It really is just the opposite side of the argument. The wild speculation be it the hedge funds or the Robinhooders is emblematic of the speculation. Certainly the call buying has unhinged GME from anything that resembles fundamentals, but that could be said to a lesser degree about TSLA. Bitcoin would be a better example of unhinged speculation. In my town housing has advanced at a faster rate than FAAMNGTB. If you no longer tether the cost of money to the market one should expect distortions, which I think some DGTD posters would agree. The differences of opinion lie in the extent of distortion, and the end point of this experiment. And it is an experiment.

Shorting can also protect you against downside risk. This is most obvious in the form of put options. Where it really comes in handy is actually for market-makers who need to be delta neutral on trades. If they take the long side of one trade then they need to be able take the other side to stay relatively neutral on the trade.

Ghost of Igloi wrote:

The wild speculation be it the hedge funds or the Robinhooders is emblematic of the speculation.

?

agip wrote:

geez

the vix started rising Feb 17, 2020...when we get to Feb20, 2021 those 1y numbers are going to start being mighty negative.

(Let's hope)

Long vol is not the new long bond...with bonds you get your money back...those ETNs destroy all capital over the long term.

"Bonds - V interesting to see today : ZB, ZN, TN, UD all down 1 sigma when $DJI and $SPX are also 1 sigma down. This is a good reminder that you should never buy duration on the assumption that rates will rally in equity sell-offs. You should buy them on their own merits."

@alexharfouche1

Let's look at correlations among SPY, VXX, and BND for the past 13 months.

I'm not talking about a 100% VXX, it's all about what % of portfolio to allocate in alternative investments, the ones that will mitigate tail risk. Not a big deal if you are 30 years old, it becomes very important if you're 55+ or a CIO of a pension fund or an endowment fund. In a crisis all correlations move towards 1, except volatility ( risk ).