Down goes the Dow

When you add Hussman's fund to the mix:

https://www.portfoliovisualizer.com/asset-correlations

it's all fun and games until you lose half your money in a month in a 'hedge' fund

WSJ:

Melvin Capital Management, the hedge fund that has borne the brunt of losses from the soaring stock prices of heavily shorted stocks recently, lost 53% in January, according to people familiar with the firm.

Melvin was founded by Gabe Plotkin, a former star portfolio manager for hedge-fund titan Steven A. Cohen. It started the year with about $12.5 billion and now runs more than $8 billion. The current figure includes $2.75 billion in emergency funds Citadel LLC, its partners and Mr. Cohen’s Point72 Asset Management injected into the hedge fund last Monday.

As part of the deal, they got noncontrolling revenue shares in Melvin for three years. So far, Citadel, its partners and Point72 have lost money on the deal, though the precise scope of the loss was unclear Sunday.

Melvin has massively de-risked its portfolio, a client said. People familiar with the hedge fund said its leverage ratio—the value of its assets compared with its capital from investors—was the lowest it has been since Melvin’s 2014 start. They also said the company’s position-level liquidity, or its ability to exit securities in its portfolio easily, had increased significantly.

https://www.wsj.com/articles/melvin-capital-lost-53-in-january-hurt-by-gamestop-and-other-bets-11612103117

a nicely written account of the bear case on TSLA.

I think Igy has brought up this issue in the past.

New York (CNN Business)Tesla posted its first full year of net income in 2020 -- but not because of sales to its customers.

Eleven states require automakers sell a certain percentage of zero-emissions vehicles by 2025. If they can't, the automakers have to buy regulatory credits from another automaker that meets those requirements -- such as Tesla, which exclusively sells electric cars.

It's a lucrative business for Tesla -- bringing in $3.3 billion over the course of the last five years, nearly half of that in 2020 alone. The $1.6 billion in regulatory credits it received last year far outweighed Tesla's net income of $721 million -- meaning Tesla would have otherwise posted a net loss in 2020.

"These guys are losing money selling cars. They're making money selling credits. And the credits are going away," said Gordon Johnson of GLJ Research and one of the biggest bears on Tesla (TSLA) shares.

In Gladwell's What the Dog Saw, which we are listening to on our walks, there is a fascinating discussion of the Enron crisis. He makes a compelling case, with the support of accounts from numerous knowledgeable people, that Enron hid nothing; all the funky stuff they got up to was divulged publicly. But, the accounting was quite complex, too much for most people to understand, and included a fair bit of (probably legal, mostly) sleight of hand.

This reminds me of that...

By today’s standard the sleight of hand has become standard practice. The Tech Bubble produced several long prison terms, not so much the case with the Housing Bubble. Creative complex financial structures that exist off balance sheet, or are disguised, support a narrative. The Fed has played this game as well, prohibited from purchasing certain assets, they create entities that can, and fund them thru the Treasury. The sketchy practice is ignored until things go bad.

yowzers

WSJ:

The chief executives of Exxon Mobil Corp. XOM -2.65% and Chevron Corp. CVX -4.29% spoke about combining the oil giants after the pandemic shook the world last year, according to people familiar with the talks, testing the waters for what could be one of the largest corporate mergers ever.

Chevron Chief Executive Mike Wirth and Exxon CEO Darren Woods discussed a merger following the outbreak of the new coronavirus, which decimated oil and gas demand and put enormous financial strain on both companies, the people said. The discussions were described as preliminary and aren’t ongoing but could come back in the future, the people said.

Such a deal would reunite the two largest descendants of John D. Rockefeller’s Standard Oil monopoly, which was broken up by U.S. regulators in 1911, and reshape the oil industry.

A combined company’s market value could top $350 billion. Exxon has a market value of $190 billion, while Chevron’s is $164 billion. Together, they would likely form the world’s second largest oil company by market capitalization and production, producing about 7 million barrels of oil and gas a day, based on pre-pandemic levels, second only in both measures to Saudi Aramco.

VS-SJW-IR-TS idiot wrote:

In Gladwell's What the Dog Saw, which we are listening to on our walks, there is a fascinating discussion of the Enron crisis. He makes a compelling case, with the support of accounts from numerous knowledgeable people, that Enron hid nothing; all the funky stuff they got up to was divulged publicly. But, the accounting was quite complex, too much for most people to understand, and included a fair bit of (probably legal, mostly) sleight of hand.

This reminds me of that...

it's different.

Enron was not acting ethically. Execs went to jail. Stock buyers were misled.

I've seen nothing to suggest Tesla is doing anything unethical. Stock buyers are not being misled.

But I guess there's a point to be made about the complexity of accounting and how the stock market often doesn't care enough about the details behind the profits.

agip wrote:

VS-SJW-IR-TS idiot wrote:

In Gladwell's What the Dog Saw, which we are listening to on our walks, there is a fascinating discussion of the Enron crisis. He makes a compelling case, with the support of accounts from numerous knowledgeable people, that Enron hid nothing; all the funky stuff they got up to was divulged publicly. But, the accounting was quite complex, too much for most people to understand, and included a fair bit of (probably legal, mostly) sleight of hand.

This reminds me of that...

it's different.

Enron was not acting ethically. Execs went to jail. Stock buyers were misled.

I've seen nothing to suggest Tesla is doing anything unethical. Stock buyers are not being misled.

But I guess there's a point to be made about the complexity of accounting and how the stock market often doesn't care enough about the details behind the profits.

Different, but origins in greed are the same. Certainly Tesla’s acquisition of Solar City was unethical. So has been the over optimistic projections coming from Musk, which few have materialized. More of a carnival barker than genius.

agip wrote:it's different.

Enron was not acting ethically. Execs went to jail. Stock buyers were misled.

Yep, that’s the accepted wisdom, and probably mostly true, but Gladwell makes an interesting case to the contrary, is all I’m saying.

la gente esta muy loca wrote: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 ).

LGEML,

I'm curious if you think something like VXX is a better hedge against tail risk than cash. I've just done a bit of back-testing (quickly, so I may have made mistakes), using the available historical prices back to 25 January 2018 (farthest back I could get easily for VXX and VXZ from Yahoo finance), using a variety of combinations of SPY, VOO, QQQ, BND, VXX, VXZ and cash. My naive explorations show that, at least over that time period, equal proportions of cash versus VXX lead to lower volatility and better returns with cash, rather than VXX.

the problem with VXX etc is that you can't hold it long term...it will turn your money to ash.

Bonds don't do that.

Plus, most of these things are ETNs, not ETFs, which opens you to some extra risk.

So we're supposed to load up on silver now? That's how we do this investing thing? Follow the boys on the message boards?

Now THAT is 1999 all over again.

VIXY goes back to Feb 2011, so it will give more data. The problem with these ETNs ( remember these are notes, you are an unsecured creditor to Barclays ) is they are rolling into the future month's contract and the VIX futures are in contango most of the time. That is the later months are higher than the front month and thus costly. Backwardation, the front month is higher than the following months ( think of an inverted yield curve ) thus you are earning money rolling into the next month(s) contract. Contango is steeper between the 2 front months than say months 3 -7; so VXX and VIXY tend to lose more over time than VXZ and VIXM. Using Portfolio Visualizer you can see how VIXY and VIXM have performed against a costless ^VIX. If you want to link on PV hit the link tab underneath Analyze Portfolios

However, you can buy call options on ^VIX, let's say every quarter, eliminating some of the cost of the continuous daily rolling in the ETNs. You could also time your buys, the best time to buy umbrellas is a sunny day, the best time to sell them, when it's raining cats and dogs. (Applies to the ETNs as well ). I figure most people are intimidated by options, so maybe a small allocation to ETNs as insurance might work. Let's say 5%, rebalanced quarterly.

Sharpe Ratios

80% SPY; 20% CASHX 20% SR .96

80% SPY; 80% BND 20% SR 1.02

95% SPY; 5% VIXY 5% SR 1.14

100% SPY SR .96

Also check out Max Drawdown. Again, as always, do your own DD and future results may differ from the past.

agip wrote:

So we're supposed to load up on silver now? That's how we do this investing thing? Follow the boys on the message boards?

Now THAT is 1999 all over again.

I think we missed that boat, but yeah well we had our chance to pull in that autistic kid from robinhood that somebody here knows but that somebody dropped the ball.

Not mentioning any names.

seattle prattle wrote:

agip wrote:

So we're supposed to load up on silver now? That's how we do this investing thing? Follow the boys on the message boards?

Now THAT is 1999 all over again.

I think we missed that boat, but yeah well we had our chance to pull in that autistic kid from robinhood that somebody here knows but that somebody dropped the ball.

Not mentioning any names.

half the people are saying it's a trap, the other are saying it's legit. who even knows what's real right now.

Maybe we should get an LR pump going. What do you guys feel like? I'm thinking Xerox since sh!t companies from the 90s seem to be in vogue

Dr. Racket wrote:

seattle prattle wrote:

I think we missed that boat, but yeah well we had our chance to pull in that autistic kid from robinhood that somebody here knows but that somebody dropped the ball.

Not mentioning any names.

half the people are saying it's a trap, the other are saying it's legit. who even knows what's real right now.

Maybe we should get an LR pump going. What do you guys feel like? I'm thinking Xerox since sh!t companies from the 90s seem to be in vogue

Well, if it was legit, it was legit last week, and by now it's looking like that ship has sailed, regardless.

As for Xerox, I'm still recalling your Walmart call, which i was barely able to break even on.

I'm still holding out for the autistic kid.

I think we need to be more marketable to that demographic. We need to get with it!

What do they see here?

That Dr. sounds a bit stodgie, truth be told, there Racket. I know it was a hip joke, but the context is gone and the optic is long gone.

seattle prattle admittedly sounds doofy. Why haven't you said something about that already?

Agip: how about changing that to A_Gimp.

And incessant name calling and basement noise we have here with the regulars- that's good, more of that please.

Let's go.

Jermoe Powell himself literally posts here (I see you Mas), what more could you ask for!

^^ John Hussman, too!

(I'm not sure if that's a good thing).

Hussman’s February Market Comment is out. Some great charts and market history going back nearly a hundred years. Also, review of current market valuations, and this on the Robinhood trades.

“Few spectacles in recent memory exemplify this “marvelous carmagnole” more than the exuberant squeeze on heavily shorted stocks by Robin Hood and a rag-tag band of punch-drunk merry men. Not surprisingly, most of these companies have no earnings. That’s part of what has made them favorites of short sellers. Yet it’s also important to understand that every time a share of stock is sold short, a new share is essentially “created,” and some buyer has purchased it. So a stock that is “heavily shorted” is also “heavily owned.” Many of the stocks that are currently targets of short squeezes were actually reasonable value stocks several months ago, despite earnings stumbles. Many have since become not only fully-valued but wildly overextended. I expect that much of this will end in tears, but as Smith wrote, it can be ‘great fun if you leave the party early.’”