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"Bearish" Mark Spitznagel Profiting Strongly Since 2009, Warns "Only So Much Debt An Economy Can Take"
Mark Spitznagel, author of "Dao of Capital" and among Wall Street's most bearish investors, is (profitably) holding out for a disaster. Despite noting that "The Fed has taken it further than it has ever taken it before," NY Times reports that Spitznagel's fund Universa has profited strongly even as stocks hit record highs. Large pessimistic bets usually lose a lot of money when stocks are rising, but Universa is saying that its investment strategy has been able to produce consistent gains since then, including a 30% return last year. While ackowledging Fed policy is capable of driving stock prices higher, Spitznagel warns, it will ultimately be self-defeating, "there is only so much debt that an economy can take on."
The stock market has been rising for years, hitting new highs almost every week. So how is it that one of Wall Street’s most bearish investors can claim to have profited strongly over this period?
Universa Investments, a hedge fund founded by Mark Spitznagel, is one of the few firms that is set up with the aim of making money in an economic and financial collapse. In the market turmoil of 2008, Mr. Spitznagel earned large returns.
Large pessimistic bets usually lose a lot of money when stocks are rising, as they have ever since 2009. But Universa is saying that its investment strategy has been able to produce consistent gains since then, including a 30 percent return last year, according to firm materials that were reviewed by The New York Times. In comparison, the benchmark Standard & Poor’s 500-stock index in 2013 had a return of 32 percent with dividends reinvested.
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At Universa, Mr. Spitznagel’s strategy stems from his skepticism toward government efforts to revive the economy. He acknowledges that the stimulus policies of the Federal Reserve and other central banks have the power to drive stocks higher. But they will ultimately be self-defeating, he contends.
This theory holds that another crash will occur when the Fed stops being able to stoke the economy. Universa’s strategy seeks to profit when confidence in the central banks is strong — and when it evaporates.
“The Fed has created a trap in this yield-chasing environment,” Mr. Spitznagel said in an interview, during which he gave an overview of Universa’s approach. “It allows you to be long, but it gets you in position to be short when it’s all over,” he said.
The news that Universa has been producing strong returns since 2009 will surprise many on Wall Street.
In previous media reports, Mr. Spitznagel seemed content with descriptions that his fund had small losses each year as he wagered against the market. The recent fund materials that contain the positive numbers may be marketing materials aimed at selling a type of financial catastrophe insurance to investors who are getting jittery about the stock markets’ gravity-defying rise. The materials show how bearish bets could be paired with broad holdings of stocks — and still produce gains.
“This is a way to be responsibly long,” Mr. Spitznagel said.
The Universa strategy has produced gains of 10 percent this year, slightly less than the stock market overall. It’s been up every year since 2008, according to the materials.
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A Wall Street hedging expert said that adding such a bearish bet to a big holding of stocks could erase as much as 8 percent from the value of the portfolio each year.
Mr. Spitznagel, however, contends that Universa’s hedge costs far less than that. Universa, he said, has been able to buy protection against a stock market crash at a price that makes the firm’s overall strategy viable. But doing so has not been easy, Mr. Spitznagel contended. “You’ve got to be buying when other people are selling it — and that’s very hard to do,” he said.
Mr. Spitznagel is certain that another collapse will come.
He hails from the Austrian school of economics that believes great harm can result when a central bank holds interest rates at low levels for a long time. The cheap money prompts investments across the economy that will later prove uneconomical and go sour, the Austrians say.
And it may not even take a sharp rise in interest rates to set off a bust, they add. Increasing debt levels may be what ultimately checkmates the Fed, Mr. Spitznagel argues. “There is only so much debt that an economy can take on,” he said.
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what is debt? what is climate change?
http://hedgeaccordingly.com/2014/11/yale-university-poll-66-of-americans...
Chemtrails + HAARP = indigestion...
Debt-pends... Crap-catchers for grown-ups...
The crash will be set off by exogenous forces.
And that "poll" on "climate change" is complete bullshit. 67% of Americans have no opinion on "climate change".
LOL Austrian school. I'm sure that hyperinflation and $5000 gold is coming any day now.
After the war.... Not that will matter.
I hate to admit but I gave you an up arrow. I don't know why it is but sometimes when I read your post I feel like I'm on LSD.
Don’t know about LSD. But I usually get the most truth out people after a few drinks.
It helps to have a massive military and nuclear arsenal backing your currency.
Like Japan?.. oh wait no hyperinflation there either.
People need to know how money and QE work instead of resorting to dogma: http://www.bankofengland.co.uk/publications/documents/quarterlybulletin/...
They're heading that way,patience.
Yes, exactly like Japan.
Japan is backed by the US military.
Also, Japan ran trade and current account surpluses until recently and largely internally funded their debt from their high savings rate. It was nearly 20% at one point. They are resorting to ever more desperate measures as they get closer to a major crisis.
People who think the US and Japan can be compared really have no idea what they are talking about. Completely different economic realities.
IMHO, one look at the long-term S&P 500 chart tells one all they need to know; it is completely insane but, hey, maybe I should be looking at it in Log scale?
A man after my own heart!...Let's kick sum booty!
Zirp 4eva Bitchez!
Bearish since 2009 and posting 30% gains ?
looks like another Bernie Madoff to me
No shit...I have been bearish since 2011 and I am losing my ass.
Agreed, this one doesn't pass the smell test.
The dude hedged with hookers and blow
ticker: HOOBLO
Hahaha that was brilliant!
There is no limit to how much fiat money, i.e. debt, the Rothschild banking establishment can create. How much did they create in Germany after WW1?
The Fed has proven Mark wrong. The sky is their limit.
What about the rioters?
We appear to have hit "maximum King Louis XIXth" here.
"Universa, he said, has been able to buy protection against a stock market crash at a price that makes the firm’s overall strategy viable."
As proven by AIG, buying insurance is not the same as collecting insurance.
His bearish stance eh? Someone may want to inform Mark that selling .50 delta puts against his short .10 delta calls in the SPX is a bullish position.
If that were his strategy, I'm sure someone already has.
That someone would be Nassim Taleb, who is Universa's "Distinguished Scientific Advisor", but is best known as the author of "The Black Swan", "Fooled by Randomness", and of course "Dynamic Hedging", a classic textbook on derivatives risk. I think you'll find he knows his short delta from his long delta.
I've read all of the above chippy comments.
None give any info on what the guy has used as a strategy to generate the returns.
Please, post something other than jealous remarks.
BTW, does a "truck full" of gold at $1200 an ounce weigh less than a "turck full" of gold at $1800 an ounce?
You must be an upper level manager in a government job.
When someone makes an outlandish claim, the onus is on them to substantiate it. You can claim to be bearish and you can claim to be profittable but you can't claim to be both in a Bernini bull market.
You must be truly the Stupid Donkey.
Just because you cannot concieve of how he has created his strategy does not mean that he has not done it. He must have substantiatedd something for the person who wrote the article.
I expect that whoever the investors are in his fund are not likely to be "Madoffed" again. If the funds are verified and can be withdrawn, that is about all that is necessary.
BTW, get off of the computer and get the rest of the mail sorted.
You can, actually.
Given an underlying stock or index at 1000, consider an asymmetrical option spread in which you sell 4x the 1100 calls, buy 1x the 1050, and buy 3x the 1150. There's upside risk but no downside risk, so this is clearly a bearish trade; but you'll also make money if the price stays put at 1000, and will still make money as long as the price rises but doesn't go much past 1100 at expiration.
It'll lose money if QE4 is announced and the market shoots up to the moon quickly, particularly if this happens near the start of the trade. But it's an example of how a bearish trade still can make money even in a mildly bullish market.
Depends, was Gordon Brown the seller?
Depends on how big a "turck" is, I suppose. :)
As for Universa, their Philosophy page gives some hints, as does the overview of their "Black Swan ETF". Clearly, though, their option-based hedging strategy is their "secret sauce", not something that's he's likely to describe in detail in an interview.
(Furthermore, with Taleb involved -- see post above -- even if he had, I suspect that only a very few of us would be able to follow the underlying math.)
Japan has been doing it for decades. Maybe our central planner can string it out for decades as well.
if you look at their websitee they obviously do other things other then just buying way out of the money puts
they've probably spent alot of time watching how those options re-act and prob have some insights that gives them a slight edge making directional bets....
The only methods I see that work are illegal.
Shhhh. Don't tell anybody or the SEC....oh, wait...
Hahahahhahahahahahaha.
Here's a hundred grand. Go regulate "climate change."
This guy is obviously an Anti-Semite, there can never be enough debt.
The point is, ladies and gentleman, that debt, for lack of a better word, is good. Debt is right, Debt works. Debt clarifies, cuts through, and captures the essence of the evolutionary spirit. Debt, in all of its forms; Debt for life, for money, for love, knowledge has marked the upward surge of mankind. And Debt, you mark my words, will not only save the Federal Reserve, but that other malfunctioning corporation called the Wall St Banks. Thank you very much.
He is wrong stock will continue to go higher in Dollars but at some point the dollar goes down faster than the stocks appreciate, just like Argentina or Japan starting soon.
The dollar can not be a strong currency with such horrendous trade situation. US manages to continue to have bad trade balance even after finding oil...
The dollar can not be a strong currency with such horrendous trade situation.
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Of course it can , because the rest of the world's central banks are playing the competitive devaluation game.
You better hope we don't win THAT game, besides as the reserve currency of the world we have a very distinct advantage that makes our govt bond market attractive to nervous money througout the world.
ponzi
Count me as one of the one's surprised to hear he was up 32% in 2013.
But this is Nov 2014, any paticular reason there's no info on the past 11 months returns.
Can't help but think there's a bit of cherry picking here.
The ETF they sub advise on is only up about 6% for the year.