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"Bearish" Mark Spitznagel Profiting Strongly Since 2009, Warns "Only So Much Debt An Economy Can Take"

Tyler Durden's picture




 

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."

 

Via NY Times Deal Book,

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.

 

...

 

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.

 

...

 

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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Tue, 11/25/2014 - 22:10 | 5489335 HedgeAccordingly
Tue, 11/25/2014 - 22:25 | 5489347 TeamDepends
TeamDepends's picture

Chemtrails + HAARP = indigestion...

Tue, 11/25/2014 - 23:00 | 5489525 El Oregonian
El Oregonian's picture

Debt-pends... Crap-catchers for grown-ups...

Wed, 11/26/2014 - 08:10 | 5490195 MalteseFalcon
MalteseFalcon's picture

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".

Tue, 11/25/2014 - 22:12 | 5489339 Silver Short Seller
Silver Short Seller's picture

LOL Austrian school. I'm sure that hyperinflation and $5000 gold is coming any day now.

Tue, 11/25/2014 - 22:18 | 5489359 Escrava Isaura
Escrava Isaura's picture

After the war.... Not that will matter.

Wed, 11/26/2014 - 00:05 | 5489714 nightshiftsucks
nightshiftsucks's picture

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.

Wed, 11/26/2014 - 00:41 | 5489788 Escrava Isaura
Escrava Isaura's picture

 

 

Don’t know about LSD. But I usually get the most truth out people after a few drinks.

 

Tue, 11/25/2014 - 22:42 | 5489459 Tasty Sandwich
Tasty Sandwich's picture

It helps to have a massive military and nuclear arsenal backing your currency.

Tue, 11/25/2014 - 23:41 | 5489635 Silver Short Seller
Silver Short Seller's picture

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/...

Wed, 11/26/2014 - 00:06 | 5489717 nightshiftsucks
nightshiftsucks's picture

They're heading that way,patience.

Wed, 11/26/2014 - 04:14 | 5490001 Tasty Sandwich
Tasty Sandwich's picture

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.

Tue, 11/25/2014 - 22:22 | 5489386 Billy Shears
Billy Shears's picture

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?

Tue, 11/25/2014 - 22:35 | 5489424 luna_man
luna_man's picture

 

 

A man after my own heart!...Let's kick sum booty!

Tue, 11/25/2014 - 22:36 | 5489433 strangeglove
strangeglove's picture

Zirp 4eva Bitchez!

Tue, 11/25/2014 - 22:55 | 5489495 Chat_noir
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Bearish since 2009 and posting 30% gains ?

looks like another Bernie Madoff to me

Wed, 11/26/2014 - 00:03 | 5489710 jtz5
jtz5's picture

No shit...I have been bearish since 2011 and I am losing my ass.

Wed, 11/26/2014 - 00:04 | 5489712 Stupid Donkey
Stupid Donkey's picture

Agreed, this one doesn't pass the smell test.

Wed, 11/26/2014 - 00:51 | 5489806 Bananamerican
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The dude hedged with hookers and blow
ticker: HOOBLO

Wed, 11/26/2014 - 07:50 | 5490185 FighterJetsGuit...
FighterJetsGuitarSolo's picture

Hahaha that was brilliant!

Tue, 11/25/2014 - 22:55 | 5489502 FeralSerf
FeralSerf's picture

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.

Tue, 11/25/2014 - 23:31 | 5489606 disabledvet
disabledvet's picture

What about the rioters?

 

We appear to have hit "maximum King Louis XIXth" here.

Tue, 11/25/2014 - 23:09 | 5489541 Richard Chesler
Richard Chesler's picture

"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.

Tue, 11/25/2014 - 23:12 | 5489550 TheRideNeverEnds
TheRideNeverEnds's picture

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. 

Wed, 11/26/2014 - 09:21 | 5490335 StandardDeviant
StandardDeviant's picture

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.

Tue, 11/25/2014 - 23:52 | 5489676 Augustus
Augustus's picture

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?

 

Wed, 11/26/2014 - 00:08 | 5489721 Stupid Donkey
Stupid Donkey's picture

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.

Wed, 11/26/2014 - 06:01 | 5490102 Augustus
Augustus's picture

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.

 

Thu, 11/27/2014 - 09:52 | 5493723 StandardDeviant
StandardDeviant's picture

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.

Wed, 11/26/2014 - 00:56 | 5489816 eXMachina
eXMachina's picture

Depends, was Gordon Brown the seller?

Wed, 11/26/2014 - 13:31 | 5491349 StandardDeviant
StandardDeviant's picture

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.)

Wed, 11/26/2014 - 00:59 | 5489823 falconflight
falconflight's picture

Japan has been doing it for decades.  Maybe our central planner can string it out for decades as well.

Wed, 11/26/2014 - 01:29 | 5489871 DipshitMiddleCl...
DipshitMiddleClassWhiteKid's picture

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....

 

Wed, 11/26/2014 - 03:24 | 5489990 disabledvet
disabledvet's picture

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."

Wed, 11/26/2014 - 04:53 | 5490056 JailBanksters
JailBanksters's picture

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.

Wed, 11/26/2014 - 06:36 | 5490121 realWhiteNight123129
realWhiteNight123129's picture

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...

 

Thu, 11/27/2014 - 01:54 | 5493358 satan2liberals
satan2liberals's picture

The dollar can not be a strong currency with such horrendous trade situation. 

 

================

 

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.

Wed, 11/26/2014 - 07:21 | 5490152 sidiji
sidiji's picture

ponzi

Thu, 11/27/2014 - 01:44 | 5493346 satan2liberals
satan2liberals's picture

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.

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