A Serial Short Seller Asks "Do Governments & Central Banks Ever Lose?"

Tyler Durden's picture

Submitted by Jared "The 10th Man" Dillian via MauldinEconomics.com,

We are about a week into the Greek non-crisis, and nothing especially scary has happened. Stocks opened up lower a couple of times, and there was one wild trading day in EURUSD, but everything is essentially unchanged. Which surprised everyone. Including me, a little.

I used to be a plunger. Loved shorting stuff. I had one muscle, and I flexed it constantly. By my rough calculations, I was up about 18% by the time Lehman went bankrupt in 2008. The more turmoil, the better.

I was born in a bear market. Literally, in 1974, and figuratively—I learned to trade in the dot-com bust. Seven years into my trading career, I had experienced two crashes. I know lots of people who got rich buying GE at six bucks. I almost shorted it there.

So the past six years have been tough on me. I’ve made money, but not a lot. Worse, I’ve been conditioned to expect that whenever I spend a bunch of money on S&P puts, I’m going to get sconed and watch them melt to zero while the market rips higher.

The real kick in the nuts was when the market was melting down on Ebola fears in October and St. Louis Fed President Bullard walks out with a “buy” ticket stapled to his forehead.

Here’s another way to look at this: We had two crashes in seven years, and if you go back in history, the market doesn’t crash all that often.

Like the ‘50s. Stocks went up, quietly, for a decade. Nothing happened.

But this isn’t the ‘50s. There’s an IPO boom, a VC boom, valuations are stretched, and crap like Fitbit is going public. Shake Shack has a bigger valuation (I am told) than the entire coal industry.

We have unicorns and decacorns, and it’s only a matter of time until we have a centicorn. All the kids are going to startups. Talk about risk-taking.

I have seen worse bubbles, but the markets are definitely running hot.

So a developed country is about to default on a couple of hundred billion dollars worth of debt, and the market just shrugs. Worse, it sets a nasty precedent for other, larger economies defaulting on debt. Seems much more contagious than Russia in 1998. And stocks are bulletproof. The only selling going on is in China.

Serious question: Do you give up shorting? Like, throw in the towel?

The thing that gets a lot of people is that they believe the market is engineered by the authorities to go higher. Like Bullard with his rate comments. But it’s gotten so bad, there are wide swaths of people who think the Fed is actually buying stocks. ZeroHedge talks about this all the time.

There is a pretty funny Twitter account called 3:30 Ramp Capital, LLC. Plunge Protection Team rumors have been around since the beginning of time, but six years of stocks going straight up have given rise to all kinds of other theories. (For the record, the Fed fully acknowledges its interventions in the bond market, but it has never admitted to trading stocks.)

And it’s true that “the authorities” want the price of financial assets (stocks, bonds) to go up, and the price of hard assets (commodities) to go down… which is exactly what has happened.

So do governments and central banks ever lose?

In the old days, they lost all the time. In one extreme example, an individual hedge fund took out the entire Bank of England. But central banks are currently on a massive winning streak.

So to answer the question, “Will we ever have a crisis,” you need to answer the question, “Will we ever be allowed to have one?”

I’m not just some crazy guy asking these questions. Market professionals I talk to, hedge fund managers, mutual fund managers, will freely discuss the widespread distortions in the market. They feel like they can’t ply their trade. What I mean is, you can’t buy stuff cheap and sell it dear. Everything is dear, and it keeps going up, and you have to participate or get left behind.

That’s not the way it was in the ‘50s. There was all kinds of value to be found. That was how Warren Buffett made his money.

Today, I realized that, outside of some biotech stuff, I haven’t written about an individual stock in months. There’s just nothing interesting to buy, and you certainly can’t short anything. You’ll get your head blown off.

At one point in my career, I was really good at market timing. Calling tops and bottoms. You just can’t do it anymore. Tops never happen, and bottoms don’t get deep enough to find value. We haven’t had a 10% correction in how long?

Honestly, it’s so hard to invest in this environment, I’ve made nearly all my money in the last two years trading FX. It’s the only thing that makes sense.

This is a lot of me whining. And I’m secretly hoping that this letter means there will be a return to rationality soon.

But probably not. Stupid usually gets stupider.

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Chuck Knoblauch's picture

There is no spoon, Neo.

Only oligarchs.

SafelyGraze's picture

"I had one muscle, and I flexed it constantly."


those were the days.

UndergroundPost's picture

International Socialism MUST be destroyed

Chuck Knoblauch's picture

Then you must bust the trusts.

Banks must fail, or burned.

CrazyCooter's picture

They have been losing all along. Productivity and effeciency are going down the toilet. Think about it; technology makes things CHEAPER - so why the fuck has everything gotten MORE expensive over the past decades? Eventually this will screw things up so bad producers will just go out of business for lack of either customers or supplies/raw materials.

They are just dragging it out for far longer, grinding the middle class into poverty, and making the eventual blow up that much more epic. Kind of like going from swords to guns to nukes, ya know?



metastar's picture

I recall the Eagles wrote a song on banking and markets. I believe it went something like this ...

Mirrors on the ceiling
The pink champagne on ice
And she said: "We are all just prisoners here of our own device"
And in the master's chambers
They gathered for the feast
They stab it with their steely knives
But they just can't kill the beast
Last thing I remember, I was
Running for the door
I had to find the passage back
To the place I was before
"Relax" said the night man
"We are programmed to receive
You can check-out any time you like
But you can never leave!"

Stackers's picture

The short answer is no CB's never lose. When they start lose they call time out and rewrite the rule book.


The long answer can be found in the upper right corner of this web page

"On a long enough timeline the survival rate for everyone drops to zero"


The question, Ramyond K Hessel, is what do you want to do with your life ?!?!

asteroids's picture

Debt is the sleeping silent monster. Once awoken, it WILL eat everything in its path.

KnuckleDragger-X's picture

"101 ways to rig a roulette wheel" by Yu Needa Fukin

falak pema's picture

thats not busting socialism that's busting American capitalism; now deep into bubble-o-nomics.

You need a socialist like FDR to do that. He did a Glass Steagall and the guys these days in Congress allow a Corzine or a Squid to piss all over us.

Long live the tea drinkers, the repugs and their not so democratic potus; all on the same page.

Boris Alatovkrap's picture

"Does bank ever lose?"

Does ursus arctos defacate in boreal forest?

BLOTTO's picture



The lose is saved for the people of the world.


We have lost every single 'coin flip' since we started breathing. I think we are zero(0) and 14,845,989,345. I think its pretty much impossible for that to happen naturally in this world...therefore, the game is rigged.


Our life is one giant cosmic lie.


Think about it - what the fuck are we doing?


'They' want to mine an asteroid - yet some poor mofo cant even get clean drinking water. I remember watching as a young Blotz those infomericals about kids in Africa that dont have any water. Now I am 40, the kid from the commercial is 40 - and he STILL CANT GET A FUCKIN glass of clean water?!? Just 1 out of 14,845,989,345 examples.

fuck off.

Blythes Master's picture

+ 14,845,989,345

Grand slam. Bullseye. Hat Trick. BINGO!!!

Model T's picture

There's no cure for stupid. You sell the tops, idiot child, not the bottoms. I make money over and over and over again selling the miracle moonshot rallies short on the S&P500.  It's not the market; it's the idiot behind the keyboard that's the problem.

Model T's picture

Most people, including this guy, are waay too stupid to be trading any major market. Either bring your IQ and Math. SATS with you; or stay home. This article is a bunch of crap.

Model T's picture

"S&P Puts----" And immediately we know we're dealing with a fool. Options are not appropriate for individual speculators. Use Futures Contracts.  Options are great for sending your brokers kids to college; think for christ's sake; what are you trying to do ? Short a spike rally; okay; sell the contract. What the Fuck do you want to get tangled up in an Option for ? Jesus.

Thisson's picture

What are you talking about?  If you trade futures your potential losses are unlimited.  At least if you buy options, your losses are limited to the premiums + trading commissions.

assistedliving's picture

"..ever lose?"  short answer:  as long as Serial Short Sellers exist and Mauldin Econonmics:  NO

as long as ZH exists:  YES!

JustObserving's picture
"Do Governments & Central Banks Ever Lose?"

If you make all the rules, you always win

A Serial Short Seller Asks

I though that breed went extinct years ago

falak pema's picture

hahaha, Not every body can be Soros and short the big money

Those who tried to short Japan know that.

Basically systematic Shorting is a totally negative game. It means we are basically not believers in capitalism but in casino capitalism. 

Shorting Socialism is easy, shorting predatory capitalism is more difficult. Those guys print the money but also use the big stick of permanent wars. Socialists don't know how to make wars. Just ask Gorby! 

Thisson's picture

Socialists have a tendency towards violent nationalism.  Whether you want to term that "war" is an open question.

falak pema's picture

so do tea drinkers. Jingoism and patriotism are twin brothers. 

The only guys who don't like nationalism and wars were the sons of the Tramp and of the MArx Brothers, the Groucho type!

Chuck Knoblauch's picture

Trusts rule the world.

Their beneficiaies want it all.

molecool's picture

Moved to Forex and the futures a few years ago. Haven't looked back and I sleep a lot better since.

gatorengineer's picture

Well everyone knows Forex isnt in anyway manipulated....LOL

CarpetShag's picture

Joan Maudlin and Maudlin Economics - a globally renowned think tank.

saveUSsavers's picture

Maudlin is a genius, just ask him, he wrote the book on it.

CarpetShag's picture

"Japan is a bug waiting for a windshield"
Joan Maudlin, 2009

"I had this high-level conference with Senator Sukdik and told him straight - we have to reduce the deficit "
Joan Maudlin, 2008

"The Euro is going to parity with the dollar this year"
Joan Maudln, 2010

Pumpkin's picture

If I had $7-$8 trillion, controlled all the regualtors and the justice system, I don't think I would lose very often.

Winston Churchill's picture

You'll have to be as ruthless and inhuman as they are to win.

Which is how you end up with Stalin,Hitler,Pol Pot and........

BullyBearish's picture

"The only hope is with the Proles...the establishment will never change anything"

insanelysane's picture

I feel badly for this author because he hasn't quite grasped that he is the modern equivalent of a buggy whip manufacturer when Henry Ford started mass producing cars.  The markets of old are dead.  Whilst it is still legal to short US markets the electronic markets have all sorts of ways to stomp you.  The Boomers have pensions and 401ks that will need to be sold but sell it to whom.  The "great" jobs recovery of the last few years isn't creating jobs where workers can have 401ks.  Just like with the Social Security system there isn't anyone to pay into the markets for each Boomer trying to redeem their portfolios.  This will become the next big issue in a few short years as the bulk of boomers really retire and need to turn their retirement investments into cash.  It is possible that the government will need to intervene.  I can see the government having retirees exchange their investments for some type of new social security.  The government can print money to pay the retirees and the government can also hold the investments for a very long time to wait out the market.

Loucleve's picture

very astute observation.  made my time spent here today worthwhile.

You can bet your ass this has some people at the fed and in washington very, very nervous.  and planning for the day.

Thisson's picture

They're not going to pay the boomers for the pensions, they are going to steal the pensions, either before the fact (by not funding them) or after the fact (by seizing them or forcing you to buy government bonds in your "MY-RA" fund).

shanearthur's picture

Opinions welcome: part of me thinks shorting is F'ed up and shouldn't be allowed, but part of me thinks the shorts keep the other side from inflating the markets. No expert here, so is it a little of both?

absente reo's picture

"shorting is F'ed up and shouldn't be allowed"


You think an asset is worth more, you buy it, because you think it's going up. Not because your buying makes it go up, but because you think it's going to be more expensive in the future.

Shorting is just the same thing in reverse.


SMC's picture

So do governments and central banks ever lose?

Yes, however today it appears to be only in the big, cataclysmic, “no one could have seen it coming” way.

I'd rather have a few dozen tremors than one gigantic earthquake.  Unfortunately, the "Just Us" central planning group apparently believes differently.

csmith's picture

Bankers & bureaucrats...the FED is the nexus of both. End of story.

Bluntly Put's picture

Geez oligarch worship.

They can only kick the can with ever cheaper debt and exponentially increasing debt. Eventually those 2 become mutually exclusive, then they will try to return to historic methods but by then it will be too late. The currency will reset back to a barter based economy from their abuse.

aliki's picture

its hard to lose when you don't have to ever worry about margin calls, redemptions, etc.

so-long as they continue to lie about no inflation anywhere and the sheeple are dumb enough to let them continue their policies that continue to make their lives miserable, why should we expect anything different? i fully expect the fed doves to keep buying oil, gold, copper, iron ore, stocks, bonds - whatever they want, whenever they want because there is nobody to check them; how rand paul's audit the fed bill doesn't even get discussed anymore just shows congress doesn't give a fuck so-long as their stocks aren't crashing.

whisperin's picture

War makes and breaks markets. If Russia and China can pull off Swift II you will have the makings of a market bifurcation that will result in economic war or outright war itself. The US may find itself with a lot fewer allies when there is workaround to their swift stick.

Winston Churchill's picture

What do you think we've been in since last September ?

The Chinese were dumb with their policies, but I'm not convinced that

somehow Uncle Scam has something to do with pricking their bubble.

If the Chinese also think that, the retaliation is not going to be funny.

Winston Churchill's picture

What do you think we've been in since last September ?

The Chinese were dumb with their policies, but I'm not convinced that

somehow Uncle Scam has something to do with pricking their bubble.

If the Chinese also think that, the retaliation is not going to be funny.

Sanity Bear's picture

funny thing about crises - they happen whether they're allowed to or not

A Lunatic's picture

Crashes are nothing more than consolidations to the elite........

T-NUTZ's picture

Shorting requires finesse and patience.  When the payout comes, it comes huge.  For awhile fantasy will work; eventually, mathematics will matter.  

cougar_w's picture

I wrote on this same question yesterday.

My answer was they will never loose again. I don't see how it can happen.

I also clarified that eventually, nobody will care. The financial world is not the world.