"Sell Everything"... But Why: What Has The Smartest Investors So Spooked?

Tyler Durden's picture

Submitted by Nick Colas of Convergex

Many of the smartest investors out there hate stocks.  Since May, we’ve heard negative equity calls from Stan Druckenmiller, George Soros, Carl Icahn, Jeff Gundlach and Bill Gross.  Wall Street lore says “Never argue about markets with a guy who is much richer than you”.  So we’ll take the discussion in a different direction: what do they know? 

Successful investors are always more plugged in than the market as a whole – hence their success.  And while we can only guess at the lynchpins of their negative take on stocks, we do have some idea of how significant they must be.  For example, in 2016 the S&P 500 is up 5.9% on a price basis after 1) the Brexit “Leave” vote, 2) dramatically disappointing Q1 and Q2 U.S. GDP, 3) a correction of 20% in oil prices, 4) a Fed that has incorrectly calibrated its public stance on monetary policy, 5) Donald Trump as the Republican candidate for president, and 6) the U.S. 10 Year Treasury at near record low yields. 

None of that has been enough to spook U.S. equity markets.  So whatever the big boys think they know, it must be really bad.  But what is it, and why is it so hidden from view?

* * *

Someone is getting this information before you.”  If you’ve ever worked at a hedge fund, you know this is the worst thing you can hear.  It means you are behind the curve, providing yesterday’s news into an investment process meant to predict the future.  “Titanic sinks!” or “man lands on the moon!” are the more playful retorts you’ll get from co-workers.  But it all means the same thing: up your game, or get a white box from the mail room.

So when a cluster of high-profile hedge fund and long-biased managers go out of their way to give dire warnings about the U.S. equity market with stocks sitting at or near all-time highs, any sensible investor needs to pay attention.  These are people with access to information that most market participants could only dream of having.  Former heads of state and central bankers, private intelligence operatives, senior government officials, the best consultants in any industry…  It is like having an all access pass to anything, anywhere, any time.
Here’s a partial list of bold faced names that have panned stocks and other financial assets in recent weeks:

  • Stan Druckenmiller (May 4th at the Ira Sohn Conference): “Get out of the stock market.”
  • George Soros (June 9th, as reported in the Wall Street Journal): “The billionaire hedge fund founder and philanthropist recently directed a series of big, bearish investments, according to people close to the matter.”
  • Carl Icahn (June 9th, on CNBC): “I don’t think you can have (near) zero interest rates for much longer without having these bubbles explode on you” while also saying it’s difficult to assess when exactly that might occur.
  • Jeff Gundlach (last Friday, in an interview with Reuters): “Sell everything. Nothing here looks good.”
  • Bill Gross (in his monthly investment letter, released last week): “I don’t like bonds. I don’t like most stocks. I don’t like private equity.”

Fun fact: a group of bears is called a “sloth” or a “sleuth”.  We can safely ignore the first reference; none of these investors made their considerable fortunes through laziness.  That leaves us with “Sleuth” – as in, what have they discovered?

Whatever it is, it has to be something weightier than the headlines we’ve faced so far in 2016. The S&P 500 is, after all, still up 5.9% on the year.  And none of these headlines have tanked U.S. equities:

  • Donald Trump wins Republican nomination for President of the United States against a field of well-funded and well established competition
  • U.S. GDP growth fails to deliver on 2% growth through first half; runs 1.0% average instead
  • After a good run earlier in the year, crude oil prices experience correction and break $40/barrel
  • One gold ETF draws the most fresh money of any exchange listed product YTD; yellow metal at +2 year highs
  • Global economic growth so sluggish that U.S. 10-Year Treasury yields reach 1.5%, far worse than even the depths of the Financial Crisis
  • Britain votes to leave the European Union
  • $13 trillion of global sovereign debt sports a negative yield, so great is the demand for “Safe haven” assets around the world
  • Federal Reserve guidance on future interest rate policy widely ignored. The U.S. central bank says 2 bumps to Fed Funds this year (25 bps apiece), but Fed Funds futures handicap less than one.

There’s no getting around it: that’s a lot of unexpected news.  The connection between them and higher stocks has exactly one point: bad news drives interest rates lower, and as long as the S&P 500 earns +$115/share those lower rates support ever loftier valuations.

A bearish call, such as the ones our “Sleuth” has made, must therefore convincingly pull the rug out from the “Lower rates = higher stocks” paradigm.  Don’t tell me that these big-money investors are just making a valuation call – they all know better than that.  Try walking into any of their offices and saying “U.S. stocks trade at 18x earnings… Time to short em…”  Your feet would barely touch the floor as security escorted you and your white mail room box out of the building.

No.  It must be something larger.  But what?

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junction's picture

End Time.  The end of the world as we know it.

WTFRLY's picture

Joo World Order is almost fully loaded and there is nowhere to escape

BaBaBouy's picture

GOLD and GOLD Stocks Could Go Stratospheric, much like the Tech stocks did in 2000 ~~~

AND unlike the TECH Bubble, the GOLD stock boom could go on for Years/Decade ~~~

We are Well Overdue for a Kick-A$$ GOLD Bull market that Few See Coming ~~~

zeronetwork's picture

My question is, who do they sell to?

 

ultimately bag-holders, sheeples!

Pure Evil's picture

Is it just me, or is that Soros Sieg Heil'ing Satan.

Or, maybe he's just pledging his undying allegiance to the Joo World Order.

Crisismode's picture

You've got to know when to hold 'em,

You've got to know when to fold 'em,

Know when to walk away,

Know when to run.

Never count your money while you're sitting at the table.

They'll be time enough for counting

 

WHEN THE FED IS TOAST.

 

Tall Tom's picture

 

 

It is not hidden from view. It is in plain sight.

 

Warren Buffet warned about this many, many years ago. He called the Derivatives Market a Weapon of Financial Mass Destruction. He was right.

 

Is the European Bank Meltdown in plain view?

Is the oncoming DeutscheBank Failure in plain view?

Then the consequential Derivatives Market Meltdown is also in plain view.

 

BTW...Just what is your US Dollars in yer wallet, those Federal Reserve NOTES, those unsecured LIABILITIES as they are promises to pay on future production and future goods and services, goods and services which do not yet exist?

 

Those US Dollars are DERIVATIVES and the US Bond Market collapse will be absolutely epic and unimaginable in the magnitude of the destruction which it will wreak.

 

Buckle up. The ride is going to be fatal for tens of millions, if not 150 Million, as they starve to death. I do not mean that as figuratively. They will actually starve to death in the streets.

endoftimeprophecy's picture

Many years ago God told me that a collapse of all economic activity will come changing everything worldwide overnight. After that, many more earth shaking events will follow.

Serving God is the best way to know the future and live unafraid and secure. I've been writing about it at endoftimeprophecy.com

Aristotle of Greece's picture
Aristotle of Greece (not verified) endoftimeprophecy Aug 7, 2016 9:46 PM

They're SPOOKED because of THE CURSE.
http://wp.me/p4OZ4v-3z

Oracle of Kypseli's picture

Off the subject a bit, but selling everything relative to RE.

The Vancouver effect in the US. Myrtle beach home owners about to get shafted as Chinese who bought 22 golf courses there are being investigated in China for Ponzi scheme.

http://www.myrtlebeachsc.com/chinese-could-cost-residents-300-million-in...

Hold your purchases fellows and owners should sell before she blows.

 

 

Falling Down's picture

Wow. If just one group owns that much in MB, imagine how many other Chinese investors have huge RE holdings here in the States, and in British Columbia.

McCormick No. 9's picture

How will this start? Just like a zombie apocalypse. Somewhere out there right now is a small fracking company. They want to float a bond, or they have bonds on the market. Oil prices are tanking, and somehow, someone bids the yields up on these bonds, these dangerous, fracking company bonds.

What happens next is a whole cascade of interlocking events. Derivatives come due on the yield contagion, which spreads, first to other energy bonds, which starts the destabilization of the derivatives pile. The yield contagion spreads, as bond prices plummet.

The central banks watch in horror as the yield contagion starts to drive up the yield on sovereign bonds. They are out of ammo- more liquidity won't help now. Helicopter money is next, but this only serves to add fuel to the fire, as people use the free money to pay off debt in waves of panic.

Finally, as the deflationary avalanche becomes fully established, the derivatives pile loses all internal cohesion, and the massive slump (to angle of repose) in derivatives occurs. This is the final meltdown. This is when the zombies start the mass feeding frenzy. When it is all over, we awaken to a completely different world.

The good news? No-one will give a SHIT who Hillary Clinton was.

Jtrillian's picture

Finally... someone gets it. 

Lore's picture

That's my reading as well.  Why does the author focus on individual events, rather than underlying imbalances, pressures, pathologies, themes?  He's well aware of the horrific fundamentals, surely. 

(That said, if Colas wants to point to a destabilizing influence in the domestic political sphere, I would focus much more on the surrealistic prospect of that blood-soaked sociopath Hillary Clinton as Commander-In-Chief.) 

TheReplacement's picture

A slightly different take.  The author notes the events that should shake the market but have no effect.  This is to demonstrate the rigged nature of the beast.  Certainly the men listed are well aware of the riggedness and have profitted handsomely from this knowledge.  Now they are jumping ship.  The point is, if the market is rigged and these men know it, why are they so negative?  Fundamentals haven't mattered for a long, long time. 

Is it because;

A.  There is a planned collapse

B.  TPTB can no longer manage to rig the market sufficiently to maintain an upside and so it must collapse?

C.  It doesn't matter if A. or B.  We are all fucked now.

Tall Tom's picture

 

 

 

 

Where is yer Satan avatar???   Oh wait...I see it now. That cunt is the physical manifestation of Satan.

 

Nevermind.

 

(Good to see you post.)

bamawatson's picture

will tesla auto-pilot avoid the bodies littering our streets?

Tall Tom's picture

 

 

 

 

LOL...It will serve to create some of them.

ONEwarrior's picture

Might need to play the contrarion view of stocks with them. You sell while they're short the market. So short the market. When it gets low enough after making the money short, they'll buy before the sheeple do. Then you'll see them tell the sheeple to buy. Then they dump at the right time. And set up there short position and yell sale your stocks.

Rinse, lather, Repeat.

Ride the wave of Big Smart Money. They move the Markets.

 

Muppet's picture

Who do they sell to?  No one.  Buying/Selling catastrophically wind down.  Valuations drop to near zero.   Worthless paper claims. 

g speed's picture

bingo---the markets fail---price of investments reach parity with value--everything in the markets reverts to normal--that is room temperature

 

weburke's picture

cvs. should do quite well.

Kohiba's picture

That's what I've been wondering. If investors have been selling for months and the only ones that have been buying are the Fed and CB's then how the hell is this shit show ever going to come down? I think we're stuck at these levels and higher until they bring it down, which doesn't look like any time soon. 

novelator's picture
novelator (not verified) Kohiba Aug 7, 2016 10:16 PM

The shit-show's coming down all by itself. On its own time.

 

All TPTB (aka BIS) is trying to do now is "manage" the decline of a collapse they can't stop. But even the decline's gone beyond their control now.

 

 

1 over Infinity's picture

If the price is low enough there will always be a buyer.

 

1 over Infinity's picture

If the price is low enough there will always be a buyer.

 

Here2Go's picture
Here2Go (not verified) 1 over Infinity Aug 7, 2016 7:23 PM

If you say it enough times, it might come true.

monkeyshine's picture

Why couldn't it be a head fake?  Best investors ever talk the market down in order to buy it up?

More likely its just that these long time investors have never seen anything like what we are seeing now. They don't know how to read it other than to be extra cautious. They may be right. Or wrong.  Maybe they have better information, or maybe like all of us they have too much information.

SwiffFiffteh's picture

Great, since it is repeated multiple times in Economics 101 textbooks.

Tall Tom's picture

 

 

 

I got some ice up in Alaska. Buy my ice. Shit. You have to pay people to haul it away.

andrewp111's picture

Central banks. Whey they buy with both hands, sell.

Theosebes Goodfellow's picture

“Never argue about markets with a guy who is much richer than you”.

"So apart from that minor trembling of the ship's hull a minute ago, how are you enjoying the maiden cruise, Mrs. Astor?"

Just because the ship hasn't sunk does not mean you can ignore the warning signs. If the "smartest guys in the room" are saying bail out now, who are you to argue. To quote an old RVer's wise saying,

"During bad weather, it is always better to be in the campground wishing you were on the road than to be on the road wishing you were in the campground."

And we certainly are facing some bad weather.

any_mouse's picture

Exactly. Who has their assets in buy and hold at this point?

I hold no long term positions in paper.

Never do I question being on the sidelines or wishing that I was in this market.

I remember March 9, 2008 and May 6, 2010.

Two days that will live in Infamy for me. May 6 was the double tap on the survivors trying to protect their interests.

To update Jeff Macke, now the only position is a defensive firing position with clear firing lanes.

JohnG's picture

WW3 is coming folks.

Stock up your bunker.

Here2Go's picture
Here2Go (not verified) any_mouse Aug 7, 2016 7:24 PM

"I hold no long term positions in paper"

 

What about those dollar bills in your wallet?

Tall Tom's picture

 

 

 

 

Those aren't DERIVATIVES. No. Say it ain't so.

DeadFred's picture

As a permabear I, of course, agree with the assessment that things are about to hit the wall but a suspicious side of me asks "If these guys are saying this in public what are they REALLY thinking in private?" About the only really bad news they could hear right now is "Central Banks are going to stop buying everything that isn't nailed down!!!" or maybe "There's a world-wide shortage of ink!!!!"

 

On third thought "The ctrl P button is broken!!!" <panic>

Theosebes Goodfellow's picture

Deadfred, you and I are birds of a feather. And I completely agree with that suspicious side of yours. But I do not overlook the obvious. All of these big cats have egos to match and love to come off as prescient when all they were doing was stating the obvious.

It takes a special kind of villiage idiot to look at the state of things today and prognosticate them as "rosey". It also only requires an Austrian point of view to figure out what the safe play is. Hell, what the only play is.

1.) Keep your powder dry. Hold PMs, cash and cash equivalents.

2.) Have a trading account well funded.

3.) When the crash comes, buy major miners, CAT and P&G.

The price of PMs will dip and then skyrocket, and miners need CAT, and everyone needs to wipe their ass. Even big cats.

Be well. Stay safe.

Theo

novelator's picture
novelator (not verified) DeadFred Aug 7, 2016 10:10 PM

These guys are telling you.

 

And laughing.

 

Because they've got you so suspicious that you doubt what they're telling you.

 

So, for them, the joke's on all of US the world over, but only for a limited time.

 

After the shit-show collapses, the only worry they'll have is whether anyone knows the location of their bunkers.

 

The serfs they take with them to serve them will become their executioners.

 

 

HRH of Aquitaine's picture
HRH of Aquitaine (not verified) Theosebes Goodfellow Aug 7, 2016 5:46 PM

Maybe. Unless you are tent camping and the wind is screaming through the tree tops. That is the kind of weather that fells widow makers.

Theosebes Goodfellow's picture

By Your Highness's grace, the quote was that of an old RVer. It is ill-advised to tent-camp in inclement weather,..er, 'Mum.

SomethingSomethingDarkSide's picture

Central Banks control the price of Gold.  Only if "Simon Says" will they go stratospheric.

Dark Daze's picture

Don't agree. When the CB's finally lose control, run out of willpower or are simply shown to be fools, things will spiral beyond anyone's control. We're close now.

Free Spirit's picture

"We're close now."

 

Not very close since before they lose control there will be some major wars that USA/NATO must lose.  Thus it may be some years ahead or it may even never happen ....

PT's picture

If Clinton gets in, Janet prints.*
If Trump gets in, Janet does not print.

* actually, it's always good to let the crisis unfold just after the new incumbent takes office.  Then you squeeze the populace real hard, milk it for all it is worth, blame everything on the last guy and then you still have plenty of time to "win back" the sheeple.  After a small "crisis" unfolds, a few draconian laws and bail-outs are rammed through, then Janet prints a little bit.  The real printing happens three and a half years later.

HamFistedIdiot's picture

There are a few posters who always have to get the word "Joo" in the comments section, preferably near the top. While I don't disagree that there are a lot of Jewish neocons, some dual citizens, often making decisions that are not good for the USA, while working in DC or Wall Street, I think blaming "Jews" or "Joos" for most everything in the comments section leads sub-average IQ readers new to this site to conclude that ZH is a racist site and not to be trusted, especially if they can't log in to see how many down votes such comments get. While I despise political correctness as much as the next person, I think one-liner "Joo" statements are counterproductive if not attached to a larger argument regarding how Zionism harms all of us.

xythras's picture
xythras (not verified) HamFistedIdiot Aug 7, 2016 4:35 PM

That's why it's spelled JOO and not JEW, so there you have it: the difference between zionists and common jew folk.

Now you can sleep peacefully.

sharonsj's picture

I'd bet you have no idea what the difference is because you're a pinheaded twerp.  And the only reason I sleep peacefully is I'm armed against turds like you.

HamFistedIdiot's picture

Uh, no. Zionists are people whose primary mission is the expansion of the State of Israel. US officials who are Zionists have a conflict of interest. There are Jews who are not Zionists, and Zionists who are not Jews. "Joo" is like saying "Chink" for a Chinese person. It's a perjorative that adds nothing to the discussion. Israel is the spawn of the Zionist Jewish banker family, the Rothschilds. Israel was born through an immoral ethnic cleansing of the area in 1948. I will have no part of it. Tens of thousands of Palestinians were killed or lost everything to make way for this special NWO project that is Israel. A commeuppance is due.