Billionaire Bears Club

2017-08-14 9pm EDT  |  #stocks #bonds

I don’t regularly watch CNBC, but last week while on vacation, I turned on the Sirius XM radio and was instantly assaulted with Jim Cramer’s shrieking. I was about to turn the channel when he shouted how the “billionaire bears” might finally be catching a break with the stock market downdraft.

I have to give Cramer credit, that’s a good line to describe the growing cohort of negative investment legends. Wondering if Jim came up with it on his own, I googled it.

Aware of the burgeoning $1.99 Kindle romance section where some serious authors have created pseudo names to write under because the money is too good to pass up, I have never actually been exposed to these books. Until now…

Did Cramer come up with his description after reading Ursala Maya’s The Billionaire Bears Club? I had planned to quote the summary in this post, but even the summary’s innuendo might be pushing it.

Instead I will share with you the first review:

I am never one to be disparaging, but I was left with no other choice here. I have to say that this was one of the worst books I’ve ever read. It went beyond gratuitous to a level that I didn’t think possible. The writing itself was deplorable alone, but the plot, or lack thereof, was far worse. Ugh, it was just bad bad bad! This is so far from erotic romance. Hell, it had none at all. It also had nothing to do with shifters, and more about an intern being #$%@’d to advance her supposed career. Nothing is sexy about this book, so please do not waste your time on trash like this.

Unfortunately, lately, it’s more than terribly written Billionaire Bears Club books that are disappointing.

Whether it is Gross, Icahn, Gundlach, Jones or Marks, there is no shortage of billionaires warning about the impending stock market crash.

Heck, one particularly articulate and well liked hedge fund guru has taken to labeling all his recent tweets with #RISKHAPPENSFAST, and my personal favourite, #DARKNESSFALLS.

Darkness falls? Seriously? When he started tweeting his dire omen last week, the S&P 500 was down 65 handles from an all time high. That decline represented a little more than 2.5%.

I hate to point out the obvious, but a 2.5% dip over the course of a week is nothing more than noise. In fact, we could decline 10% and the bull market would be still very much intact.

Now I can hear the howls of protest already. Only fools buy stocks up here without thinking about the risks. These gurus are doing everyone a favour by highlighting the danger.

As Howard Marks says, “no investment is good enough that you can’t screw it up by paying too much.”

Yeah, I hear you Howard. The trouble is that stocks have been expensive for quite some time. This Billionaire Bears Club cadre has been issuing these warnings for the past couple of years.

Although I have to give Gundlach credit for the superb timing on his recent S&P 500 put purchase, I worry when I hear traders tempt the Market Gods with tauntings such as Gundlach’s recent comment that he will be disappointed if he doesn’t make 400% on his position. Or how about Dennis Gartman’s “staking his reputation that the highs for the stock market are in.” Why he would say such a thing is beyond me. Especially right into the hole.

I am much too scared about the financial environment to ever make any prediction with this sort of certainty.

Now, don’t mistake my view. I am not defending the bull position. I understand the potential holes in their argument (mainly valuation). But I do want to take a moment to point out that all these bears are using an outdated playbook for their forecasts of threatening doom.

For example, they see the economy slowing down, and they immediately conclude that it is finally time to short stocks.

Yet what will be the outcome of a slowing economy? Why, more Central Banking easing of course!

So ironically, as the economy rolls over (however slight), Central Banks quickly take their foot off the brake, and financial assets magically levitate.

I am still getting caught up from my vacation, so this post will be brief. But I wanted to take a moment to remind everyone that before the Great Financial Crisis, the collective balance sheet for the big 3 Central Banks (Fed, ECB & BoJ) was approximately $4 trillion. Today it is $14 trillion.

And I haven’t even included the BoE, SNB and PBoC’s of this world.

There has been an absurd amount of monetary stimulus over the past decade. Central Bankers have broken taboos (like negative interest rates) that previously seemed sacrosanct.

No one, and I repeat, no one understands how all of this printing will eventually affect the economy and markets.

I have made a fool of myself being negative on bitcoin, but really given the stupidity of what bitcoin is being priced against (other fiat currencies), I probably should have been way more respectful of the possibility of a speculative fervour in an alternative store of value.

I have done an abysmal job identifying what will explode higher in price, but my message has been consistent - Central Bank balance sheet expansion has the potential to create some unprecedented asset price moves.

The Billionaire Bears Club might be a terrible book, but the real BB’s have also led you astray with their investment advice. Too many of them believe that the next crisis will look exactly like the last.

I will leave you with my prediction. The next crisis won’t start in the equity market, or even the high yield bond market. The next crisis will occur when Central Banks lose control of sovereign bond markets. I know that is exactly the opposite advice that the BBC boys are giving you, but I don’t mind being on the other side of their trade.

Economic weakness will just mean more printing, it is economic strength that should worry the equity bulls.

Thanks for reading,
Kevin Muir
the MacroTourist