Calling tops and bottoms in equity markets is, by and large, a fool’s errand.
The odds of being unequivocally right are vanishingly small, especially if “unequivocally” means identifying inflection points beyond which stocks go straight down with no frustratingly large counter-trend rallies or absolute troughs beyond which stocks only go up without revisiting levels near the lows.
Everyone knows this, but that doesn’t stop us from endeavoring to do the impossible — or from celebrating those who do when they eventually get one right, in true “broken clock” fashion. Jeremy Grantham was hailed as a sage this year for “predicting” the bear market, for example. It’s true that Grantham’s “wild rumpus” warning (from January) looks prescient, as long as you forget about the countless other times he suggested a crash was imminent, and as long as you don’t judge the accuracy of his “call” by the depth of the selloff (see the familiar figure below, updated for your amusement).
Forgive me, but Grantham wasn’t “right.” If that’s what “right” looks like, I’d hate to see “wrong.” Grantham doubled down (or tripled down or quadrupled down or however you want to characterize it) on his dire prediction late last month. I didn’t cover it because… well, because why would I?
As ever, the point isn’t to lampoon Grantham. And even if it was, I’m quite sure he wouldn’t care given the size of his fortune compared to mine. Rather, the point is to reiterate that almost no one gets this right. And certainly not with anything approaching regularity. Even when they do, “right” typically just applies to directionality. US equities almost surely won’t fall enough to render Grantham’s January suggestion that stocks would nearly halve “correct.”
On person who did get it right, both in terms of directionality and scope is Michael Burry. Or was Michael Burry, past tense. He’s spent the last decade trying to reclaim 2008’s glory, a hopelessly quixotic endeavor given the once-in-a-lifetime nature of the subprime collapse. His efforts in that regard are complicated (immeasurably) by the fact that, at the index-level, equities are much harder to forecast than sector-level corrections, housing bubbles and single-stock meltdowns, given the difficulty in identifying idiosyncratic crash catalysts (e.g., sector-specific issues that guarantee margin contraction, ARM resets and fraud). In simple terms: Making definitive statements about the near-term fate of benchmark equity indexes is a bad idea. Which is why Warren Buffett avoids such statements like the plague.
Burry, though, never stops trying, which is why, on Wednesday, he generated some click bait for the financial media by declaring, in unequivocal terms, that “No, we have not hit bottom yet.” “Watch for failures,” Burry said. “2 SPAC ETFs failing is not near enough.”
He was apparently referring to a short Bloomberg article about a couple of SPAC vehicles that liquidated. That he even mentioned those products was itself a testament to someone grasping at straws. Between the two of them, those ETFs were worth ~$160 million at their peak. So, no, of course their closure is “not near enough” if stocks truly are headed for a Grantham-style collapse or if Jerome Powell is about to “drive this economy off a cliff,” as Elizabeth Warren hyperbolically warned a few months back.
The idea that those two SPAC ETFs are somehow akin to — I don’t know, the ABS funds BNP froze on August 9, 2007 — is laughable. Maybe that’s not what Burry was suggesting, but, again, even mentioning those two wholly inconsequential closures felt like an epic non sequitur. Sure, the end of the SPAC mania is emblematic of the 2022 zeitgeist, defined as it is by a hawkish Fed and the end of the “free money” era, but exactly nobody (other than Burry, apparently) woke up Wednesday, read about those SPAC ETFs, and thought, “Yeah, this is a harbinger. The dominos are falling.”
But Burry sees falling dominos. He also sees the ghosts of crises past. Or something. “Crypto crash. Check. Meme crash. Check. SPAC crash. Check. Inflation. Check.” he tweeted earlier this week. “2000. Check. 2008. Check. 2022. Check.”
Nobody knows what that means. I’d suggest that tweet was a “Blank. Check.”
Burry would have you believe “cryptic” is everywhere and always synonymous with “genius.” Sometimes cryptic just means incoherent.
As Bloomberg dryly noted, Burry’s Scion Asset Management “dumped all of its equity exposure besides one company last quarter.” Now that’s some “silliness.”
Or maybe not
Burry is such a weird character, I’ll admit to having felt admiration for the guy when I read the Big Short, the idea that he put the trade and stuck with it after reading hundreds of boring prospectuses is, in a way, an epic trading tale and hints of an insightful intellect. His recent twitter rants, especially the pro Trump “Biden” is the real fascist ones, stand in stark contrast with anything I would describe as intelligent. The duality of the human psyche and spirit exemplified, I’m not sure what to make if the guy, but it is undeniable he can be quite an ass without being cryptic sometimes.
Burry is a great guy. He is not stupid. Hedgeye Mc Cullough was not wrong at all in 2007-2008. He is also rather bearish for the next 4 quarters. As to me I prefer to be a bit invested in utilities for now. I do not like this market at all, but some companies in South America, like Central Puerto (CEPU) AND (YPF) are real bargains to me.
A “great guy”? Do you know him personally? Did you read his tweets during the pandemic? I did. I’m not sure that’s a “great guy,” although I’m not one for normative statements. And McCullough? Give me a break. Have you ever been to Hedgeye? As in, taken the guided tour of the place, and sat in on some morning “strategy” meetings? Because I have. About a dozen times. It’s not Goldman. And it’s not Third Point.
He is a horrible guy. He likes defending racist policing policies, is unhedged long-MAGA, and that one stock he still owns? A for-profit prison REIT.
Adding: and no, I don’t know him personally, but I have been reading his tweets, since before the pandemic, and they paint a very clear picture.
“CEPU”… are you trolling?
That company went from about $16 to $4 in 4 years. Argentina is at 75% inflation and it’s getting worse, I wouldn’t bet against another default.
Also if they’re selling electricity and LNG prices go up then their inputs could go way up and I’ve rarely heard of a Utility’s business model planning for vast variability…
The Jeremy Grantham chart always amuses me.
“Rumpus worst-case”
It is hard to call the markets because they are really a construct in mass human psychology which is hard to pin down. Sure there are fundamentals but those come into play over the longer term. In the short term (less than 3 years in my book), it really is about animal spirits or lack thereof. The exception comes when you get a fundamental economic setback- but even those are often triggered by mass psychology. My own call is that we are in for a lot of volatility for the balance of this year, and the stock market is probably going to have little direction. Given that outlook, investors need to be on their toes and not to take too much risk in their portfolios based on their life situation.
It’s always amusing to me to read reactions to articles like this. The tendency for adults to worship other adults is truly unfortunate, especially when the reason for the adulation is the accumulation of money based, in many cases, on one or two or three great market calls interspersed with so many wrong calls that it’s impossible to document them all.
For new readers, let me just reiterate: If you’re offended by someone lampooning these “legends” and “idols,” I’m not a guy you’re going to like reading. I don’t do obsequious flattery vis-a-vis other adults. Because I’m an adult.
exactly,H…if I might add … “all the lonely people…where do they all belong…?”
I reckon Jeremy Grantham might be wise to put his feet up, retire, and turn off the noise. He ought not to hurt his own credibility.
I listen to him. He’s a voice to consider while I manage my investment posture.
Same with Burry. He was correct in 2008. And the Big Short was a really good movie. But nobody has the full story about markets or even individual stocks. All markets, and the timing of conditions that impact them, are unique – this one especially. Human imagination and intellectual gymnastics enable only limited understanding. The stories of an individual company can provide a basis for making a reasonably confident investment decision – for me. But even that has to be measured against possible impacts from the macro picture.
Today, the macro sucks. It’s very uncomfortable. But even so, in this environment it can be worthwhile to identify and watch companies with good financials, durable income streams, good management, etcetera, while keeping an eye on the macro view.
And by the way, Putin – an active variable in world chaos – is steadily whittling away the capacity of the Russian economy. He’s destroying the country’s ability to participate in the global economy. It’s terribly sad, and the Russian people have no idea this is happening.
All of this stuff — the “letters” from the legends like Marks and Grantham, the tweets from Burry, the CNBC cameos by Gundlach and all the rest of it — is just entertainment. That’s all it is. Entertainment for people who like markets.
I don’t think that occurs to the vast majority of everyday investors, too many of whom seem to believe these billionaires, out of some inexplicable sense of duty or inclination to benevolence, pen missives, write tweets and show up on business television. As if they’re actually trying to inform the public, or something.
I hate to be the bearer of bad news, but the reality is that old men write letters because they’re bored, middle-aged men write tweets because they’re a little eccentric and want to stay relevant, and hedge fund managers show up on CNBC because they’re vain.
That’s (literally) all there is to it. The media covers it because they know everyday people will click on it and those clicks = $$, which they then use to pay journalists to write more click bait.
At no point along the way does anyone care anything about regular investors.
Womp, womp.
When asked about his switch to Trumpism, “ to remain relevant.”
Remaining Relevant does not require sincerity or honesty.
Lindsey Graham said to remain relevant.
That’s why I like to visit and share perspective here. You call them as you see them. You have a clear affection for accuracy when citing facts and sources. And I enjoy the characteristic voice, market analysis, political and international perspectives, wise-cracking, and community participation, to boot. Good work and many thanks!
royalty and religion…reminds me again of Einstein’s quote that flags are proof that human beings are herd animals…how bout that Humdinger…?
Just as a reminder, investing is about each person and their personal goals. Each of us must collect credible information in that context and apply it. When I was in grad school one could change the price of a stock by buying 500 shares. I used to watch the tape when I made a transaction and I could find my order every time. The trouble with “the market” is that it is a general representation of unknowable individual behaviors. It is as Malkiel said it was, a “random walk down Wall Street.” No time series or multivariate math function can predict inflection points. Period. Only the results of a Voodoo priest’s reading of the chicken bones will work … or not. Only a long-run time horizon, patience, the acquisition of much relevant data (not from market results) and a certain bravery will prevail.