Betting Against History, by Kevin Muir

Here’s a well-reasoned argument against one of every stock market bear’s favorite investments: cash. From Kevin Muir at themacrotourist.com:

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It’s another of those days. The S&P 500 closed the week at an all time high, and although you would think everyone would be feeling good about it, the rally has brought about more angst than pleasure.

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Turning on your twitter feed this morning, you face a deluge of scary charts about debt burdens and historical P/E comparisons that remind you of all the risks in the markets. Your timeline is filled with sarcastic comments about how “this will end well” and witty remarks about clueless CNBC guests. You take refuge in the fact that you are part of the elite crew who “gets it.” After all, this group has some pretty illustrious company. Mark Yusko from Morgan Creek Management was recently quoted as saying, “I’m telling you right now, the U.S. is going to have a massive crash.” Carl Icahn has even produced a video titled “Danger Ahead” where he lays out the bear case, and why you should put on all the same trades that worked in 2008 because, not only is another great financial crisis coming, but this time it will be even worse. There seems to be a direct correlation with how “smart” you are, and your level of bearishness.

Now maybe these gurus will prove correct. Maybe we are about to crash and this article will age poorly. I am willing to accept that possibility. After all, I get stuff wrong all the time.

But I want to take a moment to point out that so does everyone, including all these “smart” hedge fund managers. I love listening to Kyle Bass. His arguments are well thought out, original and entertaining. Yet I bet many of you have forgotten about his 2011 trade where he bought 20 million nickels because the melt value was 6.8 cents.

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Yes, Kyle knew melting coins is illegal, but when you could buy an asset at a 36% discount, with a hard put at your cost (after all, a nickel will always be worth a nickel), it was effectively a free option. Not only that, but I think at that time Kyle was a big hard asset bull, so it offered a unique risk reward.

To continue reading: Betting Against History

 

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