The Bear Stearns Bounce

0 In all my time running a hedge fund, I only felt one trade “in my bones”, as
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Erez Kalir
Erez Kalir
4 months ago

Ben — thank you, as ever, for this illuminating note. As you know, the Fed has already started buying equities unless one doesn’t think corporate bond ETFs count. IMHO they are already too far along this slippery slope to stop now.

If we were to put together a David Letterman list of top 10 axioms in the Common Knowledge game of money management here in the States, “Don’t Fight the Fed” would surely rate at or near #1.

And yet — over in Japan — the BOJ is now a top 10 shareholder in over 50% of all publicly traded Japanese companies, and owns outright well north of 5% of the total market capitalization of Japanese stocks . . . Yet,what has this achieved? It has not, in the long run, made owning Japanese stocks a one way trade.

I agree that — for a time (months, not years) — an open decision by the Fed to buy equities would create the mother of all front run-the-Fed, forced buying short squeezes. What do you think happens after that period of months?

William Hobi
4 months ago

I hear you man! I was right there with you on every tick! I was short all of them through Put options. Bear, Lehman, WaMu, GM, small Florida S&L’s I can’t even remember now. When the S&P got back to even in May, I called clients and said, “OK, we get a second chance to take risk off the table with no pain, what do you want to do?” We cleared out most equity risk and bought December S&P Puts with 1,200 – 1,400 strikes. I covered them the first week in December. I kept repeating, “This is going to be so much worse than any of us can imagine.” And it was! Like you, today I have no conviction. The rules of the game have completely changed. The Fed put has now been canonized. Shorting has become too dangerous. Sure, I had Boeing nailed at $340 just a couple months ago, but the profits barely make a dent in all the other losses from trying to handicap this Fed cycle. My sense is that they will keep the markets afloat by all means necessary and when the narrative finally shifts so the common knowledge becomes that fiat is worthless, we will hear a giant sucking sound, and you will either be positioned for it or you won’t. Will be too late to do anything about it then. Got gold? In the meantime, let’s focus on our pack and doing what we can to help others. Your readership is composed… Read more »

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