Anyone shorting stocks yet?

[moneymaker]

Wow so not only are we paying less for stuff from China but everyone else is paying less for stuff from us. I did notice bananas went from $1.39 to $1.99 at Costco, which is why i bought red delicious apples, and you know what I think I like them apples.

[CA renter]

Totally agree with you, moneymaker and paramount, that things are reaching a tipping point. I’ve been anxiously waiting for it for the past few years in anticipation of shorting again. But I cannot overstate the risks of shorting. Been waiting for certain things to fall into place before shorting again, and there are definitely signs of trouble, but the last experience made me (and others, I believe) much more wary of shorting…even if you’re 100% right about the economy and markets.

Of course, as a contrarian, that might make it the best shorting opportunity, yet! 😉

Just want you to know about some of the very real risks where shorting is concerned. Since they’ve shown their willingness to go all-out against the shorts before, I think it’s reasonable to assume they can and will do it, again.

This is one of the most difficult markets to invest/trade in, IMO.

[paramount]

March 2014 – Consumers are Tapped Out!

#1 Real disposable income per capita continues to fall. In the fourth quarter of 2012, it was sitting at $37,265. By the time that the fourth quarter of 2013 had come around, it had dropped to $36,941. That means that average Americans have less money to go shopping with than they did previously.

#2 In January, real disposable income in the U.S. experienced the largest year over year decline that we have seen since 1974.

#3 As disposable income decreases, major retailers are closing thousands of stores all over the country. Some are even calling this “a retail apocalypse“.

#4 From September 2013 to January 2014, the personal saving rate in the United States dropped by a staggering 16 percent.

#5 During the fourth quarter of 2013, we witnessed the largest increase in consumer debt in this country that we have seen since 2007.

#6 Fewer Americans are applying for mortgages these days. In fact, the MBA Purchase Applications Index is now the lowest that it has been since 1995.

#7 Overall, the rate of homeownership in the United States has fallen for eight years in a row.

#8 Many Americans are finding it increasingly difficult to afford a new car or truck. The following comes from a recent CNBC article…
A new study shows the average household in 24 of America’s 25 largest metropolitan areas cannot afford to pay for the average priced new car or truck.
“Just because you can manage the monthly payment doesn’t mean you should let a $30,000 or $40,000 ride gobble up such a huge share of your paycheck,” said Mike Sante, managing editor of Interest.com. “Many people are spending money on a car payment that they could be saving.”

#9 Incredibly, 56 percent of all Americans now have “subprime credit” at this point.

#10 Total consumer credit has risen by a whopping 22 percent over the past three years.

#11 In the third quarter of 2007, the student loan delinquency rate was 7.6 percent. Today, it is up to 11.5 percent.

#12 Overall, U.S. consumers are $11,360,000,000,000 in debt.

#13 While Barack Obama has been in the White House, median household income in the United States has fallen for five years in a row.

#14 U.S. workers are taking home the smallest share of the income pie that has ever been recorded.

#15 One recent study found that about 60 percent of the jobs that have been “created” since the end of the last recession pay $13.83 or less an hour.

#16 Middle-wage jobs accounted for 60 percent of the jobs lost during the last recession, but they have accounted for only 22 percent of the jobs created since then.

#17 According to one recent survey, only 35 percent of all Americans say that they are better off financially than they were a year ago.

#18 In 2008, 25 percent of all Americans in the 18 to 29-year-old age bracket considered themselves to be “lower class”. In 2014, an astounding 49 percent of them do.

#19 The poverty rate in America has been at 15 percent or above for 3 consecutive years. That is the first time that has happened since 1965.

[teaboy]

[quote=CA renter] This is one of the most difficult markets to invest/trade in, IMO.[/quote]

For sure.
At least since the last one.

tb

[moneymaker]

If looking at the 14 year chart for gold/silver http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx it looks like a bubble, if looking at stock price vs. earnings (real, not manipulated) it looks like a bubble, looking at house prices it looks like a bubble, bonds and treasuries don’t yield much, so either we are in japan mode or poised for a depression, neither of which makes me feel good, or hopefully I’m wrong or missed something. One could probably make some money based on market volatility although riskier than is was a few years ago.

[moneymaker]

deleted

[SK in CV]

[quote=moneymaker]If looking at the 14 year chart for gold/silver http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx it looks like a bubble, if looking at stock price vs. earnings (real, not manipulated) it looks like a bubble, looking at house prices it looks like a bubble, bonds and treasuries don’t yield much, so either we are in japan mode or poised for a depression, neither of which makes me feel good, or hopefully I’m wrong or missed something. One could probably make some money based on market volatility although riskier than is was a few years ago.[/quote]

Using what metric does looking at stock price v. earnings look like a bubble? Particularly in the context of prevailing interest rates, I don’t see it.

[earlyretirement]

[quote=CA renter]As someone who has been short stocks far more often than long, I can say that shorting stocks can be the worst possible investing decision you can make.

I started to go heavily short back in ~2005, and this was after **extensive** research (full time, for years) into what I believed would be the worst financial crisis/depression in our lifetime. We had significant short positions in banks, mortgage lenders, ratings agencies, auto manufacturers, and a handful of retailers, among others. I have a tendency to be early, so made sure we could withstand a period of time when the market would move against me (long-dated options/LEAPS and kept rolling those over when the market would take a short-term dive; straight short stock positions with lots of extra money to protect myself against margin calls, etc.; and NO leverage, whatsoever). I built the positions up over time, but even while I took precautions (but only some hedging), we had unrealized losses of just over 30% at the market peak ~2007. It was not an insignificant sum, BTW.

Eventually, things did pan out the way I thought they would and the positions paid out rather handsomely, but the Fed’s actions throughout the process, along with the bans on short-selling and other market manipulations against the shorts, made things very volatile and gut wrenching. I got out of all my short positions in October 2008 when everyone thought things were going to get far worse. Best decision I ever made, and I was glad to be out. Some others I know who were shorting throughout the bubble as I was did not do so well, and some were absolutely slaughtered.

I nailed the internet/stock bubble, and nailed the housing bubble, and I am 99% convinced that we are in another peak wave of the same credit/asset price bubble that has plagued us for more than a decade. As a matter of fact, I think the bursting of this one will be even worse because the PTB are nearly out of their traditional ammunition since they’ve wasted it on trying to keep these bubbles afloat over all these years. We are tapped out on all levels, public and private, IMO. But I’m still extremely hesitant to short things this time around. If they DO decide to pour gasoline all over the fire again, I think they will go to extremes that have never been seen or thought of before.

I want to short, am very comfortable shorting, and I’m far more bearish and willing to take lots of risks when it comes to shorting… more than anyone else I’ve known personally or on blogs (even bearish blogs). But I am scared to do it this time around; the last time was incredibly stressful — and that was when I was 100% right!

If you short, be VERY careful, and do NOT use leverage! Do not put any money at risk if you’re not comfortable with huge losses. I cannot stress this enough.

IMO, the best move to make if you think things are going to crash is to get out of your long positions. Maybe, you can buy some puts on index ETFs or a few stocks that you think are wildly overvalued, but I think the best bet is to keep these positions small. Just be careful, whatever you do.

Good luck![/quote]

EXCELLENT analysis CAR. I’ve also shorted stocks before and done fairly well. However, I’ve been in situations like you and you nailed it. It’s very very stressful because your potential losses are unlimited if you don’t hedge.

Also, besides what you wrote you have the oddball situations like a crappy company getting an offer to get bought or some other one off event. It’s not for the faint of heart.

[CA renter]

[quote=earlyretirement]

Also, besides what you wrote you have the oddball situations like a crappy company getting an offer to get bought or some other one off event. It’s not for the faint of heart.[/quote]

Yes! One of my biggest losses was on Golden West (World Savings Bank). I had done a lot of research on them, even calling their loan officers on a number of occasions, giving them different scenarios to see what sorts of products they would offer, and then I’d ask questions about all the possible problems with those loans. They had one of the largest portfolios of negative amortization loans, and I knew multiple people who had absolutely no business getting any kind of mortgage who were able to get these risky mortgages through World Savings.

Anyway, they were my largest short position at the time, and then…Wachovia bought them at a premium at the very peak of the bubble (which is why Wachovia no longer exists). Needless to say, my largest short position which should have been 100% guaranteed to be one of my best bets, absolutely blew up in my face.

So, yes, you can be 100% right, but still have one of those one-off things happen that will destroy you when you are shorting. This happens all too often to shorts who were absolutely, 100% correct about the prospects for the given company.

[scaredyclassic]

in the realm of human affairs, nothing is certain.

no real lawyer ever advises a a client in litigation as to the certainty of any outcome, no matter how apparently certain it is. the craziest things can and do happen. frequently….

[an]

Both Mohamed A. El-Erian and Bill Gross are very smart guys and predicted the macro economic pretty correctly over the last 5+ years, yet they were wrong on their market call. My point is that, it’s much easier to predict macro economic direction than the direction of the market. I would also say it’s much easier to predict direction of the market than predicting the direction of a single stock. It’s much more likely to have a wrench toss into your prediction wrt a single stock than the whole stock market. Which is why I no longer go short on any one stock. The closest I get now to shorting is shorting the entire index if I think the whole market is bubbly.

[The-Shoveler]

“It’s much more likely to have a wrench toss into your prediction wrt a single stock than the whole stock market. Which is why I no longer go short on any one stock. The closest I get now to shorting is shorting the entire index if I think the whole market is bubbly.”

Which is kind of what I was saying,
With the possible exception of a really big solid company like say “GE”
To me stocks are kind of like BitCoin, their value is almost completely subjective.

WallStreet and NY-bankers will get you almost every time.

[Author]

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