In today’s “Message of the Day” I want to talk about three big name investors who are betting against the stock market. If you are a reader of “Main Street beats Wall Street” you know I make a living selling Call Options, which is shorting the stock or the stock market. And you know I don’t like owning stock! This is why I look at the opinions of Stanley Druckenmiller, George Soros and Carl Ichan with great interest. They are betting against the Stock market.
Jeffrey Gundlach, founder and chief executive officer (CEO) of DoubleLine Capital LP, offered a bearish outlook for the stock market. Financial commentators have been taking his opinions quite seriously, especially since Barron’s magazine crowned Gundlach the “king of bonds” in 2011. To Gundlach, the market was not as healthy as it seemed in May 2016. Corporate earnings weakness was inconsistent with widespread expectations that the Federal Reserve was sitting on secret news that the economy was better than most people realized. Gundlach’s advice: sell everything, keep only gold.
Stanley Druckenmiller served as lead portfolio manager for George Soros’ Quantum Fund from 1998 through 2000. The gloomy forecast from Gundlach came about three weeks after Druckenmiller shocked the audience at the “Ira Sohn Investment Conference” in New York.
According to financial writer John Burke, “at the Sohn conference, Druckenmiller complained that the Federal Reserve was acting irresponsibly by extending its easy monetary policy past the point where the unemployment rate had dropped below 5% and the inflation rate had risen close to 2%. He emphasized that the Fed’s monetary policy facilitated unproductive use of leverage by companies involved in share buybacks and mergers, rather than capital expenditure. Worse yet, China’s credit bubble had caused a drop in the nation’s nominal gross domestic product (GDP) growth from 15 to 5%, threatening global economic growth. Druckenmiller ended his talk with the advice that investors should seriously consider gold investments”.
Whether you like George Soros because of his political views or not, he is still a famed investor and billionaire and I do listen to what he has to say. Soros, chairman of Soros Fund Management LLC, holding three bearish positions, explained as signals of Soros’ belief that the stock market was headed for a storm. One of the three positions is a bet against the S&P 500. The position actually consisted of Put Options on over 2 million shares of the SPDR S&P 500 ETF (NYSEARCA: SPY). The other bearish positions were both gold investments: 19 million shares of Barrick Gold Corp. (NYSE: ABX) and Call Options on 1 million shares of SPDR Gold Shares (NYSEARCA: GLD). Most investors that are long gold feel it is a safe haven for a weak stock market. Because Druckenmiller, Soros’ protégé, had been recommending gold investments just two weeks earlier, Soros’ gold positions were looked at as an endorsement of Druckenmiller’s dismal outlook for equities. Also, in January 2016, Soros discussed his concern that an economic crisis in China would put deflationary pressure on the global economy, with a negative impact on the American stock market.
Carl Ichan, another famed investor and financier has a portfolio with many large long position. However, On June 9, 2016, Icahn offered a bearish take on the portfolio holdings of Soros Fund Management, ignoring the significant long positions in Soros’ and his own portfolio. The inconvenient truths of Ichan’s portfolio did not stop “sensationalist” bloggers from writing repeatedly that Icahn was betting on an imminent financial Armageddon.
Steve
The Options Coach