The Big Short, Part II (or Part III if you are counting 2000 and 2007)


The update I sent to subscribers on Friday afternoon may end up being one of the better ones of the year. I'm going to post an excerpt from it, and one chart that does a much better job of describing current conditions than my words will ever do. Then, I'm going on vacation for a week, and based upon past timing of my vacations the market will be in turmoil while I am gone. No matter, I'll have WiFi. 

I have been early on my forecast for a dramatic downtrend in the stock market.  Being early is not necessarily a bad thing in this business. In mid-2005 Michael Burry was early as he started shorting credit default swaps and his payday, and it was a huge payday, didn't start coming until the 4Q of 2007. He made $100 million for himself...for being early, and $700 million for his hedge fund investors...for being early. Ultimately, investors in his Scion Capital fund earned a return of just under 500% between 2000 and 2008.

Who is Michael Burry? He is the subject of the book and movie, "The Big Short," a former resident neurologist who left medicine to focus on trading stock and bond markets. He was also a prolific stock message board poster (Silicon Investor), which led to him starting his own hedge fund. But his real fame came when he correctly anticipated and then profited from the debt-based financial crash of 2007-2008.  

[Coincidentally, I started out as a lawyer, but then gave up the law to focus on my stock market trading. I too became a prolific stock message board poster and started my own hedge fund. Much like Burry in 2005, I have been early in anticipating a destructive financial implosion in the global financial markets.]


Pattern recognition: If you don't see it, you can't trade it.