Partly because, as the old saying goes: "Stocks take the escalator up and the elevator down" meaning you can get some really nifty annualized returns if your timing (and analysis, duh) are correct.
Also partly because there is more scope for alpha generation, either because other folks can't wrap their heads around the reverse thinking or don't get the mechanics or freeze at the prospect of unlimited losses if you let things get away from you.
There's also the problem that in bull markets shorting anything other than frauds means the historical upward trend of equities (to date anyway) grinds against you.
And then there's the whole issue of having to pay the dividend if your target has one, which can chew up your returns as you wait for the market to come to the same realization that you have.
So yes I can understand Mr. Richter's thinking in the headline above and the post below:
From Wolf Street:
I’m sharing this trade for your future entertainment so you can hail me as the obliterating moron that infamously shorted the greatest rally floating weightlessly ever higher above the worst economic and corporate crisis imaginable.
I hate shorting. The risk-reward relationship is out of whack. It feels crappy. I lost a ton of money shorting the worst highfliers a little too early in late 1999. It’s just nuts to short this market that is even crazier than in late 1999. But this morning, I shared in a comment in our illustrious comment section that I’d just shorted the SPDR S&P 500 ETF [SPY]. My time frame is several months.
I’m sharing this trade so that everyone gets to ridicule me and hail me as a moron and have fun at my expense in the comments for weeks and months every time the market goes up. And I do not recommend shorting this market; it’s nuts. But here’s why I did.
The stock market had just gone through what was termed the “greatest 50-day rally in history.” The S&P 500 index had skyrocketed 47% from the intraday low on March 23 (2,192) to the close on June 8 (3,232). It was a blistering phenomenal rally. Since June 8, the market has gotten off track but not by much. It’s still a phenomenal rally. And it came during the worst economy in my lifetime.
There are now 29.2 million people on state and federal unemployment insurance. There are many more who’ve lost their work who are either ineligible for unemployment insurance or whose state hasn’t processed the claim yet, and when they’re all added up, they amount to over 20% of the labor force. This is horrible.
But stocks just kept surging even as millions of people lost their jobs each week. The more gut-wrenching the unemployment-insurance data, the more stocks soared.
Then there is the desperate plight many companies find themselves in, and not just the airlines – Delta warned of a host of existential issues including that revenues collapsed by 90% in the second quarter – or cruise lines – Carnival just reported a revenue collapse of 85% in Q2, generating a $4.4 billion loss, and it is selling some of its ships to shed the expense of keeping them.
These companies are in sheer survival mode, and they’re raising enormous amounts of money by selling junk bonds and shares so that they have enough cash to burn to get through this crisis.
This crisis hit manufacturers whose plants were shut down. It hit retailers and sent a number of them into bankruptcy court. It crushed clinics and hospitals that specialize in elective procedures. It shut down dental offices. It sent two rental car companies into bankruptcy court – Hertz and Advantage. It has wreaked untold havoc among hotels and restaurants, from large chains to small operations. And yet, stocks kept surging.....MUCH MORE
The situation has gotten so silly in the stock market that the shares of bankrupt Hertz [HTZ] – which will likely become worthless in the restructuring as creditors will end up getting the company – were skyrocketing from something like $0.40 a share on May 26 to $6.28 intraday on June 8, which may well go down in history as the craziest moment of the crazy rally.
There were stories of a new generation of stuck-at-home day-traders driving up the shares looking for their instant get-rich-quick scheme. And those that could get out at the top made a bundle (but HTZ closed at $1.73 today)....
S&P 3,114.77 +17.03 (+0.55%)
DJIA 25,994.34 +122.88 (+0.47%)
I'm not sure what the 'obliterating moron' reference is. Mr. Richter might have meant a word I am all too familiar with, "blithering."
On the other hand he may be referring to obliterating one's net worth.
Either way though, he also gifted us with this lovely little Easter Egg:
Fed Ends QE, Total Assets Drop. Liquidity Injection EndsThat reduction in support for risk assets will take a will to play out, maybe August which would set up first a bond and then an equity decline going into September - October.
by Wolf Richter • Jun 18, 2020
Something that some very big money wishes to see happen.
