The Bigger Short

2020 03 24 14 30 19

One of the more entertaining things about the storied investors who made big money during the decade-ago financial crisis is how little money they have made since. Granted, most made enough money that it’s not like we need to worry about where they will scrounge Porsche Taycan money, but it is noteworthy how poorly most of them have performed since. It is almost as if the people who got it right last time were mostly lucky—it required the right idea, the right timing, the right capital, and the right access to the correct trading instruments—and couldn’t do it again. Almost.

The same thing is guaranteed to happen now. Rest assured that any day now we will start hearing stories about investors who saw this coming, bought index puts (or, better yet, some derivative exotica we haven’t heard of yet), etc., and are dutifully profiled in front-page, stippled profiles in the Wall Street Journal. And this is an even bigger short than the last one, given that we essentially have a global, societal flash crash, with everything coming to a sudden and unprecedented stop.

Does that mean this new crew had it figured out? No more than I did when I dropped off Twitter in late January as I watched the viral clouds gathering, and knew they would flow this direction. Sure, it was obvious something big and important was happening, but how long it would take, how systemic its consequences would be, and how poorly it would be handled … there were all still highly uncertain variables.  But that won’t stop the upcoming stipple profiles of the people who got The Bigger Short right and made bank.

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Of course, this begs the question of what The Even Bigger Short will be, the next crash that is unexpectedly expected, and that sweeps all before it. It is ridiculous to guess, for all the reasons above, but … my guess? Sovereign debt, mostly because it has become a kind of bulging, plumbing U-trap for the sewage draining from the last three crises, from the dot-com, to the 2008 financial crisis, to the current pandemic. It is loaded with toxic awfulness. Granted, sovereign crises have been predicted for decades without happening, but that has emboldened people to think it should be the last of our concerns. And so it goes, until it too … doesn’t.