Crispin Odey profits from his bearish wagers.

Late February’s anticipated stock market sell-off, which saw the S&P nosedive by 11.5% in a week and wiping out $3.2 trillion off the value of large-cap stocks in just five days was one for the books. It was the worse sell-off since the financial crisis of 2008 with the S&P 500 registering its fastest correction since the Great Depression.

Easy come and easy go, and in a zero-sum game for every red screen, there is always someone somewhere on the other side of the bet with green on their screen.

Crispin Odey profits from his bearish wagers and the permabear founder of London-based Odey Asset Management is no doubt seeing a lot of green on his trading screen, and he is probably feeling a sense of schadenfreude.

“It was the worse sell-off since the financial crisis of 2008 with the S&P 500 registering its fastest correction since the Great Depression”

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Crispin Odey profits from his bearish wagers but despite the gains, Crispin Odey’s fund is still down about 5 percent for 2020

Nevertheless, Crispin Odey’s bets against oil stocks and Tesla paid off following the recent stock sell-off.

Crispin Odey profited from bets against the electric carmaker which partially revered its recent rally.

Back in August 2018, I wrote in a piece entitled, Crispin Odey’s Tesla’s “Final Stage of Life view. 

Crispin Odey’s see many similarities between the CEO Elon Musk and the sailor Donald Crowhurst

“The amateur sailor set off in the 1960s on a solo voyage around the world and never came back” according to a Bloomberg article.

Crispin Odey’s Tesla’s “Final Stage of Life” view is based on Tesla’s many failures.

Tesla blamed “production bottlenecks” for only meeting a fraction of the promised 1,500 Model 3s, according to The Wall Street Journal.

“Crispin Odey’s Tesla’s ‘Final Stage of Life’ view is based on Tesla’s many failures”

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But since then there have been a few positive developments at Telsa. The US electric car company has built its first European factory in Germany and CEO Elon Musk announced further plans last November to build a fourth Gigafactory outside Berlin. Telsa’s new factory in Gruenheide in the eastern state of Brandenburg near Berlin is expected to create up to 12,000 jobs. Tesla’s decision, to start production in 2021, was initially lauded as a vote of confidence in Germany. 

Telsa stock jumped 60% since January 14 but lost 19% in the recent February stock sell-off. Most analysts still think Telsa is overvalued. 

“What you needed for this year [2020] was for earnings to come through” – Crispin Odey

Crispin Odey profits from his bearish wagers also in US shale stocks, which have been hit particularly hard in the wake of the COVID-19 outbreak 

The downtrend in the energy market has been particularly acute during the first quarter of 2020 as the black swan event COVID 19 rattles the global economy and investors. The energy market is on the front line of the impact of COVID 19, which has been described as a “demand shock” event by energy traders. On the losing side of Crispin Odey’s bearish bets is the famous energy trader Pierre Anduran who clocked big losses as his bullish bets on the energy market hemorrhaged capital during the recent sell-off. 

Crispin Odey’s profits from his bearish wagers is a classic contrarian play where everyone is bullish despite the market being overvalued

“We went into coronavirus with the market incredibly bullish, everyone was long” said Crispin Odey in an interview. “I’m more cautious than most people.” He said that last year’s rally in markets, the S&P 500 delivered a return of 29 percent, was driven by the expansion of price/earnings multiples rather than earnings, which meant that investors were paying more for the same streams of profits. “What you needed for this year [2020] was for earnings to come through” he said. “Earnings are just not coming through — it’s going to be the opposite. The question is, does another dose of monetary madness offset the willingness of the market to look at what’s going on?” said Crispin Odey.

“We [the economy] have long ago stopped allocating capital efficiently,” added Crispin Odey. “A long time after savings have gone, a credit will still be there, and it’s horrible” he said. 

Crispin Odey is a longtime critic of the effects of quantitative easing, the purchase of trillions of dollars of bonds by the major central bank. The recent slide has raised expectations among investors that central banks will come up with new ways to inject life into global markets.

“Crispin Odey profits from his bearish wagers, but the big question is whether he could continue to going forward” – Crispin Odey

Crispin Odey profits from his bearish wagers because the fundamentals, the corporate earnings recession (prior COVID 19) don’t jibe with record stock prices

Crispin Odey took his cue to short the market due to this negative divergence. What’s more, it took COVID 19 for investors/traders to wake-up and smell the coffee. But there were also other investors/traders who were already wide awake, they knew these sky-high valuations were not justified but they figured out that the only thing keeping the bubble inflated was the central bank’s liquidity injections. The buy the dip crowded gamed monetary madness for a decade and creamed the froth. 

Crispin Odey profits from his bearish wagers, but the big question is whether he could continue to going forward

Crispin Odey’s hedge fund performance has had its ebbs and flows. In 2019 Crispin Odey’s fund lost 10.1 percent but he gained 53 percent in 2018.

So will the permabear enjoy more time basking in the sun? 

Monetary madness can’t continue ad infinitum without creating an even bigger crisis than the one it is trying to resolve.Moreover, there is only a finite amount of debt to monetize. 

What happens next when there is no more debt to monetize and when zero negative interest rate policy has already been implemented? Has monetary madness already run aground? We are going into this economic calamity with central bank rates near a record low. Moreover, with G7 budget deficits near-record high how much more debt can the government’s shoulder with declining tax revenues? But the central banks could buy stocks directly, corporate welfare?

Then it is a stock market in name only.