Expert who bypassed 2008 crash warns of 25% drop

  • Glen Goodman made short sales of £ 100,000 in 2008.
  • On Tuesday, he told Insider that he had just bought put options on the S&P 500.
  • He said there was a “good chance” that the index would drop 25% “at some point”.

In 2008, Glen Goodman traded stocks as a hobby, a way to earn extra money on top of his full-time job.

At the start of the year, he felt stocks were going to drop significantly as the financial crisis began to unfold and the collapse in the US housing market continued to hurt his economy.

So he put £ 3,000, and then another £ 2,000, in spread bets against the FTSE 100, the leading UK stock market index. With the economic outlook bleak, he also later bet against the price of oil, according to an article he wrote for the London newspaper. The Times newspaper.

When global markets finally collapsed, proving his bet was correct, he won £ 100,000, or around $ 138,300, according to the article.

More than 13 years later, Goodman, who now works full time, feels the same way. And he puts his money where his mouth is.

In an interview with Insider, Goodman said he just bought S&P 500 put options, contracts that allow traders to profit if stocks fall. Goodman’s puts expire on October 15, he said, but he could extend them until mid-November if necessary. He said he bought them as an “insurance policy” because a crash is not inevitable and he is not a “permanent bear”. He still owns a lot of stocks, he said.

But Goodman still painted a grim picture for stocks in the near future as they hover around historic highs after a massive rise from March 2020 lows. He said there was a “fair chance” that the S&P 500 drops 25% “at some point,” adding that there doesn’t necessarily have to be a trigger. This would put the index to pre-pandemic highs.

“What happened to bitcoin today could quite easily happen to the S&P 500 any day,” Goodman said on Tuesday, when the crypto dived 17%. “That’s the thing, you never know when it’s going to happen. The 1987 stock market crash was really bad, it was one of the worst ever … and they still don’t know why it was. happened. Nobody knows. It just happened. “

Looking at a chart of the S&P 500, he continued, “It’s just too clean and tidy, that little spike he’s making. It’s begging to be destroyed.”

S&P 500 chart


Market insider


A line of thinking on Wall Street right now is that stocks cannot take a major drop because the Federal Reserve continues to make massive asset purchases. Asked about it, Goodman said he disagreed.

“If it’s gonna crash, it’s just gonna crash,” Goodman said. “I’m not saying it’s going to stay low, though. Maybe the Fed will help it recover. But it could drop 50% before they manage to start the recovery, because once the panic sets in, it just keeps on growing. “

Goodman cited in support of his argument the fact that most fundamental valuation metrics, like Shiller’s price-to-earnings ratio, historically show excessive market expansion. The measurement is currently close to the levels observed during the Internet bubble.

pe shiller report


GuruFocus


Goodman said he is insuring against what he believes is a quick sell followed by a rally. For a long time

bear market
in order to happen, he said, unemployment generally must rise and retail sales must fall.

Goodman’s perspective in context

Bearish sentiment seems to be seeping into the spirit of the times on Wall Street.

Big banks like Morgan Stanley and Bank of America have warned of market corrections. It also appears that investors are realizing that things sound too good to be true. Stocks are coming off their sixth consecutive positive month, a type of streak that is becoming statistically more difficult to maintain, as Lance Roberts of RIA Advisors recently pointed out.

probabilities of positive sequences of actions


AIR Advisors


September is also the the worst month of the stock market historically. So far, this theme is playing out. Shares fell for the fifth day in a row on Friday for the first time since February.

As Goodman said, nothing is certain in the markets. And there are reasons – including Fed support and strong corporate earnings – to stay bullish.

But there are also reasons to be bearish – perhaps more recently a drop in consumer confidence, which bodes ill for future earnings. And a cocktail of boosted valuations, a continuing pandemic, worse-than-expected job gains and a grim statistical precedent do not offer good prospects.

The coming weeks will show whether Goodman’s insurance policy pays off.

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About Robert Valdivia

Robert Valdivia

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