- Glen Goodman made £100,000 shorting markets in 2008.
- On Tuesday, he informed Insider he’d just purchased put choices on the S&P 500.
- He stated there may be a “truthful likelihood” the index drops 25% “at some point.”
In 2008, Glen Goodman traded stocks as a pastime, a means to earn extra cash on the facet of his full-time job.
Early that 12 months he had a feeling stocks have been going to drop in a large means as the financial crisis started to unfold and the housing market collapse in the US continued to damage its financial system.
So he put £3,000, then later one other £2,000, into unfold bets against the FTSE 100, the UK’s blue-chip stock index. With the financial outlook bleak, he additionally later bet against the worth of oil, in accordance to a contributed story he wrote for the London-based Times newspaper.
When international markets lastly crashed, proving his bet appropriate, he made £100,000, or about $138,300, in accordance to the piece.
More than 13 years later, Goodman, who now trades full-time, is getting the similar feeling. And he’s placing his cash the place his mouth is.
In an interview with Insider, Goodman stated he’d just purchased S&P 500 put choices, contracts which permit merchants to revenue if stocks fall. Goodman’s put choices expire on October 15, he stated, however he could lengthen them to mid-November if mandatory. He stated he purchased them as an “insurance coverage coverage” as a result of a crash isn’t inevitable and he’s not a “perma-bear.” He nonetheless owns a lot of stocks, he stated.
But Goodman nonetheless painted a bleak image for stocks in the close to future as they hover round all-time highs following a huge run up from March 2020 lows. He stated there’s a “truthful likelihood” the S&P 500 drops 25% drop “at some point,” including that there would not essentially have to be a set off. This would put the index at pre-pandemic highs.
“What occurred to bitcoin at present may fairly simply occur to the S&P 500 any day,” Goodman stated on Tuesday, when the crypto plunged 17%. “That’s the factor, you by no means know when it is going to occur. The 1987 stock market crash was actually extreme, it was considered one of the worst of all time…and they nonetheless do not know why it occurred. Nobody is aware of. It just occurred.”
Looking at a chart of the S&P 500, he continued, “it is just too neat and tidy, this little spike it is making. It’s begging to be destroyed.”
One line of considering on Wall Street proper now’s that stocks can’t endure a main decline as a result of the Federal Reserve remains to be making huge asset purchases. Asked about this, Goodman stated he disagreed.
“If it is going to crash, it’s going to just crash,” Goodman stated. “I’m not saying it’s going to keep down, although. Maybe the Fed will assist it get better. But it’d fall 50% earlier than they handle to begin the restoration, as a result of as soon as the panic will get underway, it just gathers momentum.”
Goodman cited as assist for his argument the truth that the majority elementary valuation measures, like the Shiller price-to-earnings ratio, present over-extension in the market traditionally. The measure is at present close to ranges seen during the dot-com bubble.
Goodman stated he’s insuring himself against what he thinks would be a fast sell-off adopted by a restoration. For a longer drawn out
to occur, he stated, unemployment usually wants to be rising and retail gross sales want to be falling.
Goodman’s views in context
Bearish sentiment is seemingly seeping into the zeitgeist on Wall Street.
Big banks like Morgan Stanley and Bank of America have warned of market corrections. There additionally appears to be a realization from buyers that issues seem too good to be true. Stocks are coming off of their sixth-straight optimistic month, a sort of streak that turns into statistically more tough to preserve, as RIA Advisors’ Lance Roberts identified lately.
September can be the stock market’s worst month traditionally. So far this theme is enjoying out. Stocks fell for the fifth straight day on Friday for the first time since February.
As Goodman stated, nothing is definite in markets. And there are causes — together with Fed assist and robust company earnings — to keep bullish.
But there are causes to be bearish, too — maybe most lately a decline in consumer confidence, boding poorly for future earnings. And a cocktail of heightened valuations, a persevering with pandemic, worse-than-expected job gains, and dim statistical precedent do not make for a rosy outlook.
The weeks forward will present whether or not Goodman’s insurance coverage coverage pays off.