How I’m Betting Against A Crashing Market

This is not investment advice. Photo from NatGeo

Since I’ve been writing about how markets are going to crash, I thought I’d put my money where my mouth is and bet against the market. This is not investment advice anymore that noting that red sometimes turns up in Roulette.I’m just betting that the markets will go red.

To do on retail platforms like eToro one can sell individual stocks short, or you can hedge with investments you think might go up (like gold), but what I’ll talk about here is the simplest thing my idiot brain could understand. Inverse ETFs, or bear funds.

For example, in yesterday’s relatively minor crash, every index and many stocks shed value. On the other side, however, inverse funds, increased by the same or more amount (because some are leveraged up). Note that this is very risky and in the long-term these bear funds usually look shit.

Here’s the ticker for SPXU over 3 years:

As you can see, however, right now it’s ticking up. If you zoom even closer, this thing moved 12% in a single day, while things like UVXY moved 21.56%. Which is huge (these things are levered up, delivering -1.5x or -3x whatever the market does). That also means they can complete explode your money when the market goes up.

I was cautious and only bought after the market starting crashing yesterday, so I didn’t get that whole upside at all. I invested in the more cautious inverse funds (SQQQ, SPXU, and SRTY) and saw only 5%, 5.79%, and -0.5% returns (respectively). On the last one I just got in way too late. What I should have done is buy while the market was good yesterday, but this is literally my first trading and I was scared.

As you should be too, after reading that last sentence. This is not investment advice, I’ve never done this before. There are obviously more sophisticated ways to bet against the market. I’m just an idiot coming into the casino off the street and putting money on red. I don’t know exactly when it’s going to turn up, but I know it always does.

I put about $800 in and made $27, for a 3.35% return in a day. Woo-hoo, right, but that’s basically what I earn in a day from Medium. If I’d gotten in earlier I could have gotten much more. However, if things had gone different I could have easily lost 20%. Note that I also bought some lithium and fertilizer stocks that I thought would hedge, but they also lost value in the general panic. The truth is that all stocks are ultimately chips in a casino, it’s not really about earnings or dividends.

As Jamie Merchant says in a great long read:

The structure of private finance itself has dwindling need for market mechanisms. Consider index funds, passive investment vehicles with a portfolio built automatically to mimic the performance of a particular market index, such as the S&P 500. Since 2008, the share of the equity assets managed by index funds has grown 450 percent, greatly outperforming traditional, actively managed funds and surpassing them in money held in 2019.24 It is no accident that this rapid rise has coincided exactly with the expansionary policies of the central banks since the Great Financial Crisis. Returns for passive investment depend on the total value of the entire market always going up, which in turn depends on the removal of systemic risk. This is precisely what the expanding administrative reach of the government institutions, particularly the Fed, aims to do.

The truth is that the imperial bank (the US Fed) has giving out free money to sharks for decades. Free money to the rich and outright bailouts have effectively abolished the normal market mechanism of failure. Oligarchs are too big to fail, and all the remora investors in their slipstream are clinging on for dear retirement. But now there’s blood in the water, and it’s all coming apart.

The US government has not cared about rising inequality, rising debt, or the health or impoverishment of their own people, but they do care about inflation.That’s literally the only thing their central banks are for, even though economists don’t actually understand the problem at all. They just pull on the only lever they know how to, which is interest rates. This is of course a brute-force instrument which only draws more blood.

Interest rates don’t address the fundamental problem that the country doesn’t make shit, doesn’t invest in its people, and is wildly corrupt. Interest rates are just blood in the water, and the financial markets are teeming with sharks. Now they’ll start eating each other, but the remoras and hapless minnows will be the first to get fucked.

As I’ve said, it’s a fool who says the market is going to crash right now, but it’s an even greater fool who says never. In my opinion a global recession has already started, and there’s so much pressure—from inflation, to war, to disease, to climate collapse—that sooner or later a Greater Depression will start. Which is why I’m short on civilization, with whatever meager capital I can scare up.

“When the capital development of a country becomes the by-product of a casino,” as J. M. Keynes himself said, “the job is likely to be ill-done.” (via Merchant)

The truth is that rich people fixed the roulette table decades ago so that it usually comes up black for them, and they get their money back even if it doesn’t. But now the four legs of that table are wildly wobbling and even the corrupt dealer has noticed. So all bets are off. Again and again, this is not investment advice, this is just my experience. I’m selling western civilization short.