Economists’ no parley

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In the age-old capital markets, many have made fortunes and many have lost fortunes.

In another sense, many were rewarded for being proved right whilst many others had their opinions, theories, and calculations rejected with a blow by the wealth transfer system, also known as the markets.اضافة اعلان

Throughout history, hundreds of money system scientists — economists — have become legends.

These are a select group of people who shared their thoughts and beliefs with the world through parking their money in an asset for a duration of time and were rewarded beyond financially.

People like George Soros, the man that bankrupt the bank of England; Peter Theil, the first outside investor in Facebook; Ray Dalio, the catalyst for the chicken McNugget; and many more have made a name for themselves by being proved right while all others were proven wrong.

Legends, in retrospect, should have also made their decisions during rough times and unlikely circumstances; they also should be a minority standing before a much stronger majority.

In the past thirty years, two characters in the Wall Street world have successfully shown signs of becoming future legends by making incredibly challenging bets on the markets and coming out right while the majority came out wrong.

Cathie Wood started her career over 45 years ago in the investment world at entry-level jobs in the financial world.

Today she is the CEO & CIO of ARKK Investments, one of the biggest investment firms on Wall Street, which has its own exchange traded funds (ETFs).

ARKK Investments made highlights that attracted billions after booking huge profits from investments in some of the most speculative, high risk, fundamentally over-valuated names in the world such as Tesla, Palantir, Bitcoin, Shopify, and many others.

Furthermore, she was known for making insanely large price predictions on high risk names like Tesla’s stock price rising above $30,000 and Bitcoin exceeding the $1-million mark.

It seemed like Wood was a future optimist and brave intellectual to the point that she has invested billions in names that gained their value from their assumed claims of the future.

On the flip side, the Big Short was a Hollywood movie made almost entirely to narrate the story of a hedge fund trader that successfully predicted the 2008 US Housing bubble and made billions throughout his career calling out disasters long before they happen, then making bets on the catastrophic outcomes.

This soon-to-be-legend is Michael Burry.

Michael is from an opposite school of thought to that of Wood’s; while she is a in favor of speculative names, Michael believes that most stocks, cryptocurrencies, and assets that have risen in value and rallied in price are overvalued and due for a huge crash.

Over the past 20 months, Michael Burry has been an outright market bear and accumulated billions of dollars in bets against most US tech stocks, cryptocurrencies, and speculative assets while Wood has accumulated billions worth of market bets that the markets will go even higher, especially for the case of stocks like Tesla and cryptos like Bitcoin.

Yesterday a public filing for Burry’s company, Scion Asset Management, revealed it has over 235,500 contracts representing price drop bids in Wood’s ARKK Innovation ETF and new similar positions worth over $31 million causing the ETF to drop over 2 percent overnight.

This all should in some sense sound like just another day on Wall Street, where opinions are countered with a hefty bill to pay for the weaker opinion.

However, to a person like me, I look at the matter from a different perspective.

This paradigm difference in both opinion and action between two highly experienced, highly skilled, and most importantly well-educated participants shows exactly how wide the difference between either possible outcomes could be.

Mind you, these two are pretty confident, well-versed researchers who are supported by strong scientific tools to support their opinions and theory, yet they are both pointing towards two different extremes.

One can only wonder how much less confident, more uncertain, less scientific, more speculating market participants might react to either extreme outcome, let alone how might they prepare.

Here is what I think will happen: In my opinion, the best strategy to use when navigating market environments so extreme that it allows for such variances among the market whales, one should play out their believed strategy with on much smaller size.

Apply a hedge strategy that is even smaller in size and opposite in direction to the original strategy.

Finally, and most importantly, maintain liquid cash reserves to benefit from opportunities that may arise from extraordinary circumstances when least expected.