5 Incredibly Obvious Market Signals Everyone Missed
Photo: Rich Fury/Getty Images
We should have seen it coming. At least that’s what a lot of investors (big investors and Robinhood speculators) are telling themselves right now with financial assets of all kinds plummeting this year. More than a decade of a bull market, a flood of Federal Reserve money, and a new world of technology in everything from money to cars and even art have made the future boundless. It is only now that some people are discovering – many of them for the first time – that the laws of the market have not been repealed. Inflation, the war in Ukraine and rising interest rates are hitting the markets, and no one knows when it will end.
The S&P 500 — the stock index most likely in your 401(k) — is down 19% year to date. This is dangerously close to the official definition of a bear market: 20% or more of the peak. Meanwhile, the NASDAQ, where big tech names trade, is down 28% this year, SPACs and crypto have slumped, and private markets are seizing up.
It’s no wonder that finding the best market signals that most people have missed has become a favorite pastime among finance experts looking for dark humor as a balm for their losses. This list is far from exhaustive, but from crypto to meme stocks to SPACs and beyond, here are some of the tells that are making the rounds for investors.
Crypto is perhaps the most obvious place to look for missed signals that things have gone too far. For most of the past year, bitcoin has seemed unfazed by critics who branded it a Ponzi scheme and regulators around the world who have threatened or enacted restrictions. Ultimately, however, the top of the crypto market was predicted by one of the most famous curses of a market in financial bubble: arena naming rights.
In early November – just as bitcoin was hitting its peak – the Staples Center in Los Angeles announced it would change its name to Crypto.com Arena after selling the rights to crypto.com for $700 million, which ESPN called it “the richest naming rights deal in sports”. history.” This was just months after crypto exchange FTX purchased the naming rights to the Miami arena where the NBA Heat play. Such deals have become a wake-up call for investors who recall that Enron went bankrupt shortly after the high-flying energy company won the right to name the Houston Astros baseball stadium The New England Patriots stadium outside Boston was , at the end of the Internet bubble, briefly named CMGI Field after a then high-flying internet incubator – but within months everyone agreed the deal no longer made sense.
Naming rights deals are “usually at the crossroads of hubris and arrogance and management believing in their own bs,” says former financial journalist Herb Greenberg, who jokes that his decision the This past summer of abandoning a project to become an activist short seller was also a top market indicator. After writing research for short sellers for several years, Greenberg moved to the long side, taking a job writing stock advice for a financial research firm.
Then there is the NFT craze. At Anthony Scaramucci’s SkyBridge Capital SALT convention last September, the former hedge fund manager and current crypto kingpin – despite having recently been humbled by big losses – Michael Novogratz spoke about Jeff’s clumsiness. Koons Balloon Dog sculptures to explain the economic logic of NFTs, digital tokens on a blockchain that act as a certificate of ownership. “Why does Balloon Dog worth $30 million? Because we say yes. We do the same with NFTs,” said Novogratz, CEO of Galaxy Investment Partners, a crypto investment firm.
(No surprise that Koons, a former Wall Street commodity broker who honed those skills to sell his kitschy art, also got into the NFT market.)
But the market signal for NFTs came on January 5, just days after the stock market peaked. On that day, OpenSea, the dominant auction market for NFTs, reached a valuation of $13.3 billion. NFT sales also collapsed, down more than 90% from the top.
Meanwhile, OpenSea is still selling Bored Ape Yacht Club NFTs, although prices are falling. And recently, a CryptoPunk NFT that was bought for $1 million six months ago went for $139,000.
While the Koons Balloon Dog the comparison might not be all crazy, it’s also a classic example of the kind of thinking that tends to happen at the top of the market – smart people trying, on some level, to convince themselves that a something that is clearly overvalued might actually be undervalued. Read about any bubble in history and this kind of logic becomes commonplace. In the cold, harsh light of late May 2022, however, it seems pretty clear: a mass-produced cartoon jpeg is not, in fact, a Koons.
The bubble was not just in crypto. The original meme stocks were physical companies GameStop and AMC Entertainment.
But they didn’t turn out to be the class revenge on Wall Street that captured media attention after retail investors at Reddit subreddit WallStreetBets busted hedge fund Melvin Capital by learning how to squeeze heavily shorted stocks. such as GameStop. Although Melvin, who was short GameStop and AMC, hasn’t recovered and is shutting down, the whole episode is something of a Pyrrhic victory for the Reddit team. A recent report from Morgan Stanley found that retail traders just starting to invest in 2020 have been hit the hardest by the recent downturn since the market’s peak.
Should we have seen their demise coming? Perhaps the digital billboards and banners floating from planes in the skies above New York and Los Angeles insisting “AMC We Love the Stock” might have been a clue. These ads, paid for through GoFundMe accounts, began running as the stock hit a high of $60 per share last summer. Even after AMC CEO Adam Aron sold his holdings in the aftermath, the AMC Apes continued to believe – and continued to run their digital ads, most recently on the side of a mountain. Meanwhile, the stock continues to fall. It’s down more than 50% this year, to around $12 per share.
“Laughable then, but maybe tragic now,” says Josh Wolfe, co-founder of venture capital firm Lux Capital. “TikTok accounts of young people talking about stocks, many of them buying options or investing through Robinhood for record amounts, and it’s all working for them, which has virally driven social proof and their peers to also accumulate – none of them having a clue how to read an annual report, dissect a 10-K or 10-Q, reconcile a statement of cash flows or explain why the “Community Adjusted EBITDA” of WeWork was basically a fraud. »
More than anyone else, venture capitalist Chamath Palihapitiya is credited – and blamed – for starting the craze for special purpose acquisition companies, or SPACs. Palihapitiya’s first SPAC took off when it merged with Richard Branson’s financially troubled spacecraft company, Virgin Galactic, in late 2019. Soon others joined the rocket launch, and Palihapitiya, anointed the ” king of SPACs” by Bloomberg, would continue to sponsor ten SPACs.
But on Feb. 21, 2021, just days after SPAC stock prices peaked, he tweeted cryptically: “I’m about to fuck shit… just FYI. (A financial Twitter user who goes by the handle @ItaliGino called this tweet the most obvious sign of the summit, saying, “That was it…exactly.”)
Although Palihapitiya never specified what he was referring to, losing money was probably not what he had in mind. Just three days later, however, he said he had lost $1 billion that day alone as SPACs continued their descent. On March 5, Palihapitiya revealed that he had sold his entire personal stake in Virgin Galactic for a profit of $200 million. The overall SPAC market has been in freefall since then, including those sponsored by Palihapitiya. In February, he resigned as chairman of Virgin Galactic.
In Wall Street tradition, when the critics give up, the stock market has clearly peaked.
During the long bull market, short sellers faced one of their toughest times and stopped trying to predict when the market would turn in their favor. Then dozens of short sellers found themselves in a sweeping Justice Department investigation that began last year (but has so far produced no indictments). ).
One after another, the shorts retreated. Andrew Left of Citron Research has stopped writing short reports. A well-known perma-bear hedge fund manager, Russell Clark, told investors in November that he was shutting down his hedge fund – and did so just before high-flying tech stocks began to fall, as he said. predicted.
Then, in January, Jim Chanos — who called Enron’s demise 20 years ago and has repeatedly called the past few years “the golden age of fraud” — changed the name of his fund from Kynikos Associates into Chanos & Co., quietly closing several of its funds and consolidating others.
Although Chanos’ assets have shrunk from several billion dollars at their peak to less than $300 million at the end of the year, the legendary short seller is still around. So far, 2022 is shaping up to be a very good year for him.