Yesterday, markets had their worst day in 2017.
The Dow Jones Industrial Average plunged about 240 points, and the S&P 500 dropped 1.2%, with financials falling over 2.5%. I think the sell-off was due to concerns about Trump's policies not having the magical effects the markets are counting on. I also think it had a lot to do with Rep. Kevin Brady's statement that the border tax has become a "given," since it would be a disaster if it did pass. (We have only scratched the surface of the retail carnage that will occur if the border tax indeed makes an appearance in the final tax reform plan.) In addition, oil was down pretty sharply yesterday (about 2%), which didn't help matters.
But the truth is, at these levels any little thing can send the markets reeling like they did on Tuesday.
With stocks extremely overvalued (trading at 22x forward earnings, near the 24x forward earnings they traded at during the Internet Bubble), it won't take much to see a sell-off of 5% to 10%. The first things investors will sell are the worst stocks, including many of our names. I am confident our long-dated puts will generate good profits because these companies are going to get worse and the bull market is going to falter. That gives us two bites at the apple. Make no mistake: Yesterday was just the opening salvo. The bull market is coming to a halt, and longer term, we are still headed for a Super Crash.
About the Author
Prominent money manager. Has built top-ranked credit and hedge funds, managed billions for institutional and high-net-worth clients. 29-year career.