Dave Kranzler: How To Short A Financial Bubble

Arcadia Economics, Released on 1/14/20

As the stock market continues to soar with the Fed’s printing press fueling the momentum, many can see that a bubble has formed. But what to do about that age old adage that the bubble can stay intact longer than most investors can stay solvent?

Perhaps there’s no easy answer or guarantee of when the bubble finally bursts. Yet like with most things in life, having a good framework in place and learning from past examples can make a world of difference.

So I was fortunate to have Dave Kranzler, author of “The Short Seller’s Journal”, and also a fund manager who successfully shorted the dotcom and subprime bubbles, on the show to pass along some ideas for investors to consider. Which is not to say that there’s an exact answer, or perfect solution. Although hopefully what Dave shares from his experience in this interview will give you the framework to have greater success.

Dave Kranzler spent many years working in various Wall Street jobs. After business school, he primarily traded junk bonds for a large bank. Dave graduated from Oberlin College with majors in Economics and English and he also has an MBA from the University of Chicago, with a concentration in accounting and finance. Currently, he co-manages a precious metals and mining stock investment fund in Denver. He has nearly thirty years of experience in studying, researching, analyzing and investing in the financial markets. His daily articles can be found at his site, Investment Research Dynamics.

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I doubt that all the repo market is doing is simply bailing out some banks or hedge funds. Likely, what is happening is the repo market is being used (abused?) to buy US T-Bills in order to keep interest rates low. And these T-Bills are being sold because there is no room left for growth. Yet many institutions need some form of growth to meet pension redemption or other financial need. And the only (for now) place left where growth can be achieved is in the equity/stock markets, and the stocks of choice are those that are the most popular (i.e., the most liquid) – such as Tesla. But it would seem there is also interest in bullion (for now). Yet anyone who buys through the LBMA is only getting worthless paper gold. The smart money is obtaining physical gold. So when does this all end. Easy. Once a major black swan enters the picture or all the T-Bills are sold back to the banks via outright monetization of all the debt. On the plus side of this, there will be no T-Bills left to sell into the market. But there will be no buyers for any of it either. At this stage it becomes easy to just cancel the T-Bills and leave the money in the system.