• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

The Game Has Changed: Risk-Off Replaces Risk-On

It's just not in anyone's best interest on what we call the buy-side or the sell-side to tell you that.
By JIM COLLINS
May 12, 2022 | 10:00 AM EDT
Stocks quotes in this article: BLK, ARKK, TWTR, MS, HIG-G

This is what a bear market feels like. I have lived through so many. My first was when I was a teenage intern in 1987 at an asset management firm in my hometown, the financial hotbed of Lebanon, PA. That was a doozy of a correction, but did not  lead to a bear market. In fact, old-heads will tell you that the DJIA actually finished 1987 with an annual gain.

But here is what those same old heads won't tell you, or at least if they work for large asset management firms, or even worse, investment banks, where I spent a decade of my life: The Game Has Changed. Risk-on has been replaced by risk-off.

It is just not in anyone's best interest on what we call the buy-side or the sell-side to tell you that. There has just been so much nonsense foisted on the average investor, that credibility becomes a real issue.

You have a Fed led by the feckless Jerome Powell, who has zero credibility with Wall Street owing to his incredible predictions of "transitory" inflation. On the other end of the bench you have the Tweedledee and Tweedledum of pseudo-science, John Kerry and Al Gore, ranting on about a melting planet against a sea of evidence to the contrary. This ESG-mania has directly contributed to runaway inflation, by making the natural capital-raising process for energy companies a real chore, and thereby depriving the globe of much needed supply of oil and natural gas. Thanks for $5/gallon gas!

Off to the side, you have Cathie "$12/barrel oil" Wood, and other luminaries like BlackRock's (BLK) Larry Fink, who have collectively increased the cost of capital for energy companies with their ESG mandates. Finally, you have the so-called financial experts on FinTV. 

That's what 35 years of trying to read these tarot cards has taught me. You never receive good advice from Wall Street in a downturn. But a downturn has to be connected with a pronounced economic slowing to produce a real Bear Market. In 1987, that crash was more a result of technical factors, but the underlying economy was still in the midst of the Reagan Revolution and quite strong. The Tech Bubble was similar. The market saw a massive rotation away from profitless tech stocks - sound familiar? - but the underlying economy managed to hold the damage to a mild slowdown in 2001-2002.

Obviously 2008 was quite different. The plumbing of the financial system was impacted by the collapse of Lehman Brothers (my first Wall Street firm that I had the good sense to leave in 1994) and the global economy was whipsawed.

Covid famously produced "the shortest recession in US history." But self-congratulatory hype amongst the financial technocrats of the world merely served to embolden that bunch. So, they proceeded to produce an annihilation of the value of fiat currencies via an extraordinary money-printing binge by central banks coupled with a money-distributing ("stimmies") binge by global governments. Who thought that was a good idea? Who did not think money-printing and money-foisting would not produce generational-high rates of inflation? Not I. Go back and read my old Real Money columns. I will stand by my record.

You have to feel the market's vibes, and yesterday, I felt fear. Real, once-in-a generation fear. But that fear can only be fatal to portfolios when it closely follows a period dominated by its old Wall Street bedfellow, greed. To go back to unbridled greed and incredible over-pricing of assets you would have to go all the way back to... November. Yeah, it's been six months. In the course of that period the narrative has shifted 180 degrees.

My firm, Excelsior Capital Partners, began introducing model portfolios for individual investors, beginning with the energy stock-laden HOAX on 12/23/21. Yesterday morning HOAX reached the point of doubling the performance of its benchmark (ARKK) (HOAX up 40%; ARKK down 60%) which is an extraordinary performance in less than five months. Since HOAX's initiation I have added HOAX 2.0, two short-then-reinvest portfolios, SHORT and FKBGT (whose short holdings have declined a collective 42% since its inception on 4/13/22) and, finally, for those who absolutely HAVE to own stocks, DFNCE.

Transparency is a core value at ExCap. 

But, yesterday, I felt a disturbance on the Force I had not felt since Lehman Monday. It's time for me to stop taunting Cathie and Elon (who actually builds things, which, as a long-time auto industry analyst, I respect immensely. I just think he has been sold a bill of goods on Twitter  (TWTR) by Morgan Stanley (MS) ) and to go after companies that have a real chance of failure.

Yesterday at 11 am, I performed the short-lock on DEATH. This is a portfolio of 10 of the most financially unstable companies I have seen in 30 years of researching stocks. There are some losers in this crew. As recently as last November, though, Cathie and her cronies were extolling the virtues of many of these names.

DEATH rose by 8.5% in its first five hours of existence. I use diversification to balance my portfolios, and proceeds from the short sales that created DEATH were reinvested in Hartford preferreds, (HIG-G) . An investment in an incredibly stable company funded by bets against incredibly unstable ones.

The companies in DEATH should die. Chapter 11 reorganization on a mass level is actually healthy for the U.S. economy. Bankruptcies produce stock values of $0.00, though, and that's what we want to exploit on the short side.

Sometimes "not owning crap" is not enough to produce alpha in your portfolio. Ya gotta go for the jugular. 

(Morgan Stanley is a holding in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells MS? Learn more now.)

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Jim Collins' firm owned puts on TSLA.

TAGS: Investing | Markets | Stocks | Trading

More from Investing

When Not Just Any Dividend Stock Will Do

Bob Ciura
May 28, 2022 12:30 PM EDT

These 3 high-yield stocks are also attractive on a total return basis.

Buying Will Get You Nowhere If You Don't Know How to Sell

James "Rev Shark" DePorre
May 28, 2022 10:00 AM EDT

Let's explore the tremendous power of the sell button -- and why it's so emotionally charged.

Move Over Target and Walmart, Costco Gets the Gold Star

Stephen Guilfoyle
May 28, 2022 7:30 AM EDT

I had a bit of money -- and ego -- riding on Costco coming into earnings. It didn't disappoint.

A Rally Driven by Fear (of Missing Out)

James "Rev Shark" DePorre
May 27, 2022 4:28 PM EDT

What's next after this seesaw week? One thing is for sure: More volatility.

Let's Take Nikola for a Spin. And Then Return It

Mark Sebastian
May 27, 2022 2:56 PM EDT

I wouldn't want to own NKLA, but I could see riding it for a few days.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 10:58 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The tremendous power of the sell button.
  • 02:46 PM EDT STEPHEN GUILFOYLE

    We're Shedding Some of This Holding on Strength

    Check out the Stocks Under $10 portfolio here!
  • 11:33 AM EDT PETER TCHIR

    Thoughts Ahead of the Fed Minutes

    Recent economic and earnings issues are convincing...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login