The Bearish Calls of Tesla Short Seller Mark Spiegel Paid Off in January

Stanphyl Capital’s founder “believes stocks are entering a bear market due to price-to-earnings “ratio crushing inflation and Fed tightening.”

David Paul Morris/Bloomberg

David Paul Morris/Bloomberg

Stanphyl Capital’s Mark Spiegel, the hedge fund manager famous for being one of the most vociferous Tesla bears, now has the entire stock market in his sights.

“The biggest asset bubble in history was blown with the Fed printing $120 billion/month and short term rates at zero,” he wrote investors in a letter dated January 31. “Anyone who thought that bubble wouldn’t implode with the imminence of no printing and rates at 2 percent+ was living in fantasyland.”

In January, as markets tumbled briefly into correction territory, Spiegel’s fund gained 11.1 percent, in contrast to a 5.2 percent loss for the S&P 500 and a decline of 9.6 percent for the Russell 2000.

Spiegel admitted that he thought “fantasyland would end a lot sooner.” But now, even with the recent rebound, he believes stocks are entering a bear market due to price-to-earnings “ratio crushing inflation and Fed tightening.”

He said valuations have “a long way to go before reaching normalcy” by a gauge known as the Buffett Indicator, which is the U.S. stock market’s valuation as a percentage of GDP. The indicator last signaled that stocks were “strongly overvalued” during the dot-com bubble of the late 1990s. On January 27, the ratio hit 193 percent, which was 50 percent higher than the long-term trend line.

“I continue to believe we’re entering a stagflationary repeat of the 1970s,” Spiegel wrote at the end of 2021. Despite his overall bearishness during one of the hottest years in the stock market’s history, his fund managed to gain 25.9 percent, almost matching the S&P 500’s gain of 28.7 percent for the year.

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He now believes that “the Fed’s new hawkishness is spooking both stocks and gold and may continue doing so until the pain of asset price declines hits Powell’s ‘put’ (wherever that is), at which point he’ll stop raising regardless of where inflation is.”

Spiegel acknowledged that “it’s possible that the combination of a slowing economy and a high ‘base effect’ will bring CPI down to the 4 percent range from its current 7 percent, that figure would still be massively inconsistent with the Fed’s currently anticipated policy, which is why we still own that ‘core’ gold position.”

“Even at today’s absurdly low rates the interest on the nearly $30 trillion in federal debt costs around $400 billion a year,” he said. Spiegel said he didn’t think that either Powell or anyone else in Washington has the “guts” to raise rates enough, predicting that “this Fed will be behind the inflation curve for at least a decade.”

Last month, Spiegel said shorts in ARKK, technology investor Cathie Wood’s Ark Innovation ETF, and Tesla, the electric car company, worked out well. ARKK, a popular proxy for those bearish on Tesla and high-flying tech stocks in general, fell 10 percent for the month, ending around $75 per share. Spiegel said he closed out the short “a bit too early (in the mid to high $70s, before it continued into the mid-$60s and then rebounded back to the 70s.” He shorted ARKK last year when it was around $140 a share.

Tesla — which Spiegel said in December was “losing the narrative” — fell more than 11 percent in January, well below the $1,200 per share the stock reached in November. Tesla ended January at around $937 per share.

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