This year is proving to be a time for the market’s longtime bears to finally shine, and Mark Spiegel is no exception. His Stanphyl Capital hedge fund is in a roll, gaining almost 37 percent during the first half of 2022.
Spiegel, who is best known as a vociferous Tesla short seller, thinks the broader selloff in stocks is not done. In a recent letter to investors, he predicted that the S&P 500 index, which fell 20 percent during the first six months of 2022, is only “halfway through a massive bear market in stocks, the inevitable hangover from the biggest asset bubble in U.S. history.”
He added that “the ‘everything bubble’ is in the process of deflating, and we remain positioned for it — albeit, not as short this month as I wish we’d been!”
(Stanphyl Capital lost 1.3 percent in June, still doing better than the S&P 500’s 8.3 percent monthly downturn.)
Spiegel thinks that a “looming slowdown in consumer spending,” along with inflationary pressures, will “substantially lower” the price-to-earnings ratios that companies are trading at. He compares today’s environment with the inflation era between 1973 and 1975, “when the S&P 500’s PE rapidly dropped from 18x to 8x.” Today, he suggests, “perhaps a move from 30x to 14x might be in order.”
Even so, Spiegel said he had covered his short position of the S&P 500 in May, thinking it oversold in the short term. “I plan to reinstate it if there’s a large enough ‘bear market bounce,’” he added.
The firm still has a large short position in Tesla, which Spiegel called “the biggest bubble-stock in this entire bubble era, which will soon be to electric cars what Blackberry became to smartphones: the pioneer that wound up with arrows in its back.”
Tesla reports second quarter earnings this week, and Spiegel is predicting that it will reveal “a terrible Q2 (even before accounting for a roughly $500 million Bitcoin write down). He noted that deliveries are down substantially quarter over quarter, due to a monthlong Covid 19-related closure of the company’s factory in Shanghai.
The hedge fund manager also continued to bash Tesla CEO Elon Musk, whom he has repeatedly labeled a “pathological liar.” Now Spiegel has ramped up the rhetoric, calling Musk “the most vile person ever to head a large-cap U.S. public company.” (Last week, Twitter sued Musk for his attempt to back out of an agreement to buy the social media company.)
Spiegel didn’t say how much of this year’s gains result from his Tesla short, but the stock is down 36 percent for the year and 40 percent since its peak last November.
In contrast, Stanphyl Capital is long automakers General Motors and Volkswagen, viewing them as some of the ultimate winners in the electric vehicle race. That said, their stocks are suffering along with the market. GM is down 43 percent year to date, and Volkswagen has fallen 35 percent.
Stanphyl Capital’s gains in 2022 follow a 26 percent net gain in 2021, its first positive one in four years. At the time, Spiegel was arguing that the U.S. was entering a period of stagflation, and he doesn’t seem any more optimistic these days.
“Last year when short-term rates were set at just 0.125 percent and average rates were around 1.5 percent, the gross interest on the $30 trillion of federal debt cost $573 billion, and that cost is now on a path to nearly double,” Spiegel wrote in the investor letter. “Does anyone seriously think this Fed has the stomach to face the political firestorm of Congress having to slash Medicare, the defense budget, etc. in order to pay the even higher interest cost that would be created by upping those rates to a level commensurate with even 4 percent or 5 percent inflation (not to mention today’s over 8 percent)? Powell doesn’t have the guts for that, nor does anyone else in Washington.”
As a result, Spiegel argued, “this Fed will likely be behind the inflation curve for at least a decade.”