President Donald Trump on Wednesday warned Americans that investors delivering downbeat forecasts for stocks may be positioned to profit from the predicted decline.
When the so-called “rich guys” speak negatively about the market, you must always remember that some are betting big against it, and make a lot of money if it goes down. Then they go positive, get big publicity, and make it going up. They get you both ways. Barely legal?
— Donald J. Trump (@realDonaldTrump) May 13, 2020
Investors can bet against stocks by short-selling them. This requires them to sell borrowed shares at today’s price, hoping to buy it back to return to the lender at a lower price in the future. Futures, options, and exchange traded funds can also be used to profit off of a decline in the stock market.
Stocks turned sharply negative on Wednesday, following a streak of winning days that pushed the Nasdaq Composite into positive territory for the years and erased half the losses on the S&P 500.
It was not clear who Trump had in mind. Several prominent investors have made grim forecasts for financial markets or warned that stock prices have recovered too much ground since hitting a low back in March, including Warren Buffett and famed hedge fund investor Paul Tudor Jones. Pershing Square Capital’s Bill Ackman turned $27 million into $2.6 billion for his hedge fund by betting that the coronavirus would crash the stock market.
Speaking at a webinar run by The Economic Club of New York on Tuesday night, Stanley Druckenmiller said that “the risk-reward for equity is maybe as bad as I’ve seen it in my career.” Druckenmiller, a former partner of George Soros, has a net worth is $4.7 billion and converted his hedge fund into a “family office,” allowing him to escape some regulatory scrutiny.
Shortly before Trump’s tweets, CNBC’s anchors were discussing Druckenmiller’s comments.
Billionaire hedge fund investor David Tepper on Wednesday morning said in an interview on CNBC the stock market is one of the most overpriced he’s ever seen, only behind 1999. But that interview was after the president’s tweet.