The Most Crowded Stocks (EP.234)

Episode Summary

Executive Summary: The episode centered on the collapse of the 2020-21 speculative growth trade: ARK-like high-beta names, crowded hedge-fund longs, and shorted tech all suffered historic drawdowns while the broad market held up. The hosts debated whether the pain in speculative assets will spill into the wider market, discussed commodity and supply-chain relief, unpacked crypto/Web3 via their new index, and closed with practical advice on risk management, housing, fintech, and pop-culture recommendations.

Main Topics: Collapse of speculative growth and ARK-era favorites (Priority: 5/5): The hosts described a broad selloff in high-beta, negative-earnings tech and ARK-associated names, noting that the unwind had been building for months but became impossible to ignore as many former market darlings got crushed. Crowded trades, hedge funds, and market structure (Priority: 5/5): Using Jim Bianco and Morgan Stanley charts, they showed that the most crowded stocks and the most shorted tech names were underperforming sharply, emphasizing that the pain was not limited to retail speculation and that hedge-fund positioning was also exposed. Whether speculative excess matters for the broader market (Priority: 4/5): They debated the common narrative that once frothy names unwind, the whole market should fall harder. Their key counterpoint was that the S&P 500 was only modestly off highs, suggesting the broader market may absorb the damage without a crash. Crypto volatility and the new WisdomTree/RWM crypto index (Priority: 5/5): The hosts discussed launching a crypto index with WisdomTree, OnRamp, and Gemini, explained why passive exposure still requires many design choices, and highlighted the unique risks of 24/7 crypto trading and leverage-driven drawdowns. Risk management lessons for retail investors (Priority: 5/5): A recurring theme was that investors in speculative names need explicit exit rules, position sizing, or a plan to add on weakness; otherwise, drawdowns become psychologically paralyzing and financially destructive. Macro relief: commodities, supply chains, and inflation hopes (Priority: 3/5): They noted falling commodity prices, softer natural gas, easing shipping bottlenecks, and declining freight rates as signs that inflation pressures may be peaking, while jokingly betting on continued declines. Home ownership, fintech, and lifestyle recommendations (Priority: 2/5): Listener questions covered housing-saving strategies, a suspected pyramid scheme, and a refinance success story. The episode ended with movie, TV, and holiday recommendations, including strong praise for Four Christmases, Succession, and The Beatles doc.

Key Arguments: Speculative growth stocks can fall far more than expected, but their collapse does not automatically imply a broad market crash. Crowded and heavily shorted tech names are suffering historic relative underperformance, showing that professional investors were also overexposed to the trade. Investors in volatile assets need a pre-set risk plan; otherwise, a 50-60% drawdown can become emotionally and financially devastating. Crypto requires different expectations because markets are continuous and can gap violently overnight, making position sizing and advisor communication critical. Falling commodity prices, easing freight costs, and improving supply chains may signal moderating inflation. The new crypto index was easier to build because of pandemic-era remote collaboration, but still involved many important design choices. Fintech and modern digital mortgage tools can materially reduce refinancing friction versus traditional banks.

Data Points: 2021 U.S. IPOs down on the year: about 2 out of every 3 of almost 300 IPOs were down - YCharts scatter plot of 2021 IPO market cap versus year-to-date return Lucid Group return: up about 400% - Example of the few standout winners among 2021 IPOs Ark performance: fell to a 52-week low; down about 40% since peak - Discussion of the ARK-related selloff Broad market decline from highs: about 3.5% - The S&P 500 was only modestly below all-time highs despite speculative-stock carnage Most expensive index vs equal-weight S&P: equal-weight down roughly 4%-5%; expensive basket was 'slaughtered' - Jim Bianco chart comparing broad market strength to the most expensive stocks Crowded stocks basket relative performance: worst performance on record versus the S&P 500 on Friday - Morgan Stanley crowded-stocks basket Most shorted tech stocks drawdown: down 48% - Liz Ann Sonders cited the basket as having its worst drawdown, worse than earlier in 2021 and worse than the 2020 bear market Dumb money confidence: fell - Smaller odd-lot traders lost confidence as speculative names rolled over Smart money confidence: grew most since March 2020 - Large commercial hedgers became more confident while retail confidence weakened Bitcoin/crypto weekend move: entire complex down about 70% at one point; Bitcoin fell more than Ethereum - Early weekend crypto selloff after the crypto index launch Worst one-day crypto performance: worst midnight-to-midnight drop since May/June - Bianco chart on the day’s crypto selloff Commodity index move: Bloomberg Commodity Index down about 10% - Used as evidence that inflation pressures may be easing Oil price move: down about 15% to 20% - Further support for the commodity pullback thesis Natural gas monthly move: down 30% from recent highs; biggest November loss in 20 years - Bloomberg report on natural gas prices easing with warmer weather Port congestion: container ships waiting outside Los Angeles/Long Beach fell considerably in November - Evidence that supply-chain bottlenecks are improving Ocean freight rates: close to a five-month low - Shanghai-to-Los Angeles freight rates were falling Housing starts: new single-family starts expected to top 1 million this year - Compared with roughly 750,000 annually over the prior decade Pre-bubble housing starts: about 1.6 million annually - 2004-2006 housing boom benchmark Needed housing starts to fix supply: 2 million per year for a decade - Barron’s housing supply discussion DocuSign stock move: down 40% in one day - Example of an earnings-driven collapse in an already weak stock Crypto ownership survey: 1 in 4 Americans with over $10,000 in investable assets reported owning Bitcoin in some form - Grayscale investor survey, though hosts questioned its plausibility

Pivotal Quotes: "there is blood in the metaverse" — Michael Batnick: Describing the widespread rout in high-beta growth and ARK-adjacent names "I promise you that I was saying to the advisors to position sizes, I promise you, you're going to wake up in a 20% bear market overnight." — Ben Carlson: Explaining why crypto investors need explicit risk management and realistic expectations "It's easier to fool people than to convince them that they have been fooled." — Michael Batnick: On the difficulty of persuading people already invested in obvious scams or speculative manias

Implications: The speculative unwind may continue without dragging down everything else, but investors should expect more violent repricing in crowded trades. Better sizing, clearer exits, and realistic expectations matter more than ever, especially in crypto and other high-volatility assets.