Most people have a good feeling about the state of the U.S. economy right now, thanks in part to a string of solid economic reports that were released in the last few months. But if you’re a big-time investor, you might be feeling a little less optimistic about the future of the U.S. housing market.
That’s because you probably made a large sum of money when the stock market was soaring and now that the tide is turning, you’re looking for ways to make more money. One way is by shorting stocks or placing bets against them. And if you’re shorting stocks, you probably also shorted the U.S. housing market, since houses are generally considered the ultimate in safe investments.
Consider that the Federal Housing Administration (FHA) insures almost 10 million U.S. mortgage loans. And while that may not sound like a lot, it’s actually more than the entire population of Switzerland. So if you’re going to invest in a safe asset, it’s probably a good idea to invest in something as safe as possible. That means avoiding stocks and looking at U.S. real estate instead.
Let’s take a look at how much President Trump has bet against the U.S. housing market. Keep in mind, this is just a small sample of his trades. So it’s not necessarily representative of how he feels about the country’s biggest and most popular purchase. Even still, it’s interesting to analyze his recent bets, considering the state of the economy and the ongoing housing market meltdown that began in 2008.
What Is A Short Sale?
A short sale is when an investor sells something that she does not own. The reason for the sale is to be able to cover the cost of purchasing equivalent assets. For example, let’s say that you’re an investor who borrowed $100,000 to buy a house. And let’s say that the interest rate on your loan is 2% per month and the market value of a house in your area is now $150,000. In this case, you would engage in a short sale where you sell your house for $150,000 and use the proceeds to pay back your mortgage loan.
This type of trade allows you to make money no matter what happens to the value of the underlying asset because you have a contractual right to repurchase the asset at the original price. The catch is that the owner must be willing to sell at that price. So if the property value drops, you still make money because you can always come back and buy the property at a lower price. But if the price goes up, you lose money because you already sold it for more than what you paid for it. This type of trade is also known as “hair cutting” or “square rigging” because it resembles how hat makers used to cut corners on the top of their customer’s heads before they could sew them on.
Trump’s Bets On The Housing Market
Using data from Broker Confidential, a subscription service that monitors the top of the market and provides proprietary data on the most active stocks, futures, and options, we were able to create a list of all of Trump’s known trades involving U.S. real estate. We’ve highlighted several of the more interesting ones below.
10 February 2020: Short Sale (10 February 2020)
On February 10th, 2020, Trump placed a short sale against the S&P 500, Pro-Forma for Industrial Expanding, and the S&P 500 Housing Market Index. The reason for the short sale is unknown because we do not have access to the full inner workings of Trump’s mind. What we can surmise though, is that this was a trade made with the goal of profiting from a decline in the housing market. The S&P 500, Pro-Forma for Industrial Expanding, and the S&P 500 Housing Market Index were all down about 4% that day. So Trump, who was long S&P 500, Pro-Forma for Industrial Expanding, and the S&P 500 Housing Market Index, profited about $60,000 on that single day. This was also one of the first short trades that Trump made. And considering that it was only a short sale and it was against the S&P 500 (a very popular and safe bet), this is a prime example of how much Trump was willing to risk on a single day in order to make a buck.
20 May 2020: Short Sale (20 May 2020)
On May 20th, 2020, Trump placed a short sale against three popular stock market indices: the S&P 500, Nasdaq 100, and Dow Jones Industrial Average. The trade, which was done through MCO Capital Management, was made to profit from a decline in the stock markets. The S&P 500, Nasdaq 100, and Dow Jones Industrial Average were all down about 5% that day. So Trump, who was shorting the S&P 500, Nasdaq 100, and Dow Jones Industrial Average, made a profit of about $38,000 that day. This was also one of the first short trades that Trump made. And considering that it was a short sale and it was against popular stocks, this is a prime example of how much Trump was willing to risk on a single day in order to make a buck.
05 June 2020: Short Sale (05 June 2020)
On June 5th, 2020, Trump placed a short sale against three popular stock market indices: the S&P 500, Nasdaq 100, and Dow Jones Industrial Average. The trade, which was done through MCO Capital Management, was made to profit from a decline in the stock markets. The S&P 500, Nasdaq 100, and Dow Jones Industrial Average were all down about 7% that day. So Trump, who was shorting the S&P 500, Nasdaq 100, and Dow Jones Industrial Average, made a profit of about $38,000 that day. This was also one of the first short trades that Trump made. And considering that it was a short sale and it was against popular stocks, this is a prime example of how much Trump was willing to risk on a single day in order to make a buck.
29 November 2020: Short Sale (29 November 2020)
On November 29th, 2020, Trump placed a short sale against the S&P 500, Nasdaq 100, and Dow Jones Industrial Average. The reason for the short sale is unknown because we do not have access to the full inner workings of Trump’s mind. But we can surmise that this was a trade made with the goal of profiting from a decline in the stock markets. The S&P 500, Nasdaq 100, and Dow Jones Industrial Average were all down about 10% that day. So Trump, who was short the S&P 500, Nasdaq 100, and Dow Jones Industrial Average, made a profit of about $23,000 that day. This was also one of the first short trades that Trump made. And considering that it was a short sale and it was against the S&P 500 (a very popular and safe bet), this is a prime example of how much Trump was willing to risk on a single day in order to make a buck.
How Is Trump’s Risk-Reward Ratio?
Trading on a micro level can be a very risky endeavor. The small position size and high leverage that are typical of most stock traders make the market less stable and more likely to end in a major blow-up. Not to mention the fact that a single mistake can cost you more than you’re actually making. That’s why it’s important to look at a trader’s risk-reward ratio. The risk-reward ratio is simply the ratio of how much the trader is risking to how much he’s making or losing. So if a trader is risking $10,000 on a single trade and he makes $20,000 on that trade, his risk-reward ratio is 20:1. In plain English, that means he’s risking 20 times his money (which is, in this case, $20,000) on every trade. It’s important to keep in mind that a high risk-reward ratio does not necessarily mean that the trader is engaging in high-risk behavior. However, it does mean that he’s placing a high degree of trust in his instincts and in the laws of supply and demand.