[ethbro]

I feel like one of the biggest opportunities in the 2007/8 housing market short was the speed at which it developed.

More specifically: glacially.

Up until the credit markets froze up, all the information was available, with time to digest and for anyone to act on it.

That's the most interesting thing about this presentation. I'm assuming this or similar was the one dramatized in The Big Short?

It's simply saying that something doesn't add up. Then laying out its case for the numbers that were added.

At a macro level, there isn't much complexity:

(1) Home price appreciation is strongly inversely correlated with default rate.

(2) CDO are created with sharp risk cliffs related to systemic default rate.

(3) Current home price appreciation + observed default rate + CDO pricing does not add up. Ergo, one of those things must be wrong.

[glenngillen]

Timing is everything, but doubly so when you're trying to take a short position. My favorite quote from that movie is when Burry get's confronted by one of his major investors who comes in demanding his money back:

"I'm not wrong, I'm just early"... "IT'S THE SAME THING!"

The story obviously works out well for them in the end. But all it would have taken was the market to hold out just a little longer or investors wanting enough of their money back just a little earlier and they would have all taken a bath.

The markets are littered with stories of things that don't make sense, I semi-regularly get motivated to actually put my money where my mouth is. And in the vast majority of cases I end up getting the timing wrong by a month or two, which in the end is still just getting it wrong. There's no reward for being just a little bit wrong. It's also not realistic to look back at historical events and think you'd have been able to predict the timing with the required accuracy if only you had the data.

[cinquemb]

Yeah, I think people knew it would eventually play out because of the marco, but for traders its important to figure out how to get the cheapest exposure to the short until it happens.

Even in the big short, they show the routes different traders took to get short exposure and all took various amounts of heat until it payed off.

Same is true now wrt to corporate bonds (or I should say was true, way more expensive now to short than it was say during the entire time of 2019), one know's they will go tits up, but getting the cheapest exposure will enable to either build the position with minimal/fixed draw down or sweat every bps move against you.

[icelancer]

The Big Short covers it fairly well, but doesn't give Burry enough credit / blame. His crowning achievement wasn't in deducing the bonds were overvalued/fraudulent, it was in finding suckers to take the other side of the bet. This is alluded to in the casino with the Cornwall Capital guys, but was a real thing. Plenty of people wanted to make the moves they did, but had trouble finding outs.

[JackFr]

I worked as a software developer for a subprime prop trading desk at a big bank from 2006 to 2009. Our two main RMBS traders were short from about 2005. They would get beat up every week in capital committee meetings, and were told “what is wrong with you guys, the guys on the dealer side are crushing it with this stuff”.

Finally in 2008, these guys booked like $100 million in profits. But it didn’t matter at all cause the dealer side lost $50 billion.

[johnvanommen]

> His crowning achievement wasn't in deducing the bonds were overvalued/fraudulent, it was in finding suckers to take the other side of the bet.

I thought that was one of the most interesting / exciting parts of the book.

The fact that they literally had to go and find people who would sell them insurance on the mortgage backed securities.

[icelancer]

A giant risk you have if you are short the housing market in that situation is that bureaucracy changes underneath your feat; YIMBYism wins out or somehow housing otherwise trends sideways / slightly deflates. You are still correct that the asset in question is overvalued, but you're getting killed on premiums on the swaps or the options you are carrying.