The Big Short — a dramedy film based on the classic Michael Lewis book — is my favorite finance-related movie ever.
In addition to my obsession with watching Steve Carrell in serious roles, the movie succinctly explains how a group of outcasts made boatloads of money betting against the 2007-08 US housing bubble.
With the pandemic laying waste to physical retail, we may be in for a sequel.
Big Short 2.0
Last fall, famed investor Carl Icahn started short selling (AKA betting against) shopping malls.
Along with other like-minded money managers, Icahn believed the shift to ecommerce and new consumer habits were bad omens for America’s ~1k malls.
The exact target of their bets: CMBX 6, a commercial real estate index.
The end probably isn’t near
Even after gains of $1B+, Icahn has kept his trade on, suggesting the mall situation will get even uglier.
With the recent bankruptcy of anchor stores like Neiman Marcus, consumers have less reason to visit malls and — due to the lower foot traffic — smaller shops can negotiate lower rents.
Profiting on the pandemic is not a great look
Elon Musk famously said “short selling should be illegal.” Short sellers typically cite 2 rationales for their services:
- uncovering fraud (think Enron)
- shining light on bubbles (think real estate bubbles)
To be sure, we’ve seen some explicitly bad short-selling behavior, including from a firm that rhymes with “Foldman Tachs.”
The shorting is not a free-for-mall, though
One investor told The New York Times that “I’m definitely bearish on malls… but I think it’s a very case-by-case basis.”
Another short seller did serious due diligence by walking every single one of the 39 malls in the CMBX 6 index — from California to Georgia.
To avoid attention, the investing teams did mall walks in casual clothes. If these short bets keep paying off, scrutiny — and maybe a sequel — will be unavoidable.
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