Friday, November 22, 2019

Super Hedge Fund Bets $1.5 Billion That Market Will Crash By March

Ray Dalio
Ray Dalio's Bridgewater Associates hedge fund has purchased, according to the Wall Street Journal, $1.5 billion of put options that will expire in March of next year.

With put options, you make money holding them when the assets covered drop-in price. That is, in this case, the position will only become profitable if the stock market moves down from here in the next four months.

It is possible this position was done as some sort of hedging operation rather than an outright bet on an imminent crash on the stock market. The $1.5 billion position amounts to only 1% of the funds $150 billion net worth. But something else might be at play.

Dalio may be taking out the position in fear that Elizabeth Warren may do well in early primaries.

Zero Hedge writes:
Some speculate that Dalio, who has espoused increasingly progressive political opinions in recent months, might have concocted a bet that will pay off if progressive Dems like Elizabeth Warren notch victories in the earliest primaries, though a Bridgewater spokesperson denied that the firm is making big bets on politics.
The timeline of the trade sure fits in with the idea of the hedge fund betting against early Elizabeth Warren victories. Super Tuesday is March 3. That's before the put options would expire, and a strong performance on Super Tuesday by Warren could trigger a crash in markets, given her hate of capitalism and wealth accumulation, and result in billions in profits on the Bridgewater position.



Ray Dalio has issued this statement in response:
The Wall Street Journal wrote an article that said “Bridgewater Bets Big on Market Drop.” It’s wrong. I want to make clear that we don’t have any such net bet that the stock market will fall. We explained to Juliet Chung, the author of the article, that to convey us having a bearish view of the stock market would be misleading, but it was done anyway. I believe that we are now living in a world in which sensationalistic headlines are what many writers want above all else, even if the facts don’t square with the headlines. You can believe me or you can believe The Wall Street Journal writer. I hope you have come to know that you can believe me.
RW take: I'm going with Chung. The Dalio statement is too carefully worded to make sure he doesn't claim he is not hedging a big portion of his portfolio. And Chung made clear that is a very strong possibility as to what he is doing. Why doesn't he deny that?

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