Ray Dalio Denies He Is Betting on A Market Crash: “You Can Believe Me Or You Can Believe The Wall Street Journal”
The comments below are an edited and abridged synopsis of an article by Tyler Durden
At the beginning of 2018, Ray Dalio said that investors would feel ‘pretty stupid’ if they were holding cash. Over the following 11 months, one of the biggest market blowups since the crisis left US stocks in the red for the year. Bridgewater, however, emerged as one of the best-performing firms of 2018, with one of its funds up double digits.
Almost two years later, Dalio says he’s increasingly worried about the state of the global economy, and he’s willing to risk losing 1% of his firm’s assets to make sure Bridgewater is protected.
A few months ago, Bridgewater enlisted Goldman Sachs and Morgan Stanley to help structure a massive bet that will pay off if, between now and the end of the first quarter, global stocks retreat. According to the Wall Street Journal, Bridgewater has amassed a giant $1 billion bet using put options.
If the S&P 500, Stoxx 50 or both decline before Bridgewater’s put options expire, the firm will make money from the bet. If stocks rise, then those options will likely expire worthless.
The firm paid $1.5 billion for the options, which have a notional value of $100 billion.
It is unclear what Bridgewater’s motives are. The options could constitute a directional bet in their own right, or simply a hedge against Bridgewater’s sizable long exposure to equities.
Bridgewater’s buying might have been spurred by the firm’s appreciation for a bargain. With stocks climbing to new highs, traders haven’t been as interested in hedging their positions.
Some speculate that Dalio might have concocted a bet that will pay off if progressive Democrats notch victories in the earliest primaries, though a Bridgewater spokesperson denied that the firm is making big bets on politics.
Bridgewater’s recent performance has been mixed: The firm’s macro fund lost 2.7% through October, while its All Weather fund is up 14.5% for the period. But with the S&P 500 having achieved is longest bull run in its 90-plus-year history, it’s hardly surprising that traders suspect it might have finally run out of steam.