Ray Dalio’s Bridgewater bearishness extends to almost all assets classes.
“We are bearish on almost all financial assets”, said Ray Dalio hedge fund king founder and CEO of Bridgewater Associates, the world’s largest hedge with $102.9 billions of USD AUM.
Ray Dalio’s Bridgewater bearishness extends at a time when the billionaire investor earned $1.3 billion dollars making Dalio the third highest paid hedge fund manager last year, according to the17th edition of the Institutional Investor’s annual Rich List.
“We are bearish on almost all financial assets”
RAY DALIO
founder, Bridgewater Associates
Ray Dalio’s Bridgewater bearishness now extends further than Bridgewater’s Italian job which entailed betting against (short selling) Italian firms to the tune of $3 billion (and no doubt that paid off handsomely thanks to the ongoing political and financial turmoil that the EU finds itself in).
Ray Dalio’s Bridgewater bearishness bets are doubling down
“The fund has also reduced its net long bets on U.S. equities to about 10 percent of assets from 120% earlier this year, and that overall, the fund is net short equities” according to a May 9 Bloomberg piece.
Ray Dalio’s Bridgewater bearishness centers around a simultaneous fiscal cliffhanger and Fed tightening with the net result being bearish on all financial assets.
“Ray Dalio’s Bridgewater bearishness bets are doubling down”
CIO Greg Jensen sums up Dalio’s Bridgewater bearishness when he wrote, “2019 is setting up to be a dangerous year, as the fiscal stimulus rolls off while the impact of the Fed’s tightening will be peaking”.
As the Fed tapers emerging markets rattle. Let me try and decode this. A dollar drought could be financially engineered.
Ray Dalio’s Bridgewater bearishness is based on the Fed reducing its balance sheet, meanwhile, the US Trump administration is embarking on an ambitious trillion dollar infrastructure project. So the latter event increases treasuries supply as the government auctions more debt.
But with Fed no longer (seen to be) a proactive buyer of treasuries, demand for treasuries will fall. In short, an increase in the supply and a simultaneous fall in demand for treasuries because the Fed (the kingpin buyer) withdraws liquidity from the market causes treasury prices to fall and corresponding yields to rise.
At some point, investor’s flight/ greed instincts will kick in
For example, Italian 10 Year Government bonds currently yield 2.87% and the US equivalent yields 2.993%. Nevertheless, US 10YRs is a safer bet with higher yields, bearing in mind that dollar hegemony means that Treasuries remain attractive despite being overweight on a 20 trillion dollar public deficit which continues to rise.
“2019 is setting up to be a dangerous year, as the fiscal stimulus rolls off while the impact of the Fed’s tightening will be peaking” – Greg Jensen
Ray Dalio’s Bridgewater bearishness could be due to a USD liquidity drought
As investors pull capital out of emerging markets and pile into relatively low risk, high yielding treasuries.
Put another way, the rest of the world burns due to USD drought as the Treasury soaks up dollar liquidity by issuing new treasuries to Fund Trump’s infrastructure spending.
The US rebuilds, re-industrialized on easy credit while everyone else gets a one, two, three punch-a dollar squeeze, sanctions and a trade war. Maybe it is the US’s new game-unilateral Americanism to make “America Great Again”.
Ray Dalio’s Bridgewater bearishness could mean more pain ahead for emerging market assets and volatility in Europe is likely to continue on tight liquidity. Meanwhile, USD rally could continue as investors rotate into treasuries.
