Bridgewater’s $22bn European ‘big short’ last month is evidence that the big bears are coming out of hibernation. Since February’s stock market correction bulls and bears have been locked in a messy scrum near key support levels.
With the era of central bank monetary accommodation drawing to an uncertain conclusion, the bulls are slowly realizing that they are on their own this time. Buying stocks in anticipation of central bank asset buying isn’t the game anymore.
Bridgewater’s $22bn European ‘big short’ last month is evidence that the big bears are coming out of hibernation
The central banks are probably now more concerned about creeping inflation rather than sliding asset prices. So cost-push inflation driven mainly by rising commodity costs and to a less extent rising wages for skilled labor could mean that the era of monetary easing is over. If so, then the main drive (the central banks) of this nine-year-old bull market has left the wheel.
Maybe then Bridgewater’s $22bn European ‘big short’ should come as no surprise, after all, hedge fund king Ray Dalio knows the game well. The hedge fund world is a moveable feast for those situated where the tray is moving and a number of prominent investors are saying on stage that this bull market is on its last legs. In fact, Jim Rogers reckons the next bear market will be worst in our life?
But why is Bridgewater’s $22bn European ‘big short’, European?
Why is Ray Dalio betting big against Europe and not America, Britain or Asia?
Ray Dalio founder and CEO of Bridgewater, which is the world’s largest hedge fund, has declined to comment why his fund is targeting Europe’s largest companies and Italian banks.
“The next bear market will be worst in his life”
“They have been quite secretive about it” says one large US-based investor in hedge funds. “It looks like they are broadly just replicating the broad European index and are doing a basket trade of stocks. I don’t think they would have a stock-specific view on anything given their style but at this point, we don’t have the full picture.”
But attempting to decode Mr. Dalio’s big “short Europe trade” thought process. In Dollar Hegemony Fightback there is a suggestion that an Anglo-American alliance would collude to dissolve the EU, thereby preventing Europe pivoting to the East and making NATO obsolete.
The EU project no longer severs the interests of the puppet masters in Washington. So voodoo is being spread on the continent. Steve Bannon, (the insider’s insider) tells French far-right supporters to wear ‘racist’ label as ‘badge of honor’. The ghost of nationalism is being awoken in Europe to dissolve the EU project by stirring by ethnic divisions in Europe.Political instability will make Europe weak and humble again, inorder to make America great again.
If the above analysis is bang on the money then the whole of euro assets, bonds, equities and the euro could be one big short.
Short selling struggling advertisers has become a profitable trade for hedge funds
But Bridgewater’s $22bn European ‘big short’ not the only game in town.
If the economic cycle is turning downwards due to a litany of reasons be it unsustainable debt levels, falling worker participation rates, protectionism, trade wars, rising inflation geopolitical instabilities, global economic slowdown then short selling advertisers might be another shorter delight.
Indeed, short selling struggling advertisers has become a profitable trade for hedge funds. Structural changes brought on by digital media has meant that traditional advertisers profits have been decimated as more companies shift their marketing budgets to digital platforms.
Facebook, Google now dominates online advertising and could soon take over traditional advertisers.
So it is not only Bridgewater’s $22bn European ‘big short’ that is making hedge funds money. Hedge funds are betting against advertising giants.
A number of big hedge funds have amassed bearish bets of more than $3bn against the world’s largest advertising companies with the aim to profit as the industry experiences disruption and slowing growth. Those funds including the UK’s Marshall Wace and the US funds Lone Pine and Maverick Capital have accumulated short sales of shares worth a combined €280m against France’s Publicis, according to regulatory filings, as the company’s shares have held their value as those of rivals’ have tumbled.
Bridgewater’s $22bn European ‘big short’ and signs that consumer product companies are under pressure to cut costs doesn’t bode well for the macro fundamentals nor the future of this tired bull market
WPP sank to a three-year low recently, having shed 10 percent since the start of the year. Hedge funds have borrowed shares worth £920m, in order to sell them short, have realized big gains, according to data from Markit.
WPP recently released full-year results, which its chief executive referred to as “a walloping”, sending its share price sharply lower.
Hedge funds have also taken out short positions worth $2.2bn in the shares of Omnicom, equivalent to 13 percent of its total shares, according to Markit data, as well as a $426m bet against the stock of Interpublic.
Moreover, traditional advertising groups have also suffered from sharp cutbacks in marketing spend at large consumer product companies like Procter & Gamble and Kraft Heinz. All have come under pressure from activist hedge funds and strategic investors to cut costs in the face of shifting customer tastes towards small, start-up brands.
Bridgewater’s $22bn European ‘big short’ and signs that consumer product companies are under pressure to cut costs doesn’t bode well for the macro fundamentals nor the future of this tired bull market. But not all investors are making large bets that (media) stocks are about to tank. Some bulls reckon that stocks still represent a bargain. Bill Miller’s 30% stock market melt-up is one of them.
But are these die-hard bulls catching a falling knife?
With Bridgewater’s $22bn European ‘big short’ and an increasing number of money managers sounding bearish investors still remain divided about where next for stocks.
Dan Loeb targets Sony. Dan Loeb is an activist investor and founder of Third Point, which oversees about $14.5 billion in assets.
Last year the activist investor viewed Campbell soup as a bargain when Third point reported that the soup maker could fetch a takeover value of $52 to $58 per share.
A year later and the activist investor Dan Loeb targets Sony
Dan Loeb's activist hedge fund Third Point is raising an investment vehicle to generate between $500 million and $1 billion so it can continue to buy Sony shares, according to a recent report in Reuters.