- Bridgewater paid roughly $1.5 billion for the options contracts, or just about 1% of the Westport, Conn., firm’s $150 billion in assets under management, according to people familiar with the matter.
The options contracts are tied to around $100 billion worth of the indexes, said people familiar with the matter. How much the firm stands to potentially make would depend on many factors, including the magnitude of any market decline and the timing of when the firm cashes in its bet.
It couldn’t be determined why Bridgewater made the investment. Several clients said it may simply be a hedge for significant exposure to equity markets the firm has built up. Funds often hedge, or take offsetting positions, against other exposure to protect against losses.
It feels to like we’ve been talking about the impending crisis for the better part of the past two, three years. I know markets stay irrational for much longer than seems plausible, but at the same time I’m also starting to think that there’s been some interesting pushbacks on the parts of our current economic system that seem to be the most risky. WeWorks’ dropped value and the Feds money pump come to mind. Is it even possible that the adults in the room have learned from the previous crisis and we can stave it off pretty well, or do you think there’s something fundamentally broken that prevents us from entering some sort of post crisis era like we were promised in the nineties and zeroes?
That's the question, isn't it? Is this the new normal? Here's what I know: - the newsletter writers have started doing lifestyle pieces. - the economic alerts are always about this-or-that individual stock going up, or they're about this-or-that index going up. - the economic models we have predate the task economy. - there is no economic consensus on whether the task economy even exists. I also lived through the recession of 1980, knew guys who made a killing in the crash of '87, had most of my classmates wiped out by the dot com boom in 2000 and was painfully aware of the real estate crisis in 2007 before it ate the world. The early stuff? I mean, I was there but it's not like I was paying too much attention to it in 7th grade. 2000 I dodged and 2007 I profited handsomely off of I just didn't expect the world to end with it. History doesn't repeat itself but it does rhyme and the one economic constant is reversion to the mean. Those aren't justifications, they're excuses but when someone says "this time it's different" it almost never is. I think the real question is how much the government is willing to prop up the stock market, and how much the stock market is willing to be propped up by the government. From that perspective this time it is different because the world has never dealt with negative interest rates before, the world has never dealt with cryptocurrency before, the world has never dealt with Markov bots before, the world has never dealt with high frequency trading before. As to the adults in the room? There isn't anyone with enough control to do more than add or subtract sand grains from the pile. I don't know. I know the economy is currently being traded by HFT bots trained on previous data and operating a picosecond at a time which certainly can't take too long a view on macro, and I know that macro can't get a clean read on players operating a picosecond at a time. But I also know that when I drink from the firehose of available data I see a lot of warning signs that make me nervous, and I've been nervous before. But then, you're right. I've been nervous for about three years now.
So what do you believe will happen if say the market dips? You thinking Great Depression like conditions or something along the lines of the recession in 2009?
I dunno. More than that, I don't think anybody else does, either. We're at the point where it wouldn't be crazy to see the Fed buying up equities. Then what happens? The Fed's balance sheet, its willingness to add to it and the historically low cost of lending worldwide are new things under the sun. Anybody trying to project out from where we are now is delving more into geopolitics and psychohistory than economics or investing. I hate the phrase "black swan event" because it implies that shit rushes up out of nowhere but in this case I think it can reasonably be argued that there aren't a lot of relevant prior examples to extrapolate from.
How is Bridgewater positioned with the other 99% of their AUM? That's the real question. If you have 1% index puts but the other 99% of your folder is long stocks - that would be a hedge. If you have 1% index puts, 24% treasuries, 25% gold and 50% cash - that is a bet on a recession.
Not sure. The play made 'em $4B - and Dalio has been doing this long, tedious, "I'm a terrible writer" song'n'dance for like five months now.
If I had to bet on the veracity of the WSJ vs the veracity of Ray Dalio, I'd bet that the guy who's written extensively about the destruction of the modern economy placed a billion dollar bet.