Why Has Ray Dalio Placed Enormous Shorts On Europe?


#1

I read about this play in the FT today - can someone explain why?


#2

Obviously, you can’t do much without looking at the entire Bridgewater portfolio. To make a judgement on Bridgewater’s portfolio by looking at shorts alone would tell us almost nothing…

But, we can speculate :slight_smile:

-Looking at the sheer scale of the shorts, it’s obvious that Dalio isn’t just targeting one or two companies, but that this a macro play. The question is…

on what?

Dalio could be betting that the Italian elections could put a serious dent in Europe’s sails. It certainly seems that far-right rhetoric is gaining momentum there:

China

There has been a lot written on this forum about the role that China has had in blowing up a global credit bubble (the likes of which we have never seen)

We are now seeing Europe greatly increasing its trade with China:

If the Chinese bubble were to burst, it would greatly affect economies int he European union and trade partners there…

Dalio has been very bearish on China before though:

The stock market and debt bubble bursting simultaneously has happened many times before in many countries. We identified 28 cases among major economies in the last 100 years. While no two cases are exactly the same, the basic dynamics of such cases and the tools for treating them are essentially the same. Looking at these other cases provides perspective concerning the range of possible outcomes and the most effective ways of using the available tools. The most analogous cases created a depressant on real GDP growth of 1.8% on average, annually, for three years relative to what growth would have been without these events; bad cases saw an annual drag of 4% for three years; and, well managed cases saw no drag over three years (i.e., growth averaging its potential). We would expect China’s outcome to be within that range, depending on how Chinese policy makers use their tools.

The negative effects of the stock market declines will come from both the direct shifts in wealth and the psychological effects of the stock market bubble popping. Though stock prices are significantly higher than they were two years ago, the average investor in the stock market has lost money because more stocks were bought at higher prices than were bought at lower prices. We now estimate stock market losses in the household sector to be significant—i.e., about 2.2% of household sector income and 1.3% of GDP. However, these losses appear to be heavily concentrated in a small percentage of the population as only 8.8% of the population owns stocks. These are rough estimates. We don’t yet know who is experiencing what losses. Such information usually surfaces in the days and weeks after the plunge. Even more important than the direct financial effects will be the psychological effects.

If Bridgewater was putting bets on Europe, it would be a great way to hedge against a downturn in the Chinese economy…

There’s been a lot written on that already here, you should check the posts out! :slight_smile: