The risk of stagflation, one of the worst (or the worst) economic scenario known, is very present in the decision-making of Scion Asset Management Y Bridgewaterthe funds led by brilliant investors michael bury Y ray dalio, respectively. Both maintain a determined commitment to an uptrend in commoditiesat least in the long term, but they are also getting a good slice of their bearish strategy on technology stocks and bonds, respectively.
Burry, known for getting ahead of the 2008 housing bubble burst and betting on a sharp fall in the Stock Market, has loaded the cannon against Apple. Specifically, the investment has been made with more than 200,000 titles of the Cupertino company at a price close to 170 dollars. At this time, the titles of the manufacturer of iPhone fall more than 24% since the end of March and the same percentage since the beginning of the year. And it is that, the very high inflation and an economic slowdown would drop the sales of products, especially technological ones.
THE RISK OF STAMPFLATION, MORE PRESENT THAN EVER
It should be remembered that Burry sold much of the US stocks he had in the fund due to the risk of stagflation. However, after the losses recorded on Wall Street during the first quarter, re-entered the main stock market in the world. He also hedged Alphabet (Google), down 25% from January; Meta (Facebook), 48% down since the beginning of the year; and Discovery, 7% down in these six months.
Bridgewater, for his part, completely divested himself of his investment in Tesla, some 27 million shares, and which has lost 41.9% since the beginning of the year, and bought from amazing GameStop titles, the company considered a meme of the Stock Market and whose rise was a determined bet by private investors to sink the strategy of the bears. Since the entry of the fund, the shares of this company have shot up 59%, although it has lost 15% since January. In total he bought 689,000 titles.
MANAGERS BET ON RAW MATERIALS AND LIQUIDITY
Stanley Druckenmiller, billionaire and founder of Duquesne Capital, is following the new upward trends, especially in companies and raw materials in the energy and mining sectors, with a successful combination against the S&P 500. Thus, it has held shares in Chevron since the end of March, as well as in Coterra Energy. Both firms have risen 30%, respectively, since the end of the first tranche of the year.
These strategies are completely up to the short-term business cycle. Inflation expectations, high during the second part of the year, together with an economic contraction and even recession, are more than enough reason to explain these bearish purchases and investments. Likewise, fixed income has also come into play with the rise in interest rates and the fall in the price of bonds, especially those called “junk”.
The adjustment will be painful and will force central banks to relax their monetary policies
Dalio is very aware of stagflation, especially when interest rates will have to start falling from 2024 and that the central banks will once again have the baton of the markets. Meanwhile, the stock markets will navigate at the mercy of high prices and very low growth, which will end up affecting the entire world economy to a greater or lesser extent.
CENTRAL BANKS WILL BACK IN 2024: ELECTIONS IN THE UNITED STATES
“The adjustment will be painful and will force central banks to relax their monetary policies,” he said. The reason for choosing 2024 is simpler than one might think a priori. There are presidential elections in November of that year and by then all the artillery will have to be put to work to alleviate the effects on consumers.
For the moment, the Federal Reserve has made more powerful decisions than its counterpart in the Old Continent, the European Central Bank. The increases in interest rates on the dollar will be more intense than in Europe and will be adopted at a faster rate. Christine Lagarde’s ECB will raise rates by 0.25% next July and leaves another increase for September. The problem for these institutions is that they are not only late for this early end of the festival, but also do not act with adequate forcefulness. The present risk is that they go overboard if inflation subsides. The question will be where the price of money will be next year and where interest rates will be by then.
BEARISH AGAINST CORPORATE AND SOVEREIGN DEBT BONDS
Faced with this situation, the founder of Bridgewater has a clear strategy to follow: operate bearish against bonds. In his opinion, it is safer to invest in Bitcoin, despite the great fall that records and its correlation with Wall Street, who in debt. In both the United States and Europe, stock markets and bonds fall sharply. The refuge is thus found in raw materials and especially oil, gas, copper and gold. It is also important not to lose sight of China, which could take advantage of it to open the gap with the United States and lead the world economy, although it remains to be seen whether it is due to its own growth or due to the collapse of the United States.
Bridgewater is the largest mutual fund in the world with more than $150 billion under management. For this reason, their investments are closely followed, especially when depositors demand returns in times of uncertainty. In recent months, Dalio has revealed her views against bonds, though she may be interested. Especially when she holds bearish bets against the price of corporate debt in the United States and Europe, after having done the same with US sovereign debt.
GALLOPING INFLATION AND THE STOP IN THE ECONOMY, REASONS TO BECOME BEARISH
In his opinion, rampant inflation is here to stay for the next few quarters and will escalate at a higher rate than predicted by the Federal Reserve. Also, the US economy would enter a standstill again and will not recover solid growth for the next few years. With a weak economy and runaway inflation, the strategy is served. LBulls should watch and enter defensive and countercyclical companies or remain in liquidity while waiting for a better time to invest in the face of possible rebounds.
Bridgewater’s forecasts are also supported by data, such as those from the OECD and the World Bank, which have drastically cut their growth forecasts for the world economy. In Spain, the turbulence is expected to manifest once the summer campaign is over.
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Burry and Dalio take advantage of the first throes of stagflation