Bridgewater’s shorting spree started last fall in Italy.
With the country’s big banks accumulating billions in bad debt, Bridgewater mounted a $770 million wager against Italian financial stocks. Saddled with non-performing loans and under constant regulatory scrutiny, they made for a juicy target.
Throughout the fall and into winter the bet against Italy represented the majority of Bridgewater’s publicly disclosed short positions. The initial bet was eventually raised to encompass 18 firms and nearly $3 billion.
Bridgewater had flipped its portfolio in January to turn bearish on Western Europe stocks and also started shorting Japanese equities, according to a person with knowledge of the matter. The hedge fund significantly raised its long U.S. equities exposure last month, the person added. A Bridgewater representative did not reply to a call and email seeking comment outside normal working hours.
‘Feel Stupid’
Around the beginning of February, Dalio was telling the World Economic Forum in Davos, Switzerland, they’d “feel pretty stupid” for holding cash. Italian financials remained in the cross-hairs, but the short list started including members of the Euro Stoxx 50 Index, the euro zone’s blue-chip index. The positions against Stoxx 50 companies are being made roughly in proportion to their weight within the index.
Among the powerhouses Bridgewater is shorting: Munich-based engineering giant Siemens AG; Airbus SE, the airplane and military-equipment manufacturer; French bank BNP Paribas SA and Dutch bank ING Groep NV; Paris-based entertainment and telecom company Vivendi; drugmaker Sanofi; Nokia OYJ, the Finnish tech firm; and the French oil behemoth Total SA.
Bridgewater’s short bets in Europe exceed the dollar value of its disclosed long equities positions in the U.S. by more than $5 billion.
Dalio’s economic preconditions to sell, or short, stocks isn’t unique to Europe. The U.S. has seen wage gains accelerate as the jobless rate hovers near a 17-year low. Despite recent fluctuations in the stock market, Federal Reserve Chairman Jerome Powell suggested that the U.S. central bank would continue on the path of gradual interest-rate increases. And this week Dalio identified a rising “risk of a recession in the next 18-24 months.”
But Bridgewater’s trades in the U.S. remain a mystery. The Eurozone requires that investors disclose their short bets once they pass a certain size. The U.S. does not.
This article was provided by Bloomberg News.