Neither chaos nor surprise, the presidential election was not in the image of Trump’s victory in 2016. Hedge funds had approached this deadline cautiously, quickly eclipsed by the pandemic. They are betting on the dollar falling and are starting to see a possible rise in interest rates.
The American hedge funds, which collectively manage around 1.950 billion dollars, were not taken aback by the victory of Joe Biden, widely anticipated. Dan Loeb, the activist of Third Point, would have made 400 million dollars by betting on the rise of Wall Street after the election, according to the “Financial Times”. Its $ 13.5 billion fund gained 4.3% between November 1 and 4.
Cautious in the face of an election that could always hold surprises, quantitative funds had reduced their allocation to major technology stocks on the Nasdaq since August. According to Lyxor, American hedge funds had reduced their risk taking before November 3, remembering the November 2016 storm and the surprise election of Donald Trump. They did not want to play their year on an electoral roll. On equities, they particularly favored groups exposed to the economic recovery in Asia, wary of riskier stocks in technology. For global managers, gold was once again an essential asset.
Against this caution, the reckless Bill Ackman relapsed Monday, the day of the announcement of Pfizer’s vaccine. The manager believes that this information will lead to a relaxation of behavior and bet on the deterioration of the US economy, according to his statements at a conference. His bet on credit derivatives is weaker than in March, when it brought him $ 2.6 billion in profit, the best shot of his career. The financier, who hardly has the democratic fiber, doubts the capacities of the new administration to manage the crisis. A violent altercation had taken place with Joe Biden during a dinner in Las Vegas in 2017. It was prompted by an inappropriate remark from the manager on the death of the Democrat’s son. “Sir I know everything, never disrespect my deceased son again!” “, was carried away the future president of the United States.
Stanley Druckenmiller, one of the former right-hand men of George Soros, believes for his part that the Democrat’s program (tax increases…) will weigh on Wall Street in the years to come and cause prices to skid. An inflationary environment that he believes will benefit bitcoin. Scott Bessent, another manager who had cut his teeth at the Hungarian financier and at the head of the Key Square fund, had warned his clients before the election: in the event of a “blue wave”, he would speculate on the rise in rates to 10 and 30 year old Americans. This scenario did not materialize with a slight advantage for the Republicans in the Senate, but a gradual rise in rates across the Atlantic is no longer ruled out by the hedge fund community, especially since the announcement of Pfizer’s vaccine.
Quantitative hedge funds (CTA) continue to bet on lower long-term rates in most major countries (United States, Canada, Italy…) with a few exceptions (Japan, Germany, Korea). But according to the bank Nomura, these hedge funds could “turn tack” massively in the next two months, betting now on a rise in global long rates, especially in the United States, in a context of global economic recovery. These hedge funds, which strive to capture medium-term trends in the markets, take three to five months to go from a long position to a short position on the major bond markets. They do this if a strong new trend starts in the market cycle. The Federal Reserve will work to contain market and fund expectations to prevent them from pushing interest rates too high and stifling a still fragile economic recovery. These growth fears are fueling the weakness of the dollar.
Blues of the dollar
Global macro hedge funds (which invest in all major markets) are still betting on the dollar falling. The note resists and gains 0.6% since the announcement of the victory of Joe Biden but without blue wave. It is this scenario of crushing victory which would have been the most unfavorable for the American currency, down 4% this year. Ultimately, the fruits of the fight against the strong dollar, one of Donald Trump’s obsessions, may be the Democrat who will reap them, in the form of renewed export competitiveness.
Very pragmatic, the association of hedge funds, the Managed Funds Association congratulated the victorious Democratic duo by reminding them that many American pension funds and charity organizations invest in hedge funds. “These are 26 million Americans, teachers, firefighters, civil servants”, who rely on hedge funds “To finance their retirement and diversify their investments”. Hedge funds look forward to working with the new administration to promote “Financial markets, fair, efficient and transparent”.
Carl Icahn, the $ 1 billion American night
Donald Trump’s election costs Soros $ 1 billion