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George Soros Still Bearish on Stocks, Sells Some Gold, Why Investors Should Care

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Article By:  Adam Sarhan

Soros Fund Management Chairman George Soros  during the World Bank- International Monetary Fund Spring Meetings April 17, 2015 in Washington, DC.  (Photo by Chip Somodevilla/Getty Images)

George Soros made his fortune, over the last few decades, from his prescient macro views on markets. When Mr. Soros speaks, people listen. Mr. Soros is still bearish on stocks and sold some of his gold. In his quarterly 13-F filing, Mr. Soros bought a lot more bearish puts on the stock market and sold some of his gold positions. Remember, this filing tells us what he did in Q2 2016, before the S&P 500 and other indices all broke out and hit fresh record highs. It does not tell us what his positions are right now.

1 SPX- 20 years

1 SPX- 20 years
Mr. Soros, and several other large billionaire investors have come out in recent months and expressed bearish views on stocks. Meanwhile, the market continues to rally. Why? The short answer, continues to be easy money from global central banks. It’s one thing to be a large player in the global marketplace but it is another thing to be the largest player. These billionaire investors are very large players, but the central banks, are the largest players. For now, markets continue to listen to central banks and conventional wisdom takes a back seat. Eventually, markets will fall and we will enter another bear market. But until we do, why fight this very strong tape? Earlier this year, Mr. Soros publicly made the case that China is in trouble and it reminds him of the U.S. in 2007-early 2008- before the big 2008 financial crisis. To hedge against a market collapse, Mr. Soros, bought puts, which profit as the market declines, and bought gold, which is considered a risk-off investment.

At the end of the second quarter, Soros Fund Management owned puts in a variety of exchange traded funds that track the S&P 500 and the small-cap Russell 2000 index, among other positions. It is important for investors to note that Mr. Soros is expressing a bearish view on stocks but he is controlling his risk. The worst case scenario for Mr. Soros is that his puts expire worthless which means the most he can loss his the premium he paid to buy the puts. Theoretically, if the market doubles from here, his risk is capped. Another benefit of buying puts, instead of shorting the indices outright, is that time is on his side. He doesn’t need the market to go straight down, right away. He took a bearish view, controlled his risk and will make money if the market falls. If it doesn’t, big deal, it will another losing trade. Anyone in this business knows that losing trades are common and successful traders know how to manage their risk, when wrong. He is also free to exit the position at anytime. The media is bashing Mr. Soros but I want to take the other side of the trade. From a trading perspective, there is nothing inherently wrong with what he’s doing. In fact, I would argue, he is doing the right thing: He had a view, placed a trade that expressed his view, and controlled his risk in the process. What more can you ask for in this business?

Full Article: George Soros Still Bearish on Stocks, Sells Some Gold, Why Investors Should Care

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