Friday, August 15, 2014

Go Big Or Go Home, Soros $2.2 Billion Bet On SPY Puts

As I've previously covered on this site (Soros Reloads SPY Puts, $1.3B Bet On S&P 500 Decline & Soros Fund Bets On Lower Stock Market (SPY Puts)), Soros has been betting big with a SPY Put position which has fluctuated wildly in size over the last couple of years. As reported in the latest 13 Filings the position just reached it's largest size yet in both notional value and as a percentage of the portfolio (at least of those positions which are required to be reported for the 13F).

The $2.2 Billion position is now 16.65% of the portfolio which was a 605% increase over the previous quarter.

Click Chart To Enlarge
As I've explained in the past a SPY Put position is essentially a bet that the price of the stock market (S&P 500) will head lower, though the position could also be a hedge or part of a trading strategy. As the reporting period ended on June 30th, the position may be larger or smaller today.

The next largest holdings in the Soros Fund (for comparison in size) are a $450.5M position in YPF (Argentina's largest oil company) and a $411M position in SPY Calls (essentially the opposite of the SPY Puts). 

I'm reminded of some thoughts from Soros earlier in the year where he compared the situation in China to that of the US in 2008.

"The major uncertainty facing the world today is not the euro but the future direction of China. The growth model responsible for its rapid rise has run out of steam.

That model depended on financial repression of the household sector, in order to drive the growth of exports and investments. As a result, the household sector has now shrunk to 35% of GDP, and its forced savings are no longer sufficient to finance the current growth model. This has led to an exponential rise in the use of various forms of debt financing.

There are some eerie resemblances with the financial conditions that prevailed in the US in the years preceding the crash of 2008. But there is a significant difference, too. In the US, financial markets tend to dominate politics; in China, the state owns the banks and the bulk of the economy, and the Communist Party controls the state-owned enterprises." George Soros

With many of China's economic indicators deteriorating (such as the housing market turning down and a recent big drop in credit growth), a crisis of the magnitude seen in 2008 would likely impact equity markets negatively across the globe, especially those which are reaching overvalued levels. It's only speculation, but perhaps Soros position in the SPY Puts is related to his concerns in this area.


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