For weeks now, some of Wall Street’s biggest names — Paul Tudor Jones, Steve Cohen, Leon Cooperman — have been arguing that an Elizabeth Warren presidency would sink U.S. financial markets.
Those were just idle forecasts, though. No one said they were doing anything differently as a result. Until now. Scott Bessent, the Soros Fund Management alum who runs a $4.5 billion macro hedge fund named Key Square Capital Management, is shorting the dollar in a bid to monetize the market reaction he anticipates.
“Intelligent people can argue whether Senator Warren’s numerous programs will be good or bad for American society, but they are unequivocally negative for U.S. asset prices,” Bessent wrote in a Nov. 14 letter to investors.
It’s a risky proposition, as the 2016 election showed. Back then, many predicted a Donald Trump victory would drive down markets, only to watch them surge in the immediate aftermath of his victory. Bessent says, though, that there are many other factors that support his bet now, and that all it might take is Warren’s further rise in polls to spark a sell-off.
“A Warren presidency, or the mere threat of one, will likely hasten the exodus of foreign and domestic capital to overseas markets,” Bessent wrote.
The forces that have drawn investors to the U.S. — superior economic growth, technological leadership and a hospitable environment for capital — have already started to fade, he told clients. What’s more, rising equity valuations have made markets vulnerable to any shift in policies that have been favorable to companies.
Dollar put options — which give the right to sell the currency — are “particularly attractive” given the low level of implied volatility in foreign-exchange rates, according to the fund manager. A JPMorgan Chase & Co. gauge of currency volatility is close to a five-year low.
Warren, the senior senator from Massachusetts, is among the frontrunners in a still-large field of potential Democratic nominees. While her national polling numbers have faded since early October, they’re almost double the level from six months ago, according to RealClear Politics averages.
Pete Buttigieg has surged to the lead in Iowa, the first caucus state, with 24% support, according to the RealClear Politics average. Bernie Sanders, Warren, and Joe Biden follow with polling averages of 18.3%, 17.7% and 16.3%, respectively.
Former New York Mayor Michael Bloomberg entered the Democratic contest on Sunday. Bloomberg is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.
In 2016, several marquee hedge fund managers said markets would plunge on a Trump victory. But the S&P 500 has yet to close below its Nov. 8, 2016, level and has returned more than 50%, including dividends, since. It set another record high Tuesday.
For Bessent, stricter labor and environmental standards for trading partners, a “dramatic rethink” of antitrust policy and steps to empower workers are among Warren’s proposals that could erode assets stateside.
Warren has also called for “actively managing” the level of the dollar to bolster exports and domestic manufacturing.
“A dramatically weaker dollar, conveniently one of her policy prescriptions, is, in our view, the best way to play the rising chance of the Senator moving into the White House,” the fund’s letter said.
The letter didn’t indicate the size of the fund’s dollar wager. A spokesman for Key Square Capital declined to comment. The Wall Street Journal previously reported on Bessent’s dollar position.
Trump has been vocal about the dollar as well, blaming its strength for hurting U.S. exports. A broad measure of the greenback is up about 1% this year, building on last year’s gains.
Bessent, who spent much of his career working for George Soros, founded Key Square in 2016 with $2 billion in backing from his former employer. While still with Soros, Bessent made $1 billion in late 2012 and early 2013 on a bet that the yen would tumble.
Citing the roughly 31% gain in stocks in 1980 in the seven months before Ronald Reagan’s election, Bessent said the inverse could happen with Warren.
“We posit that if the U.S. equity markets are spooked by a Warren presidency, most of the decline may have occurred by Election Day.”