Skip Navigation

The Stock Market Hedges Against Warren

November 27, 2019

"Mattress Mack" bet a total of $13 million on the Houston Astros winning the World Series, not because he's such a fan, but to cover his business losses if that were to happen.

"Mattress Mack" bet a total of $13 million on the Houston Astros winning the World Series, not because he's such a fan, but to cover his business losses if that were to happen.

During the year, in something of a publicity stunt, Mattress Mack - AKA Jim McIngvale - sold mattresses with the offer of a full refund if the Houston baseball team won the World Series. As the Astros made their way through the playoffs, Mattress Mack realized he stood to lose a fortune.

When the Series-deciding 7th game got underway, Mattress Mack stood to lose $20 million if the Astros won in rebates, and to win about the same amount from his bets. In other words, he was in a hedge position.

With the 2020 presidential election underway, many investors find themselves in a position similar to Mattress Mack. Were radical left Elizabeth Warren to win, with her promise (or threat) of a wealth tax, it could be the end of capitalism and the start of a Venezuela-like catastrophe.

Free college, a universal basic income, Medicare for all, the Green New Deal, not only for Americans, but for billions of people around the world who would come here with open borders, the poor, the huddled masses, yearning for lots and lots of free stuff.

Among the big Wall Street firms, Bridgewater laid off $1 billion in "puts" against the stock market. A put is essentially a bet that the value of something will go down. This action by Bridewater touched off rumors of an imminent stock market crash. No. It's a hedge. Bridgewater wants its clients to be immunized against the risk that Elizabeth Warren poses to them. The CEO of the company says it does not have a net position that the stock market will fall.

Other big names tout big numbers regarding a fall of the stock market were Elizabeth  Warren to be elected. Leon Cooperman, on CNBC, quoted 25 percent. Paul Tudor Jones said the downside risk, with Warren, is 25 percent, and the upside potential, with Trump being re-elected, 15 percent.

Another strategy being pursued is constructing a portfolio designed to perform well even with an Elizabeth Warren presidency. Such a portfolio would be heavy on "renewable energy," electric cars, and companies that make paper straws, and light on oil and gas, large cap's, airlines, private health insurance, and meat.

At one level, these strategies sound like the sophisticated alternative to having a bug-out bag, an off-grid refuge in a secluded area, and enough ammo to survive a zombie apocalypse. At another level, they sound like investing in rope manufacturers because Lenin said the communists would sell the capitalists the rope with which they will hang themselves.

Author
Clifford F. Thies is the Eldon R. Lindsay Professor of Economics and Finance at Shenandoah University. He received his Ph.D. in economics from Boston College.
cthies@su.edu