Bill Gates has been selling his stocks to prepare for one of the worst economic disasters in history. Gates is known for being a CEO, but he’s even better at capital growth. Through the help of his fund manager, Michael Larson, Gates managed to make $50 billion over the past 20 years. Gates and Larson not only made billions from the bull run, but also successfully prepared for the dot-com bubble and 2008 recession. This has allowed him to consistently beat the S&P 500 and grow his wealth to new heights. Gates and Larson are now aggressively preparing for what will become one of the worst recessions of all time.
It’s no secret that the economy is in a tough position. The US economy is undergoing accelerating inflation, the lowest consumer sentiment in history, the Russia-Ukraine war, low consumer savings rates and record-high debt levels. The government pumped trillions of dollars into the economy in 2021. 2022 is the complete opposite of that, with the government pulling back trillions of dollars out of the economy. Gates is especially concerned about the artificial trap that the Fed created for themselves. The economy is currently being hit by a double edged sword. One edge of the sword is accelerating inflation and the other edge is the massive level of government debt. The government now has two choices: to destroy the US dollar or crash the economy at the risk of popping the debt bubble. The Fed has decided to go with the second choice of slowing the economy at the risk of an unprecedented collapse. We recently saw the Fed raise interest rates by 75 basis points, which is the largest increase since 1994. This increase helps substantially with slowing inflation, but it comes at substantial risk. First of all, raising rates that sharply means that borrowing will cost significantly more for business investments and mortgages. Rates on the 30 year fixed rate mortgage recently increased by the largest one-week jump in 35 years. If this increase in interest rates slows the economy too much, it could pop the existing debt bubble and spiral the economy into a recession or depression..
The bear thesis that Gates is talking about makes complete sense. A surge in oil prices is strongly correlated with recessions. The gray areas in this chart are periods in which the US economy was in a recession. You can see how every time Brent crude oil crosses $100 per barrel, a recession almost always follows. Brent crude oil is currently at roughly $120 per barrel, signalling that a recession is coming. The reason why a recession almost always follows oil prices breaking $100 is because rising oil prices are a tax against the consumers. High gas prices take money directly out of the consumer’s pocket. This not only leaves the consumer with less money to spend, but it also drastically lowers consumer sentiment. The University of Michigan Consumer Sentiment Index shows that the consumer sentiment is currently the lowest it has been since the 2008 recession. The economy works in cycles, with debt levels continuously peaking and bottoming in a cyclical form. Gates and Larson recognize that 2021 represented a period of immense speculation. The complete opposite of this is coming: a considerable economic slowdown. In preparation for a collapse in the US stock market, Gates and Larson have been implementing a variety of hedging strategies. One of these strategies includes shorting stocks. Unlike long positions, short positions don’t have to be disclosed to the public. The SEC is trying to change this with a new proposal, but until that goes through, we have no idea what stocks Gates is actually shorting. With that being said, we know that Gates has a short position against Tesla stock, because Elon confirmed it himself. Gates touts himself as a strong supporter for sustainable technologies, but Musk believes that his Tesla short position contradicts this. Musk tweeted that “since Gates still has a multi-billion dollar short position against Tesla while claiming to help with global warming, I guess I have some trust issues with him too”. Gates is already down over $1 billion on his Tesla short position, but he clearly hasn’t closed out his position yet. Elon explained how “it was $500M, but then Tesla went up a lot, so now it’s $1.5B to $2B to close it out”. Gates and Musk were about to meet to talk about philanthropy, but leaked messages showed that Gates’s Tesla short position hindered the meeting from occuring. Musk confirmed that these leaked messages were true, and claimed that Gates having a Tesla short position isn’t top secret at all. Though Tesla stock experienced substantial price appreciation in 2021, the epitome of the bubble was the rise of NFTs. NFTs like the Bored Ape Yacht Club rose by hundreds of percent before recently dropping by over 80% in two months.