A mysterious buyer who splurged $2.7 billion bets on the decline of the United States has appeared! And warns that a recession is imminent

In June of this year, a mysterious investor made a record bet on long-term U.S. Treasuries, causing a stir in the ETF market where traders seek clues about Wall Street sentiment. Now, the company behind this bet has emerged, stating that its prediction of an economic recession is finally starting to materialize.

On Tuesday, Brent Schutte of Northwestern Mutual Wealth Management revealed that it was his company that invested $2.7 billion in BlackRock's long-term U.S. Treasury ETF (TLT) on June 24, marking an unprecedented inflow of funds since the launch of the largest long-term Treasury ETF in 2002.

Schutte, the Chief Investment Strategist of the roughly $300 billion asset management firm, stated that the plan is to hold the position for at least a year, anticipating that a cooling labor market will trigger an economic recession.

His prediction has been validated in recent weeks by the upward trend of U.S. Treasuries. Depressing economic data and global turmoil have driven Treasury yields higher, despite some retracement in the past few days. However, the turmoil has intensified views that the Federal Reserve will begin lowering borrowing costs next month. Schutte commented:

"The excess liquidity injected into the economy, along with liquidity, excess savings, and a low-interest rate environment that allowed businesses and consumers to refinance, means that it takes longer for an economic recession to arrive. Now, these factors are starting to fade. Typically, the labor market is the last to collapse."

Schutte pointed to a series of economic data that he believes supports his argument, including the rise in the U.S. unemployment rate. Meanwhile, J.P. Morgan now estimates a 35% chance of the U.S. economy entering a recession this year, up from 25% at the beginning of last month.

Discussing the timing of a potential economic recession, Schutte stated, "In the next 3-6 months, we will see whether an economic recession will occur, in fact, we may already be in an economic recession."

Since June 24, the $58 billion TLT fund has risen by about 1%, but in the past few days, as the market has been relatively calm, its gains have retraced. On Thursday, the fund experienced a decline due to the latest labor market data easing some economic concerns.

Schutte mentioned that the ETF's performance is in line with expectations, with the risk-return structure being attractive for holding duration exposure, where duration is a measure of a bond's sensitivity to changes in interest rates.

According to his calculations, if yields rise by 100 basis points over the approximately 12-month holding period he expects from June, he would incur a loss of about 2%, but if yields fall by 100 basis points, he would gain around 12% in total return during that period.

He stated, "This deviation is attractive to me. The reality is that bonds have returned to their historical role of hedging some of the risks of stock declines." Looking ahead, the chief investment officer expects more volatility in the future market, as seen earlier this week when investors exited arbitrage trades and the market reacted to weaker economic data.

He mentioned that the Fed's rate cut in September is unlikely to exceed 25 basis points, as officials need to ensure that inflation is moving in the right direction. Currently, traders are preparing for a rate cut beyond this level. However, Schutte also added that if there are signs of further cooling in the labor market, the Fed may cut rates by 50 basis points, "or even more"