Bridgewater Associates, the world’s biggest hedge fund with $125 billion AUM, retains the gloomy outlook and positioning that has served it so well in the recent past (+44% in 2010, +25% through November 2011). The Wall Street Journal ran an article on Bridgewater with commentary from Robert Prince, the co-chief investment officer. Some excerpts:
“We’re in a secular deleveraging that will probably take 15 to 20 years to work through and we’re just four years in.” In Europe, “the debt crisis is [a] long ways from over,” he says. The economic and financial morass will mean interest rates in the U.S. and Europe will essentially be locked at zero for years.
In this bleak environment, Mr. Prince says stocks remain vulnerable to “air pockets” from shocks, such as bad news out of Europe. But for longer-term investors looking out over the next decade, he says, equities may be a good buy. There is even money to be made in U.S. Treasurys, despite interest rates near record lows, and gold is likely to resume its climb as central banks print money to bolster their economies. Mr. Prince says.
Currently, the fund is positioned for higher gold prices, stronger Asian emerging-market currencies and lower yields across high-quality government bond markets, Mr. Prince says.
Recent better-than-expected news on the U.S. economy is unlikely to be the start of a healthy expansion, he says. The uptick in economic growth has been fueled by a decline in the savings rate, which, without material income and employment gains, is unlikely to be sustainable as long-term credit growth also remains weak, he says.
Against this backdrop, the Federal Reserve will need to do more quantitative easing—buying of government bonds—but Mr. Prince says the purchases will probably be sporadic.
Europe, meanwhile, is headed into a potentially deep recession, with policy makers boxed in by an interconnected banking and sovereign-debt crisis.
“You’ve got insolvent banks supporting insolvent sovereigns and insolvent sovereigns supporting insolvent banks,” he says.
Read the full article here.
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