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Bridgewater Co-CIO: “The Boom-Bust Cycle Is Over”

January 22, 2020

Bridgewater Co-CIO: “The Boom-Bust Cycle Is Over”

Just in case anyone was worried that the smart money was quietly getting ready to stop dancing after Bridgewater’s Co-CIO Greg Jensen told the FT in an interview last week that it’s time to buy gold (which he sees rising to $2,000 because the Fed and other central banks would let inflation run hot for a while and “there will no longer be an attempt by any of the developed world’s major central banks to normalize interest rates”) ahead of the Fed cutting rates to zero and that “equities are frothy” as “most of the world is long equity markets”, today Bridgewater’s other Co-CIO came out with a controversial statement that appears to convey a polar opposite message to Jensen’s warning.

Bob Prince, who alongside Greg Jensen helps oversee the world’s biggest hedge fund at Bridgewater Associates as its other Co-CIO, said “the boom-bust economic cycle is over.”

Speaking to Bloomberg TV in Davos, Prince suggested that the tightening of central banks all around the world “wasn’t intended to cause the downturn, wasn’t intended to cause what it did” – and yet that’s precisely what the shrinking of the Fed’s balance sheet did hence the record expansion over the past four months – and shockingly said that “the lessons were learned from that and I think it was really a marker that we’ve probably seen the end of the boom-bust cycle.”

Prince was referring not only to the boom-bust cycle created by central banks, which first ease then tighten, resulting in bubbles and eventually crashes, as described in “Every Fed Tightening Cycle Creates A Crisis“…

… but also to the broader cycle of economic expansion and contraction that repeats itself.

…click on the above link to read the rest of the article…

Ben Bernanke: The US Economy Is Going To Go Off The Cliff In 2020

June 8, 2018

Ben Bernanke: The US Economy Is Going To Go Off The Cliff In 2020

It looks like Ben Bernanke is a Bridgewater client.

Recall that earlier this week we reported that in the May 31 “Daily Observations” letter to select clients, authored by Bridgewater co-CIO Greg Jensen, the world’s biggest hedge had an ominous, if not dire appraisal of the current economic and financial situation facing the US, and concluded that “We Are Bearish On Almost All Financial Assets”

While Ray Dalio’s co-Chief Investment Officer listed several specific reasons for his unprecedented bearishness, noting that “markets are already vulnerable as the Fed is pulling back liquidity and raising rates, making cash scarcer and more attractive”, pointing out that “options pricing reflects little investor demand for protection against the potential for the economy to bubble over and also shows virtually no chance of deflation, which is a high likelihood in the next downturn”, what really spooked Bridgewater is what happens in 2020 when the impact from the Trump stimulus peaks, and goes into reverse. This is what Jensen wrote:

“while such strong conditions would call for further Fed tightening, there’s almost no further tightening priced in beyond the end of 2019. Bond yields are not priced in to rise much, implying that the yield curve will continue to flatten. This seems to imply an unsustainable set of conditions, given that government deficits will continue growing even after the peak of fiscal stimulation and the Fed is scheduled to continue unwinding is balance sheet, it is difficult to imagine attracting sufficient bond buyers with the yield curve continuing to flatten.”

The result was the hedge fund’s now infamous conclusion:

“We are bearish on financial assets as the US economy progresses toward the late cycle, liquidity has been removed, and the markets are pricing in a continuation of recent conditions despite the changing backdrop.”

…click on the above link to read the rest of the article…

What Causes Asset Bubbles?

December 13, 2017

What Causes Asset Bubbles?

As we showed yesterday, the price of bitcoin has finally surpassed “Tulips” in the global bubble race.

Overnight the former Bridgewater analysts Howard Wang and Robert Wu, who make up Convoy Investments, released their thoughts on what happens next… and most importantly, what causes asset bubbles…

When we see a dramatic rise in asset prices, there is often an internal struggle between the two types of investors within us.

The first is the value investor, “is this investment getting too expensive?”

The second is the momentum investor, “am I missing out on a trend?”

I believe the balance of these two approaches, both within ourselves and across a market, ultimately determines the propensity for bubble-like behavior. When there is a new or rapidly evolving market, our conviction in the value investor can weaken and the momentum investor can take over. Other markets that structurally lack a basis for valuation are even more susceptible to momentum swings because the main indicator of future value is the market’s perception of recent value. In this commentary, I quantify the balance of value vs. momentum in a market to explore how that tug of war can result in incredible asset bubbles.

The balance of value vs. momentum determines a market’s serial correlation

I believe the outcome of the tug of war between value and momentum in any market can be largely captured by a statistical measure called serial correlation – how likely is the recent past to determine the near future? A value of -1 means future returns are the exact opposite of recent past returns, a value of 0 means they are independent of each other, and a value of 1 means recent past returns are perfectly predictive future returns. After a dramatic price change, value investing would generally expect a reversion to the mean, suggesting a negative serial correlation.

…click on the above link to read the rest of the article…

Fear The Smell Of (Monetary) Napalm In The Morning

February 26, 2016

Fear The Smell Of (Monetary) Napalm In The Morning

Via ConvergEx’s Nick Colas,

Warm up the choppers and put some Wagner on the loudspeakers – “Helicopter money” is a hot economic topic.

That’s where central banks print money and either hand it to the government for things like infrastructure investment or just send it out to consumers to spend. While that may sound like an extreme measure, advocates of this novel approach argue that it is a valid response to an extreme problem: slowing global growth and central banks with no “Standard” tools left in the shed.

But would it work?  There are two real-world examples in the last 15 years that offer some clues: the 2001 and 2008 tax rebate checks mailed to millions of Americans for up to $600 (2001) and $1,200 (2008). Studies by the National Bureau of Economic Research done in the wake of both events show notable differences.

  • In the first “Drop” (mid 2001), recipients reported spending most (53-73%) of their windfall.
  • In the second (early 2008), the percentage dropped to one third and most recipients reported saving the cash or using it to reduce debt.

The key lesson here: if policymakers are considering “Helicopter money”, they need to have the choppers in the air before a crisis hits. After that, it is too late.

The world’s central bankers are apparently out of ideas for how to stimulate the global economy back to health. Low interest rates?  Check.  Zero interest rates? Check.  Buying bonds to lower long term interest rates?  Big check.  Negative interest rates?  Ditto.  If monetary policy were a theme park, we could safely say we’ve been on every ride in the whole place.

…click on the above link to read the rest of the article…

NIRP Won’t Work – What Ray Dalio Thinks Central Banks Will Do Next

February 18, 2016

NIRP Won’t Work – What Ray Dalio Thinks Central Banks Will Do Next

Just as we first warned in September 2013, so it seems the view of “helicopter money” being imminent is now becoming more mainstream as the powers that be slowly propagandize the benefits.
If dropping interest rates to zero was Unorthodox Policy #1 and QE was Unorthodox Policy #2 then it seems very possible Helicopter Money will be Unorthodox Policy #3. Whether this new level of expansionism, with all the hopes and theoretic power it is supposed to hold, can generate growth of the red-hot rather than lukewarm kind remains to be seen.

However in so much as it could potentially raise nominal GDP, it may become an increasingly more attractive policy option around a global economy (especially DM) economy that faces many natural and structural growth concerns in the year ahead.Forcing the nominal economy to grow into the problems of the bubble era could be the most realistic policy choice over the remainder of the decade.

And today, the latest in a long line of realists has now come to the same conclusion that the only thing the central planners have left is a money-drop…

Authored by Bridgewater’s Ray Dalio (via ValueWalk.com),

Monetary Policy 1 was via interest rates. Monetary Policy 2 was via quantitative easing. It will be important for policy makers and us as investors to envision what Monetary Policy 3 (MP3) will look like.

While monetary policy in the US/dollar has not fully run its course and lowering interest rates and quantitative easing can still rally markets and boost the economy a bit, the Fed’s ability to stimulate via these tools is weaker than it has ever been. The BoJ’s and ECB’s abilities are even weaker. As a result, central banks will increasingly be “pushing on a string.” Let’s take just a moment to review the mechanics of why and then go on to see what MP3 will look like.

…click on the above link to read the rest of the article…

How The Rothschilds Made America Into Their Private Tax Fraud Backyard

January 27, 2016

How The Rothschilds Made America Into Their Private Tax Fraud Backyard

Back in September 2012 we first presented “the world’s biggest hedge fund nobody had ever heard of”: a small, previously unknown company called Braeburn Capital which, however, managed more cash than even Ray Dalio’s Bridgewater, the world’s largest hedge fund.

How had the little firm operating out of a non-descript office building in Nevada achieved this claim to fame? By managing the cash hoard (now well over $200 billion) of the world’s biggest and most valuable company: Apple.

But what was perhaps more notable is where Braeburn was physically located: Reno, Nevada. 

We explained the company’s choice for location with one simple word: “taxes”, or rather the full, and very much legal, avoidance thereof.

Three and a half years later we encounter this quiet Nevada town once again, and once again it is Reno’s aura of tax evasion that brings is to the world’s attention courtesy of a Bloomberg report discussing “The World’s Favorite New Tax Haven.”

Only instead of Apple this time, the focus falls on a far more notorious company: the Rotschilds.

As Bloomberg writes, “last September, at a law firm overlooking San Francisco Bay, Andrew Penney, a managing director at Rothschild & Co., gave a talk on how the world’s wealthy elite can avoid paying taxes.  His message was clear: You can help your clients move their fortunes to the United States, free of taxes and hidden from their governments. Some are calling it the new Switzerland.”

Ah, the rich irony: years after Obama single-handedly destroyed the secrecy-based Swiss banking model, the U.S. itself has taken over the role of the world’s biggest, if no longer very secret, tax haven, and the epicenter is this modest Nevada city located next to lake Tahoe, which has become the favorite city, if only for tax purposes, for such names as Apple and the Rothschild family.

…click on the above link to read the rest of the article…

The Fed’s Stunning Admission Of What Happens Next

January 17, 2016

The Fed’s Stunning Admission Of What Happens Next

Following an epic global stock rout, one which has wiped out trillions in market capitalization, it has rapidly become a consensus view (even by staunch Fed supporters such as the Nikkei Times) that the Fed committed a gross policy mistake by hiking rates on December 16, so much so that this week none other than former Fed president Kocherlakota openly mocked the Fed’s credibility when he pointed out the near record plunge in forward breakevens suggesting the market has called the Fed’s bluff on rising inflation.

All of this happened before JPM cut its Q4 GDP estimate from 1.0% to 0.1% in the quarter in which Yellen hiked.

To be sure, the dramatic reaction and outcome following the Fed’s “error” rate hike was predicted on this website on many occasions, most recently two weeks prior to the rate hike in “This Is What Happened The Last Time The Fed Hiked While The U.S. Was In Recession” when we demonstrated what would happen once the Fed unleashed the “Ghost of 1937.”

As we pointed out in early December, conveniently we have a great historical primer of what happened the last time the Fed hiked at a time when it misread the US economy, which was also at or below stall speed, and the Fed incorrectly assumed it was growing.

We are talking of course, about the infamous RRR-hike of 1936-1937, which took place smack in the middle of the Great Recession.

Here is what happened then, as we described previously in June.

[No episode is more comparable to what is about to happen] than what happened in the US in 1937, smack in the middle of the Great Depression.

…click on the above link to read the rest of the article…

This Is What Happened The Last Time The Fed Hiked While The U.S. Was In Recession

December 2, 2015

This Is What Happened The Last Time The Fed Hiked While The U.S. Was In Recession

Back on June 17, Bank of America started its 66-day countdown to the moment it was convinced the Fed would hike rates, September 17, 2015. We, correctly, said that “we disagree entirely” with BofA’s conclusion that the Fed would hike rates, and sure enough, it did not after the Chinese August devaluation unleashed the ETFlash crash, the EM debt rout, a surge in the VIX and a correction in the S&P500, which crushed the Fed’s carefully laid rate-hike plans.

But while we disagreed with BofA’s countdown timing, we agreed with something its strategist Michael Hartnett said, namely that “gradual or otherwise, the first interest rate hike by the Fed since June 2006 marks a major inflection point for financial markets.”

BofA then laid out several key factors why “this time is indeed different” when evaluating the global economy’s receptiveness to a rate hike:

  • Central banks now own over $22 trillion of financial assets, a figure that exceeds the annual GDP of US & Japan
  • Central banks have cut interest rates more than 600 times since Lehman, a rate cut once every three 3 trading days
  • Central bank financial repression created over $6 trillion of negatively-yielding global government bonds 
  • 45% of all government bonds in the world currently yield <1% (that’s $17.4 trillion of bond issues outstanding)
  • US corporate high grade bond issuance as a % of GDP has doubled to almost 30% since the introduction of ZIRP
  • US small cap 5-year rolling returns hit 30-year highs (28%) in recent quarters
  • The US equity bull market is now in the 3rd longest ever
  • 83% of global equity markets are currently supported by zero rate policies

However, to the Fed none of these matter: only the price action of the S&P500 does, which as everyone knows, is trading just shy of its all time highs so “all must be well.”

…click on the above link to read the rest of the article…

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