The Wall Street Journal has a must-read piece out today on Bridgewater's (the world's largest hedge fund) views on the global economy via an interview with Robert Prince, co-CIO. The firm's views are uniformly bearish.
The biggest drag on growth continues to be the enormous build-up of debt in the developed world over the past 6 decades, and the deleveraging process has barely begun: "What you have is a picture of broken economic systems that are operating on life support.We're in a secular deleveraging that will probably take 15 to 20 years to work through and we're just four years in."
Bridgewater sees zero interest rates for an extended period of time in these economies. Prince points out how an investor could profit from this situation by buying Treasuries even at their current low yields: "An investor who was leveraged three-to-one and bought Japan's bonds at a 2.5% yield in the mid 1990s would have earned a compound average annual return of 12% a year for 15 years."
Bridgewater is also bullish on Gold and positioned for higher Gold prices: "... gold prices should resume a rally amid continued printing of money by the Fed and other central banks. Those efforts effectively devalue those countries' currencies compared with gold."
Surprisingly, equities may actually do well in this environment:
The biggest drag on growth continues to be the enormous build-up of debt in the developed world over the past 6 decades, and the deleveraging process has barely begun: "What you have is a picture of broken economic systems that are operating on life support.We're in a secular deleveraging that will probably take 15 to 20 years to work through and we're just four years in."
Bridgewater sees zero interest rates for an extended period of time in these economies. Prince points out how an investor could profit from this situation by buying Treasuries even at their current low yields: "An investor who was leveraged three-to-one and bought Japan's bonds at a 2.5% yield in the mid 1990s would have earned a compound average annual return of 12% a year for 15 years."
Bridgewater is also bullish on Gold and positioned for higher Gold prices: "... gold prices should resume a rally amid continued printing of money by the Fed and other central banks. Those efforts effectively devalue those countries' currencies compared with gold."
Surprisingly, equities may actually do well in this environment:
Mr. Prince also thinks stocks are attractive from a
long-term perspective, especially compared with bonds or cash. Broadly,
discounted earnings-growth rates, which reflect the expectations about future
earnings implied by current prices, are negative, he says.
A moribund economic outlook "is pretty priced in right
now," he says. "If we have a long, drawn out deleveraging process
without substantial air pockets, chances are equities are a pretty good bet,
ironically."
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