Bridgewater Sticking With Bearish Global Macro View (But Likes U.S. Stocks)

As 2012 gets underway, it appears that Bridgewater Associates, one of the world’s largest hedge fund outfits with$125 billion under management, remains bearish on the global economy, expecting at least another decade of minimal growth and high unemployment in developed nations.

Taking a global macro approach, Bridgewater tends to maintain a more diversified portfolio than some of its competitors, making multiple bets across a wide range of currencies, commodities, and government bonds. Other investors have taken notice of their approach, considering, as of November 2011, their flagship Pure Alpha Strategy fund was up 25% in 2011 and the average macro fund had lost -3.7% according to Hedge Fund Research.

Presently, the fund is preparing for higher gold prices, strengthening Asian emerging currencies and lower yields across high-quality government bond markets.

Regardless of his company’s individual successes or the recent spikes in U.S. economic expansion, co-chief investment officer, Robert Prince seemed downbeat on the future of American and European economies, nick-naming them “zombies” in reference to sizeable piles of debt under which they are buried.

He attributes the “unsustainable” upward swing to a declining savings, still low income rates and high unemployment according to a Wall Street Journal article highlighting the firm’s view.

“The most likely environment is moderate growth with wiggles up and down…” he asserted.

Prince referred to the cyclical nature of the global economy, stating that the U.S. is in the thick of a weak period that could take one-and a-half to two decades to emerge from.

Prince takes the very long view in terms of his macro economic outlook. “We were in a leveraging-up period for 60 years, from the early 1950s to 2008. This debt bubble was self-reinforcing on the way up, and when it tipped over, it set about a self-reinforcing process on the way down,” Prince said.

Prince also suggested that the Fed will need to continue its quantitative easing.

Across the pond, Prince portrayed a dreary picture for Europe, with a series of related banking and sovereign debt disasters that could potentially result in recession.

Bridgewater utilizes a global macro investing method based on economic trends such as inflation, changes in currency exchange rates and GDP. In an attempt to discover profitable opportunities, Bridgewater buys and sells more than 100 financial instruments across the globe.

According to a New Yorker article, in 2007, 61-year-old founder Ray Dalio, who earned the number 55 position on the Forbes 400 list, accurately predicted the bust of the housing and lending markets. The following year proved disastrous for many of Bridgewater’s competitors, however, the Pure Alpha Fund rose in value by 9.5 percent. With the exception of a single year since 2000, Pure Alpha has consistently been up, last year, rising 45%, the highest return by far of any major hedge fund. It also profited from owning gold, but reduced its commodities position in the third quarter, while successfully modifying its bearish stance on U.S. Treasuries earlier in 2011 to reposition for a rally. Currently, Bridgewater seems to think gold prices will pick up given the Federal Government’s continued practice of printing money along with other Central Banks.

Strange as it may sound given the firm’s less-than optimistic global macro view, Prince says U.S. stocks are a good choice from a long-term perspective, particularly on a relative basis when compared to bonds and cash at this time.

Perhaps following Bridgewater’s lead is a good call considering their continued victories regardless of market twists and turns. The fund’s founder prefers a methodical strategy when reading the market subsequently taking action.

“Almost anything is like a machine,” founder Ray Dalio said in an interview with The New Yorker. “[My] constant goal [is] to understand how the machine works.”

 

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