What's the World's Biggest Hedge Fund Saying Right Now?

Connecticut’s Bridgewater Associates is arguably the world’s largest and most successful hedge fund.

Founder Ray Dalio’s firm has reportedly averaged a 15+% return over the past decade and grown its assets under management consistently 20+% year in and year out in a record envied by other managers.

The firm serves institutional clients including pension funds, endowments, foundations, foreign governments and central banks. It focuses on “global macro strategies” and reportedly has 30 or 40 simultaneous trading positions in bonds, currencies, stock indexes and commodities to manage risk and avoid affecting prices by concentrating funds in a single area. The very private firm gets a lot of publicity both for its macro views and its somewhat controversial corporate culture of “radical transparency and feedback.” A very challenging but highly rewarding place to work, according to most observers.

According to one source:

“The company's "Daily Observations" is a subscription white paper is “one of the most widely forwarded pieces of market analysis" in the industry. It has been read by leaders of central banks, managers of global pension funds as well as U.S. Treasury Secretary Timothy Geithner and President Barack Obama.”

Bridgewater has generally held a somewhat gloomy macro view for quite a while but with its sophisticated strategies has been able to make money nonetheless.

Back in January, Robert Prince, co-chief investment officer at Bridgewater gave an interview to the WSJ saying:

“We are preparing for at least a decade of slow growth and high unemployment for the big developed economies”. Mr. Prince described those economies—the U.S. and Europe, in particular—as "zombies" and says they will remain that way until they work through their mountains of debt.

"What you have is a picture of broken economic systems that are operating on life support," Mr. Prince said. "We're in a secular deleveraging that will probably take 15 to 20 years to work through and we're just four years in. But for longer-tm investors, equities may face air pockets but could be a good buy.”

Bridgewater was back in the news this week with more thoughts on the European debt crisis, according to Zero Hedge:

“Be Careful When Betting Against Human Nature. We think the popular assumption that the Germans and the ECB (which requires agreement of the key factions within it) will come through with the money to make all these debts good should not be taken for granted. Said differently, we think there are good reasons to doubt that European bank and sovereign deleveragings will be prevented from progressing to the next stage in a disorderly way, without a Plan B in place. This "fat tail" event must be considered a significant possibility.”

Now, what makes this a bit confusing is the fact that we also see reports showing a huge long holding by Bridgewater in the SPY, but those outside the firm, unless clients, really have no idea how this position might be hedged, or even whether reported holdings are long out of date.

But let’s take their words at face value, given Bridgewater’s track record, and assume they are appropriately hedged and will find a way to profit no matter the ultimate European outcome over the next few months.

Good Trading!
David W. (aka The Underground Trader)

David W’s Option Income Generator. service is designed to help tame market volatility by producing monthly income via a proprietary buy-write strategy. Check it out today!

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