just sent from out-tray
From: J
Sent: Wednesday, January 4, 2012 6:46 PM
Subject: so much to be concerned about, and reads
the sum total of my concerns
- we are not playing in environ of normal biz cycle(s)
- the conditions over the past 10 years, 5 years, 3 years, 2 years and 12 months have been anything but a series of normal biz cycles
- investment is difficult because we are forced to anticipate, and speculation is hard because only speculators left in what were once markets
- and so all game per risk-on/off, and the start of any year is time for game-on-full risk-on
- the troubles: given the frequency and amplitude borne of risk-on/off, the various flavors of investors are getting exhausted even as 'the music is still playing', and given the frequency / amplitude, hardly anyone is doing well, except those who remain true and faithful to the one and only, primordial and elemental - but since sept the true betrayed even the faithful
- as the crowd is literally being driven into the usd at 0% supposedly seeking refuge, even as the ostensible danger zone euro stands strong at 1.30, and further more the zirp-since-forever yen is at 75-78, something is wrong - what i cannot be certain and can only guess at, but something is wrong, and something must break
- suppose for a moment that, for kicks, we are in a globalized japan part ii, playing that globalized japan game by either the rules of cyclical biz game or "risk on/off" would result in what? did that strategy work out in japan's case over the past 10-20 years
- the stock market has been in a bear market since 2000, and all 'recoveries' were purchased at enormous cost to the real economy by way of flim-flamming the monetary universe
- i suppose, at some level of zirp / qe / force-fed loan / escape to hard asset even empty homes, all shares could do a zimbabwe, i.e. dow to 30k, and if that is our view, then also okay, though seems a bit early given the 'deflation' we just experienced
- i keep an open mind, but remain cautious to the max because i do not know what is wrong except that many things must be wrong
Bridgewater Associates has made big money for investors in recent years by staying bearish on much of the global economy. As the new year rings in, the hedge fund firm has no plans to change that gloomy view
Robert Prince, co-chief investment officer at Bridgewater, and his managers at the world's biggest hedge fund firm are preparing for at least a decade of slow growth and high unemployment for the big developed economies. Mr. Prince describes 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 areoperating on life support," Mr. Prince says. "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 maybe 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.
The views of Bridgewater are keenly watched by other investors, given the firm's elevated status in the competitive world of hedge-fund investing.Bridgewater's flagship Pure Alpha Strategy fund is considered one of the top funds in the world. As of the end of November, it was up 25% since the start of the year, according to people familiar with the situation. The average macrofund had lost 3.7%, according to Hedge Fund Research.
Currently, the fund is positioned for higher gold prices, stronger Asian emerging-market currencies and lower yields across high-quality government bondmarkets, Mr. Prince says.
In 2011, it profited from owning gold, but cut back on that position duringthe third quarter. It correctly pivoted from being bearish on U.S. Treasurysearly in the year to positioning for a rally. It also benefited from rallies incore European bond markets and avoided ugly losses sustained by other macro funds that had bet the euro would fall against the dollar. Instead, it rightly bet that the euro would fall against the Japanese yen.
Founded in 1976 by Ray Dalio, Bridgewater manages $125 billion and has 1,400employees. Mr. Prince, 53 years old, joined in 1986. The firm's clients are institutions such as pension funds and endowments, along with foreign governments and central banks.
Pure Alpha has been up each year since 2000, and has recorded just threenegative calendar years since 1991. In 2008, the fund returned 9.4% after fees,and after a 2% gain in 2009—its smallest of the decade—Bridgewater posted a 44.8% return in 2010.
From its offices by the Saugatuck River in Westport, Conn., Bridgewaterplays much the same field as other so-called macro funds. But it tends to bemore diversified than its competitors, with numerous smaller bets across a hostof currencies, government bonds, stocks and commodities.
In a conference room at Bridgewater's headquarters, where the water from the Saugatuck appeared to almost lap at the glass walls, Mr. Prince paints a grim picture of the challenges facing the U.S. and European economies.
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.
The problem for the U.S, says Mr. Prince, is that it is on the wrong side of a long-term debt cycle.
"We were in a leveraging-up period for 60 years, from the early 1950sto 2008," he says. 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."
As evidence for the long slog facing the U.S economy, he notes that the level of leverage, as measured by comparing household income to net worth, is still higher than it was before 2008.
"The most likely environment is moderate growth with wiggles up and down and this is one of those wiggles up," 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 policymakers boxed in by an interconnected banking and sovereign-debt crisis.
"You've got insolvent banks supporting insolvent sovereigns andinsolvent sovereigns supporting insolvent banks," he says.
In the U.S., leveraged investors who can borrow money at rates near zero could find a good deal in Treasurys, Mr. Prince says.
Mr. Prince points to the example of Japanese government bonds. An investor who was leveraged three-to-one and bought Japan's bonds at a 2.5% yield in themid 1990s would have earned a compound average annual return of 12% a year for 15 years, he says.
Meanwhile, gold prices should resume a rally amid continued printing of money by the Fed and other central banks, Mr. Prince says. Those efforts effectively devalue those countries' currencies compared with gold.
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," hesays. "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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