Co-CIO sees 'possible inflection point' as cash moves to riskier assets.
Bridgewater Associates LP, the $140 billion hedge fund founded by Ray Dalio, is betting on global stocks and oil as it expects money to move into equities and other assets amid increased economic confidence.
Bridgewater, the world's biggest hedge fund, is bullish on stocks, oil, commodities and some currencies as it expects cash to shift to riskier assets, co-chief investment officer Bob Prince said on a client conference call on Jan. 23.
“You want to be borrowing cash and hold almost anything against it,” Prince said, according to a transcript of the call obtained by Bloomberg News. “We are at a possible inflection point right now with respect to the pricing of economic conditions in markets and then the actual conditions that are likely to occur.”
Global stocks have rallied 10 percent in the past six months as the U.S. housing market recovers, European leaders take steps to contain their debt crisis, and reports in China suggest economic growth is accelerating. This year will be a “game changer” as investors reallocate money after risks such as Europe's sovereign-debt crisis recede, Dalio said last month at the World Economic Forum in Davos, Switzerland. Investors from David Tepper, who runs the $15 billion hedge fund Appaloosa Management LP, to Carlyle Group LP co-founder David Rubenstein have said they're bullish on the U.S. economy.
A spokesman for Westport, Connecticut-based Bridgewater declined to comment on the firm's conference call.
'Bullish Shift'
Bridgewater likes oil because of the potential for falling stockpiles at wholesalers and economic growth in the U.S. and China, Prince said.
“If you get better growth in the U.S., better growth in China, inventories coming down some, and then the incremental supply coming down some -- we're seeing some shifts in the supply-demand balance in oil,” Prince said, according to the transcript. “A bullish shift there for oil.”
Bridgewater, which is also betting on the price of gold to increase, forecasts U.S. growth of about 2.5 percent, Prince said during the call without citing a time period, according to the transcript. Economists estimate an average increase of 2 percent in 2013 gross domestic product, according to a Bloomberg survey of 82 respondents.
Not 'Gangbuster'
“The point is not so much that we're going to be in the gangbuster period of growth,” Prince said during the call. “It's more that growth is likely to be better, particularly in the United States, than it has been. It's more of a movement of capital. The money moving out the risk curve and into risk assets won't take much growth to trigger that kind of shift.”
Bridgewater is “long equities around the world” and “generally shifting to long commodities positions,” Prince said during the call. Hedge funds that make long bets are anticipating the prices of various securities will rise. The firm also has a “moderate long position in developed market corporate credit,” he said.
Bridgewater is positive on currencies including the British pound, Korean won, Mexican peso and Russian ruble, according to a chart in the transcript showing the firm's current views, which Prince referred to during the call. The firm is bearish on the Japanese yen, Australian dollar and Canadian dollar, the chart shows.
Shorting Yen
The yen has dropped about 20 percent in the past six months, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, in anticipation of the greater stimulus advocated by Prime Minister Shinzo Abe. The Group of Seven nations pledged to avoid devaluing their exchange rates in pursuit of stronger economic growth, to calm concern the world is on the brink of a currency war, officials from G-7 countries said today.
“We're now short the yen, largely related to the change in their balance of payment circumstances and, subsequent to that, the emphasis on a more aggressive monetary policy,” Prince said. “We are bullish on sterling, largely related to differences in capital flows and the impacts of monetary policy between the U.K., Europe and United States.”
The pound is coming off its biggest weekly gain since 2011 versus the euro amid speculation the Bank of England will refrain from extending stimulus, while its European counterpart may cut interest rates further. Sterling rose against all but one of its 16 major counterparts last week after Bank of England Governor-designate Mark Carney suggested current monetary policy may be sufficient to support the economy even as he stands ready to add more stimulus if needed. European Central Bank President Mario Draghi said the recent appreciation of the euro could damp inflation.
Bond Bets
Bridgewater is wagering on European bonds and betting against those in the U.S., Japan, U.K. and Australia, the firm's chart shows. It's bearish on emerging sovereign credit.
The move from cash to riskier holdings would support an increase in the value of assets and improve balance sheets, credit and economic growth, Prince said. That cycle will continue only until the U.S. Federal Reserve moves toward tighter policy, he said.
“You're likely to do reasonably well until you hit the tail end of that cycle, where you get the central banks pulling back on liquidity,” Prince said. “That can continue for some time until the Fed no longer continues to inject liquidity. That would end that cycle and push all yields up which would, of course, hurt asset returns.”
Bridgewater Pure Alpha rose 0.8 percent last year, according to a table in the transcript. The fund has posted an annual return of 14 percent since inception in 1991. Bridgewater All Weather posted a 15 percent gain in 2012 and 9.4 percent annual return since inception in 1996, according to another table.
-- Bloomberg News --
