David McCormick, co-ceo of Bridgewater Associates, was recently interviewed by CNBC. Bridgewater is the largest hedge fund in the world, managing over $120 billion. Bridgewater was one of the top performing hedge funds in 2011, as they bet on U.S. bonds, German bonds, gold and select short positions.
It appears that Bridgewater is not changing its strategy for 2012. McCormick commented that the de-leveraging process has just started.
"Unfortunately the early innings. These things follow a consistent arc and first there's the notion of understanding, the significance of the gap. so the sovereign debt gap, the balance sheets of banks. I think at Davos over the last couple of days one of the things making me feel better I think there's a growing appreciation for the size of the gap and it's enormous. We're in a dire situation in terms of dealing with that and there's a certain way these play out every time.
That level of indebtedness has to be reduced. There are four ways:
a) Austerity, which doesn't get you far enough because ultimately you curtail growth.
b) Default.
c) Transfer payments from rich countries to poorer countries.
d) Series of other policy things including printing money and ultimately printing money is part of the solution.
McCormick emphasized that the de-leveraging process is a long-term process that has only just started.
"Essentially what you're seeing is this will play out over unfortunately a so or 15-year process. What we've seen over the last month is a pretty significant movement by the ECB with the establishment of the LTRO and that's a step forward providing liquidity to banks and that creates space for policymakers to ultimately make other choices. What it's going to require is some combination of austerity, some combination of defaults, some combination of continuing to print money and balancing those and some transfer from the rich countries to the poor countries, and balancing those in a way that doesn't lead to deflation or inflation."
The momentous task of navigating the de-leveraging process will surely lead to money printing and it remains to be seen whether inflation can be avoided.
It appears that Bridgewater is not changing its strategy for 2012. McCormick commented that the de-leveraging process has just started.
"Unfortunately the early innings. These things follow a consistent arc and first there's the notion of understanding, the significance of the gap. so the sovereign debt gap, the balance sheets of banks. I think at Davos over the last couple of days one of the things making me feel better I think there's a growing appreciation for the size of the gap and it's enormous. We're in a dire situation in terms of dealing with that and there's a certain way these play out every time.
That level of indebtedness has to be reduced. There are four ways:
a) Austerity, which doesn't get you far enough because ultimately you curtail growth.
b) Default.
c) Transfer payments from rich countries to poorer countries.
d) Series of other policy things including printing money and ultimately printing money is part of the solution.
McCormick emphasized that the de-leveraging process is a long-term process that has only just started.
"Essentially what you're seeing is this will play out over unfortunately a so or 15-year process. What we've seen over the last month is a pretty significant movement by the ECB with the establishment of the LTRO and that's a step forward providing liquidity to banks and that creates space for policymakers to ultimately make other choices. What it's going to require is some combination of austerity, some combination of defaults, some combination of continuing to print money and balancing those and some transfer from the rich countries to the poor countries, and balancing those in a way that doesn't lead to deflation or inflation."
The momentous task of navigating the de-leveraging process will surely lead to money printing and it remains to be seen whether inflation can be avoided.
