In an interview with CNBC’s “Squawk Box” on Thursday, billionaire investor Ray Dalio (Trades, Portfolio), who founded the Connecticut-based hedge fund Bridgewater Associates, predicted that the novel coronavirus outbreak will cost U.S. corporations up to $4 trillion, while global corporate losses will amount to around $12 trillion. He added that “a lot of people are going to be broke.”
“What’s happening has not happened in our lifetime before ... What we have is a crisis,” he said. “There will also be individuals who have very big losses... There’s a need for the government to spend more money, a lot more money.”
While the White House is proposing a stimulus package that ranges from $850 billion to more than $1 trillion to fight the impact of Covid-19 and soften the blow of a sudden recession, Dalio argued that spending should be, at a minimum, more in the $1.5 trillion to $2 trillion range depending on the form of financial relief. The Trump administration’s proposed package will include direct payments or tax cuts as well as small business assistance.
As for the Federal Reserve, it plans to infuse an additional $1 trillion into the U.S. economy through asset purchases and by cutting interest rates to zero, a move Dalio is skeptical of since central banks have less capacity to ease monetary policies when interest rates have already hit the floor.
“We are now at a point where there will have to be a debt restructuring and a monetization of that,” he said. “We’re living in a different world, like the 1930s in which 1930s, 1932, you have a devaluation of the dollar. You have the printing of money.”
As the coronavirus pandemic has sent markets reeling over the past several weeks, with the S&P 500 down 30% from a record set last month, investors have been bailing out of their holdings in order to protect themselves from further losses. As for Bridgewater, the world’s largest hedge fund with approximately $160 billion in assets under management, Dalio said it has lost 10% to 20% during the selloff.
“We missed that, you know, we’re kicking ourselves for missing that move... What happened was it didn’t come from the usual places, it came from not the usual ways that downturns come,” he said.
While the guru did not name any specific positions during the interview, GuruFocus’ equity portfolio data as of fourth-quarter 2019 shows Bridgewater’s top five holdings were the SPDR S&P 500 (SPY, Financial) exchange-traded fund, the Vanguard FTSE Emerging Markets ETF (VWO, Financial), the iShares Core S&P 500 ETF (IVV, Financial), the SPDR Gold Trust ETF (GLD, Financial) and the iShares Inc MSCI Brazil ETF (EWZ, Financial).
Watch a segment from the full interview below.
Disclosure: No positions.
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