If you ask “a person familiar with the matter”, Bridgewater’s Pure Alpha fund is down 6% YTD through last week thanks to bearish bets on global rates at a time when bond yields have tumbled to record lows.
Pure Alpha II, a version that employs more leverage, is down 9% YTD, according to Bloomberg.
“Monetary Policy doesn’t work effectively because interest rates get so low that lowering them enough to stimulate growth doesn’t work well”, Dalio said Wednesday, in a ~1,600-word essay documenting a trio of “important forces” and reiterating a variety of themes he’s discussed over the past year.
Bloomberg’s reporting suggests Bridgewater’s flagship fund is lagging benchmarks by a wide margin, as shown above. That said, All Weather has apparently logged a solid return, gaining nearly 13% through late August.
Yields on developed market bonds continue to explore ever lower lows as the growth outlook worsens, inflation expectations collapse and markets increasingly see central banks’ “lower for longer” mantra as likely to mean “lower forever”.
The global stock of negative-yielding debt ballooned to $16 trillion in August, as benchmark yields in Germany plunged to -0.70%. The entire German curve turned negative earlier this month. Meanwhile, 30-year yields in the US dove below 2% for the first time, prompting Steve Mnuchin to tease ultra-long issuance in the form of a prospective 50-year tenor or perhaps even a US century bond. Even 10-year Italian yields fell below 1% this week, despite the country’s rolling political crisis which culminated Thursday in yet another fractious coalition government.
“There are strong deflationary forces at work as productive capacity has increased greatly”, Dalio said Wednesday, adding that “these forces are creating the need for extremely loose monetary policies that are forcing central banks to drive interest rates to such low levels and will lead to enormous deficits that are monetized, which is creating the blow-off in bonds that is the reciprocal of the 1980-82 blow-off in gold”.
According to Bloomberg, Pure Alpha isn’t the only Bridgewater fund that’s struggling.
Pure Alpha Major Markets fund, a vehicle comprised of positions in a “subset” of the markets represented by the broader fund, was down 18% for 2019 through the end of last week, according to the source. “Optimal”, a mix of Pure Alpha and All Weather, has risen 4% YTD.
Rational explanations don’t work well in this market when the major political players all use market performance as a primary criteria for their actions….Charlie McElligott , I’ll give him credit , has found a way to Navigate this environment as least for now ( never forever though)
Thanks for this article. I must say, this makes me quite happy with myself, because I’m down 6% too in my first year of trading, and sometimes It’s easy to forget its not just you as an individual struggling in the current market. When the market has moved decently over the past few months, I always feel I’m the only sucker on the wrong side of it.
Raaaaay… the next time Bill Gross calls and suggests that you short Bunds, just hang up the phone!
LOL. this is a good one.
He must not have bought enough gold.
Am I the only one who laughed aloud at that comment?
Yes!
I may be misunderstanding something, but doesn’t bearish bets on rates indicate that he was on the right side of the trade, as rates have trended lower in many parts of the world? Or does that term convey that he was bearish on bonds?
bearish rates = betting bonds selloff