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The Crucial Nuance Behind Bridgewater Co-CIO Bob Prince’s ‘Boom-Bust Cycle Is Over’ Declaration

"Bob, you've just it twice, and I'm still surprised".

"Bob, you've just it twice, and I'm still surprised".
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5 comments on “The Crucial Nuance Behind Bridgewater Co-CIO Bob Prince’s ‘Boom-Bust Cycle Is Over’ Declaration

  1. bizcyclnotrepealed

    2020 is 2008 on steroids…….when this market turns, it’s got a one-way ticket to Palukaville.

    • Housing can never go down.

      Imagine if borrowing ceases due to weak economic fundamentals.

      Imagine if corp profits and cash floe declines due to stagnation.

      There are several reasons to think this thinking is complacent.

      Service jobs get cut, cap spending and R&D get cut by solvent profitable firms.

      What happens if investors decide the return is not worth the risk especially when the need to refinance hits.

      Again, we are in uncharted territory. We need to try to explain what will happen but if this is supposedly the panacea it sure took a long time to find it.

      The scary thought is what happens of this thinking is wrong.

      I suspect it will get very ugly sadly.

      We have dug so deep we can’t get out and honestly we are digging into Hell. They all suspect it but we have to keep up the charade to give us time to maybe figure it out.

  2. This equation does not bode well for high PE stocks……Seems it mandates slow growth……….

  3. The central banks have a 2% inflation target. They have dropped interest rates and bond prices rose. They dropped interest rates and house/property prices rose. They dropped interest rates and threw in tons of liquidity and equity prices rose. Are they still trying to tell us that we still haven’t had 2% inflation in these asset prices yet? Sorry if I am a little slow.

  4. 10yrs yield 1.77 inflation is ruining slightly higher. Real yield negative before taxes. So theoretically the market assumes lower inflation.

    But do stocks?

    Today we have 2% real growth, upper 3s nominal. With unbelievably low rates. We have NIPA profits stuck painting a bad picture.

    Corp bond spreads are tight with record levels of debt.

    Pretty much every asset is expensive on absolute terms. Bryanb hits it on the head.

    What happens if this is as good as it can get? Desire to lend falls since the returns do not make sense (is it worth the risk for no or small real returns?) and what happens if demand to borrow falls (as pricing power is worrisome).

    The Fed has painted us into a corner. But what happens if the economy continues to slow? More low rates? Not working so great for the real economy. Asset prices yes but how much are higher asset prices helping the real economy? And if asset prices fall where is growth then and what response (cutbacks) do CEOs and CFOs implement further increasing the momentum down.

    Either he is drinking to cool aid or lying. I can picture scenarios where at least the busts could be even larger in this new “normal”.

    And what are the returns if he is correct? Tepid from here? What are the returns if he is wrong?

    I suspect we will see a much larger panic in the next downturn that will make 08 look tame. The Fed may not cause it by tightening but that doesn’t mean it will not happen.

    We can argue about why the Fed needs to do repos of this magnitude and whether it suggests the patient is not healthy or everything is fine. But common sense suggests that there is more fragility in the system and this is symptomatic of the problems of low rates and suggest to me Prince is not correct. Sure it will be tamped down now but what about next time? And what happens if fundamentals turn more negative?

    Seems like another example of trying to justify bad or unwise behavior. I just don’t buy that this limits the magnitudes of the coming busts.

    Not sure I want to make the bet he is espousing.

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