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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: We're going to talk about Bridgewater, the world's largest hedge fund,

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Speaker 2: is on the rebound. The Pure Alpha strategy, very highly watched,

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Speaker 2: is up eighteen percent through June after a week twenty

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Speaker 2: twenty three. That's all according to people familiar with the matter.

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Speaker 2: Bridgewater is also plowing into the high flying world of

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Speaker 2: artificial intelligence, joining us now to talk about it more

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Speaker 2: as Greg Jensen, the co chief investment officer at Bridgewater

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Speaker 2: associates and Greg talking about the performance at Bridgewater has

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Speaker 2: clearly been up double digits this year. What is happening

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Speaker 2: that's going right? What are the bets that you guys

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Speaker 2: made off that you are seeing now play into twenty

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Speaker 2: twenty four.

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Speaker 1: Well, I think Bridgewater can benefit in multiple ways.

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Speaker 3: The basic idea of Pure Alpha is that for over

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Speaker 3: forty years, we've built up our understanding of how macro

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Speaker 3: developments impact markets, and we continue to improve that process.

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Speaker 3: But there's been so many things, as you guys are

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Speaker 3: talking about here, so many major macro events going on

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Speaker 3: this year that have pressured markets. The fact that the

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Speaker 3: FED had to tighten slower than it expected to at

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Speaker 3: the beginning of the year, the ripple that had through

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Speaker 3: the fact.

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Speaker 1: That US growth has been generally resilient.

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Speaker 3: All of those pressures add up to opportunities for US

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Speaker 3: and particularly differential pressures across countries. After the tightening cycle

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Speaker 3: was very global. The impact of that tightening cycle across

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Speaker 3: the world has been quite different, creating a tremendous amount

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Speaker 3: opportunities for a strategy like perov.

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Speaker 4: What do you expect going forward?

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Speaker 5: I was watching last night in preparation a panel you

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Speaker 5: did at Davos, which you know is back in January

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Speaker 5: you were skeptical that we'd get six cuts this year,

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Speaker 5: and at that time the market was pricing that in

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Speaker 5: Now you know, we're we're only looking at two maybe one,

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Speaker 5: and yet the market is up, you know, fifteen percent.

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Speaker 4: What's driving that and can it continue going forward?

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Speaker 1: Yeah?

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Speaker 3: Well, when you talk about the equity market, I think

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Speaker 3: the biggest question, right, the thing that reconciles the circle

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Speaker 3: between the interest rate market and the equity.

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Speaker 1: Market is productivity.

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Speaker 3: Is there going to be a major productivity effect of

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Speaker 3: the new technologies, machine learning, et cetera coming through because

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Speaker 3: you need it really to reconcile the level of stock market.

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Speaker 3: The expectation for earnings going forward are quite high. At

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Speaker 3: the same time, the expectation the interest rate market is

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Speaker 3: that the central Bank will be able to cut rates

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Speaker 3: that services.

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Speaker 1: Inflation will continue to come down.

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Speaker 3: So you need this kind of perfect situation of earning

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Speaker 3: staying strong, demand staying strong enough to make those earnings

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Speaker 3: strong without keeping inflation above the FEDCE target. How do

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Speaker 3: you get there? You've got to get there through higher productivity.

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Speaker 3: So that's the big question is how much productivity When

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Speaker 3: will it occur? Because to reconcile the markets, you need

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Speaker 3: a pretty big jump in productivity to allow higher earnings

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Speaker 3: and lower inflation.

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Speaker 6: Well, I definitely want to get to machine learning, but

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Speaker 6: before we do that, let's wrap in FED risk and

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Speaker 6: political risk into one question. Because I was reading a

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Speaker 6: note from Goldman saying that the risk of Trump being

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Speaker 6: real elected and putting in place some of those tariffs

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Speaker 6: that he's talked about, it could lead to five extra

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Speaker 6: FED hikes.

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Speaker 4: So not talking about cuts there.

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Speaker 1: And when you think.

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Speaker 6: About all the known unknowns that are out there, especially

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Speaker 6: as it relates to politics right now, are you hedging

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Speaker 6: for any risk of something like that scenario playing out?

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Speaker 3: Yeah, I think you have to be really thoughtful because

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Speaker 3: there's so much political risk going on, and the shift

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Speaker 3: generally you're seeing across the world is kind of dissatisfaction.

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Speaker 1: With the people in power.

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Speaker 3: Populism in many cases being continuing to be on the rise,

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Speaker 3: and a Trump versus Biden or Trump versus whoever the

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Speaker 3: Democratic nomine ends up being is very significant change in policy,

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Speaker 3: one of the more significant elections. It will probably happen

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Speaker 3: very quickly, just like there was the significant corporate tax

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Speaker 3: cut when Trump came in before, he's coming in ready

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Speaker 3: with tariffs.

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Speaker 1: That's the big first thing, you know.

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Speaker 3: The second thing will be the continuation of the tax cuts.

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Speaker 3: All of this move towards populism is pointing towards an

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Speaker 3: inuation of more government deficits, probably more inflation. Tariffs, at

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Speaker 3: least in the short run and probably in the long run.

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Speaker 3: Our view would be that they're inflationary and a Trump

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Speaker 3: presidency the thing that we kind of most be concerned

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Speaker 3: about is the long end of the rate curve.

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Speaker 1: Probably bonyots fed.

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Speaker 3: They'll try to get it easy fed in and probably

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Speaker 3: have the most significant challenges on the long end of

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Speaker 3: the curve in terms of bonds. But those policy changes

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Speaker 3: are going to be significant. And if you look at

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Speaker 3: basically just understanding global macroeconomics today versus twenty five years ago,

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Speaker 3: understanding government interaction with markets has become so critical.

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Speaker 2: How do you then position if you believe inflation is

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Speaker 2: in the future, do you go short the long end

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Speaker 2: of the curve? And do you do it significantly?

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Speaker 1: Well?

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Speaker 3: We try to take a diversified set of positions so

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Speaker 3: that no one position can be too dominant in our portfolio.

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Speaker 1: The it's tricky, right the long end of the YEO curve.

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Speaker 3: A lot's going to depend on politics, right, and a

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Speaker 3: lot's going to depend on how unified the government is.

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Speaker 3: Will Trump be able to get everything he wants? Or

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Speaker 3: if the Democrats are elected, will they be able to

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Speaker 3: get everything they want? Dividing government will generally be good

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Speaker 3: for bonds, and a unified government one where or the

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Speaker 3: other Republican or Democrat would probably be bad.

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Speaker 1: Anytime these governments are unified.

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Speaker 3: Right now, you're seeing movements towards populism, movements toward bigger

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Speaker 3: deficit spending, and we think that's the more likely outcome

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Speaker 3: is that you continue down that path. But there's a

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Speaker 3: lot of change along the rank along the way. And

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Speaker 3: in the short run, what's going to matter is the

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Speaker 3: is FED policy and is the FED constrained? We think

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Speaker 3: the Fed's itching to ease. They want to essentially have

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Speaker 3: the stats come in a way that allows them to and.

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Speaker 1: We're close to that they probably do.

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Speaker 5: Right, with one hundred billion dollars plus of debt servicing

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Speaker 5: costs every month, we need rates to be lower.

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Speaker 4: At what point does and I know we want to

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Speaker 4: get to AI machine learning.

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Speaker 5: I want to get there as well, But at what

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Speaker 5: point does this massive debt and the servicing costs really

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Speaker 5: start to become a problem.

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Speaker 4: For you know, the ten year yield or the strength

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Speaker 4: of the dollar.

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Speaker 1: Well, and that's what I think we're going to find out.

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Speaker 5: Right.

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Speaker 3: What you can see right now is there's not much

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Speaker 3: risk premium in long duration bonds.

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Speaker 1: There hasn't been a problem.

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Speaker 3: That doesn't mean there won't be, right, and I think

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Speaker 3: the main thing I'd say is the destiny here is

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Speaker 3: that governments are going to push until we hit the limits.

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Speaker 4: Right.

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Speaker 3: You see that in countries like Brazil or whatever, where

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Speaker 3: they're at the point where fiscal spending hits the limits.

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Speaker 3: You saw that for a brief moment in twenty twenty.

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Speaker 1: Two with the UK.

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Speaker 3: It Liz Trust moment with Trust moment. But in the

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Speaker 3: US you're still probably always away. But I think the

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Speaker 3: destiny of it because of the populism and sort of

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Speaker 3: the amount of things that need to be fixed in

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Speaker 3: the US, the likelihood is we find there that now

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Speaker 3: I would guess that's a couple of years away, but

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Speaker 3: that we're continue to press in the direction until we

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Speaker 3: find the limit. That easing fiscally will continue to be

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Speaker 3: the path until that limit is hit.

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Speaker 4: Until the bond vigilantes come back.

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Speaker 3: Yeah, and it won't be speculators are too small relative

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Speaker 3: to what's going on. It's really the FED, the and

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Speaker 3: generally the size of that issuance. And so what is

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Speaker 3: going to be the limit is inflation. If there's no

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Speaker 3: inflation problem, there won't be a problem for bonds. It

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Speaker 3: it won't come from anything other than inflation currency problem.

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Speaker 2: I want to talk about something people are really excited about.

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Speaker 2: That's artificial intelligence, greg By. We recently reported that just

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Speaker 2: about a week ago, exactly a week ago, Bridgewater started

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Speaker 2: its own AI strategy in a new format here, a

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Speaker 2: new fun format. But also you were an early investor

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Speaker 2: in open AI in anthropic How do you think about

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Speaker 2: investing in AI at Bridgewater? Do you buy into those

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Speaker 2: high flying names or are you better off doing it

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Speaker 2: in the private names personally given where valuations are today.

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Speaker 3: Yeah, well, i'd say when we think about it from

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Speaker 3: a pure AFFAM perspective, So what we built up at

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Speaker 3: Bridgewater is an expert system based on everything we've learned

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Speaker 3: over the forty years, mainly on how economic cycles work,

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Speaker 3: and big productivity miracles are pretty separate from economic cycles.

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Speaker 3: So when you look at what we're doing in pure AFA,

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Speaker 3: we're generally trying to make sure we don't have too

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Speaker 3: much exposure to whether the productivity miracle works out or not.

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Speaker 3: So when we trade US equities, we trade them kind

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Speaker 3: of with AI hedge because the pressures, the normal cyclical

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Speaker 3: pressures will play out on the regular companies. And when

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Speaker 3: you look at US stocks, it's kind of the regular

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Speaker 3: companies that Wou'd say are pretty expensive.

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Speaker 1: Relative to the rest of the world.

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Speaker 3: Mediocre companies in the US have a US premium in

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Speaker 3: them relative to the rest of the world. Now, the

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Speaker 3: great companies in the US are the companies hitting the

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Speaker 3: cutting edge. That's a different story, and it's very different

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Speaker 3: than nineteen ninety nine two thousand. Been at Bridgewater for

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Speaker 3: twenty nine years and I lived through ninety nine two thousand.

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Speaker 3: That bubble was all about future expectations. Most of what's

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Speaker 3: priced into equities today actually say, are based on what's

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Speaker 3: happening right now. I mean, what's happening with Nvidia's demand

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Speaker 3: just is incredible, and whether.

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Speaker 1: It's slightly over priced or slightly underpriced or whatever, it's

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Speaker 1: a close call.

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Speaker 3: This is not like the ninety nine bubble, and at

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Speaker 3: least in my view, because the earnings for those companies

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Speaker 3: are actually there in a way they weren't there for

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Speaker 3: a company like Cisco in nineteen ninety nine, So there

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Speaker 3: is a big difference. Now you still need those earnings

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Speaker 3: to be sustainable, which requires a continued growth in those areas,

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Speaker 3: but not a not an outlandish one. And that really

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Speaker 3: comes to what internally, So there's we need to understand

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Speaker 3: AI from a macro perspective, and then we need to

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Speaker 3: understand it from a as a user a micro perspective.

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Speaker 3: Right that RI Labs, which is twenty five people, we

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Speaker 3: set aside a bridge where are fully focused on using

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Speaker 3: machine learning for everything you need to do to invest

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Speaker 3: in markets.

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Speaker 1: That group we're hands on. We see both the problems.

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Speaker 3: There are many problems that language models off the shelf

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Speaker 3: have many problems with them, but if you can combine

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Speaker 3: them with data models, you can create this incredible strength.

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Speaker 3: And right now I expect over the next five years

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Speaker 3: so much of what human investors and analysts can do

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Speaker 3: can be better done with machine intelligence.

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Speaker 1: So that's been a journey for me. I've been looking at.

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Speaker 3: This for Bridgewater s built an expert system based on

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Speaker 3: human intuition being translated into algorithms for AI. Having machine

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Speaker 3: learning generate the ideas, generate the algorithms. That's been kind

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Speaker 3: of a dream for me, and the technologies really came

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Speaker 3: together in twenty twenty two or so that the pieces

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Speaker 3: came together such that I thought we were ready to

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Speaker 3: build an artificial investor, and we've moved down that track

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Speaker 3: at rapid rate.

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Speaker 2: Greg, thank you so much for giving us a preview

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Speaker 2: on this new strategy over at Bridgewater, and of course

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Speaker 2: the view of a very complicated markets of course, that

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Speaker 2: is Greg Jensen, CIO at Bridgewater Associates Cocio