Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: We're going to talk about Bridgewater, the world's largest hedge fund,
Speaker 2: is on the rebound. The Pure Alpha strategy, very highly watched,
Speaker 2: is up eighteen percent through June after a week twenty
Speaker 2: twenty three. That's all according to people familiar with the matter.
Speaker 2: Bridgewater is also plowing into the high flying world of
Speaker 2: artificial intelligence, joining us now to talk about it more
Speaker 2: as Greg Jensen, the co chief investment officer at Bridgewater
Speaker 2: associates and Greg talking about the performance at Bridgewater has
Speaker 2: clearly been up double digits this year. What is happening
Speaker 2: that's going right? What are the bets that you guys
Speaker 2: made off that you are seeing now play into twenty
Speaker 2: twenty four.
Speaker 1: Well, I think Bridgewater can benefit in multiple ways.
Speaker 3: The basic idea of Pure Alpha is that for over
Speaker 3: forty years, we've built up our understanding of how macro
Speaker 3: developments impact markets, and we continue to improve that process.
Speaker 3: But there's been so many things, as you guys are
Speaker 3: talking about here, so many major macro events going on
Speaker 3: this year that have pressured markets. The fact that the
Speaker 3: FED had to tighten slower than it expected to at
Speaker 3: the beginning of the year, the ripple that had through
Speaker 3: the fact.
Speaker 1: That US growth has been generally resilient.
Speaker 3: All of those pressures add up to opportunities for US
Speaker 3: and particularly differential pressures across countries. After the tightening cycle
Speaker 3: was very global. The impact of that tightening cycle across
Speaker 3: the world has been quite different, creating a tremendous amount
Speaker 3: opportunities for a strategy like perov.
Speaker 4: What do you expect going forward?
Speaker 5: I was watching last night in preparation a panel you
Speaker 5: did at Davos, which you know is back in January
Speaker 5: you were skeptical that we'd get six cuts this year,
Speaker 5: and at that time the market was pricing that in
Speaker 5: Now you know, we're we're only looking at two maybe one,
Speaker 5: and yet the market is up, you know, fifteen percent.
Speaker 4: What's driving that and can it continue going forward?
Speaker 1: Yeah?
Speaker 3: Well, when you talk about the equity market, I think
Speaker 3: the biggest question, right, the thing that reconciles the circle
Speaker 3: between the interest rate market and the equity.
Speaker 1: Market is productivity.
Speaker 3: Is there going to be a major productivity effect of
Speaker 3: the new technologies, machine learning, et cetera coming through because
Speaker 3: you need it really to reconcile the level of stock market.
Speaker 3: The expectation for earnings going forward are quite high. At
Speaker 3: the same time, the expectation the interest rate market is
Speaker 3: that the central Bank will be able to cut rates
Speaker 3: that services.
Speaker 1: Inflation will continue to come down.
Speaker 3: So you need this kind of perfect situation of earning
Speaker 3: staying strong, demand staying strong enough to make those earnings
Speaker 3: strong without keeping inflation above the FEDCE target. How do
Speaker 3: you get there? You've got to get there through higher productivity.
Speaker 3: So that's the big question is how much productivity When
Speaker 3: will it occur? Because to reconcile the markets, you need
Speaker 3: a pretty big jump in productivity to allow higher earnings
Speaker 3: and lower inflation.
Speaker 6: Well, I definitely want to get to machine learning, but
Speaker 6: before we do that, let's wrap in FED risk and
Speaker 6: political risk into one question. Because I was reading a
Speaker 6: note from Goldman saying that the risk of Trump being
Speaker 6: real elected and putting in place some of those tariffs
Speaker 6: that he's talked about, it could lead to five extra
Speaker 6: FED hikes.
Speaker 4: So not talking about cuts there.
Speaker 1: And when you think.
Speaker 6: About all the known unknowns that are out there, especially
Speaker 6: as it relates to politics right now, are you hedging
Speaker 6: for any risk of something like that scenario playing out?
Speaker 3: Yeah, I think you have to be really thoughtful because
Speaker 3: there's so much political risk going on, and the shift
Speaker 3: generally you're seeing across the world is kind of dissatisfaction.
Speaker 1: With the people in power.
Speaker 3: Populism in many cases being continuing to be on the rise,
Speaker 3: and a Trump versus Biden or Trump versus whoever the
Speaker 3: Democratic nomine ends up being is very significant change in policy,
Speaker 3: one of the more significant elections. It will probably happen
Speaker 3: very quickly, just like there was the significant corporate tax
Speaker 3: cut when Trump came in before, he's coming in ready
Speaker 3: with tariffs.
Speaker 1: That's the big first thing, you know.
Speaker 3: The second thing will be the continuation of the tax cuts.
Speaker 3: All of this move towards populism is pointing towards an
Speaker 3: inuation of more government deficits, probably more inflation. Tariffs, at
Speaker 3: least in the short run and probably in the long run.
Speaker 3: Our view would be that they're inflationary and a Trump
Speaker 3: presidency the thing that we kind of most be concerned
Speaker 3: about is the long end of the rate curve.
Speaker 1: Probably bonyots fed.
Speaker 3: They'll try to get it easy fed in and probably
Speaker 3: have the most significant challenges on the long end of
Speaker 3: the curve in terms of bonds. But those policy changes
Speaker 3: are going to be significant. And if you look at
Speaker 3: basically just understanding global macroeconomics today versus twenty five years ago,
Speaker 3: understanding government interaction with markets has become so critical.
Speaker 2: How do you then position if you believe inflation is
Speaker 2: in the future, do you go short the long end
Speaker 2: of the curve? And do you do it significantly?
Speaker 1: Well?
Speaker 3: We try to take a diversified set of positions so
Speaker 3: that no one position can be too dominant in our portfolio.
Speaker 1: The it's tricky, right the long end of the YEO curve.
Speaker 3: A lot's going to depend on politics, right, and a
Speaker 3: lot's going to depend on how unified the government is.
Speaker 3: Will Trump be able to get everything he wants? Or
Speaker 3: if the Democrats are elected, will they be able to
Speaker 3: get everything they want? Dividing government will generally be good
Speaker 3: for bonds, and a unified government one where or the
Speaker 3: other Republican or Democrat would probably be bad.
Speaker 1: Anytime these governments are unified.
Speaker 3: Right now, you're seeing movements towards populism, movements toward bigger
Speaker 3: deficit spending, and we think that's the more likely outcome
Speaker 3: is that you continue down that path. But there's a
Speaker 3: lot of change along the rank along the way. And
Speaker 3: in the short run, what's going to matter is the
Speaker 3: is FED policy and is the FED constrained? We think
Speaker 3: the Fed's itching to ease. They want to essentially have
Speaker 3: the stats come in a way that allows them to and.
Speaker 1: We're close to that they probably do.
Speaker 5: Right, with one hundred billion dollars plus of debt servicing
Speaker 5: costs every month, we need rates to be lower.
Speaker 4: At what point does and I know we want to
Speaker 4: get to AI machine learning.
Speaker 5: I want to get there as well, But at what
Speaker 5: point does this massive debt and the servicing costs really
Speaker 5: start to become a problem.
Speaker 4: For you know, the ten year yield or the strength
Speaker 4: of the dollar.
Speaker 1: Well, and that's what I think we're going to find out.
Speaker 5: Right.
Speaker 3: What you can see right now is there's not much
Speaker 3: risk premium in long duration bonds.
Speaker 1: There hasn't been a problem.
Speaker 3: That doesn't mean there won't be, right, and I think
Speaker 3: the main thing I'd say is the destiny here is
Speaker 3: that governments are going to push until we hit the limits.
Speaker 4: Right.
Speaker 3: You see that in countries like Brazil or whatever, where
Speaker 3: they're at the point where fiscal spending hits the limits.
Speaker 3: You saw that for a brief moment in twenty twenty.
Speaker 1: Two with the UK.
Speaker 3: It Liz Trust moment with Trust moment. But in the
Speaker 3: US you're still probably always away. But I think the
Speaker 3: destiny of it because of the populism and sort of
Speaker 3: the amount of things that need to be fixed in
Speaker 3: the US, the likelihood is we find there that now
Speaker 3: I would guess that's a couple of years away, but
Speaker 3: that we're continue to press in the direction until we
Speaker 3: find the limit. That easing fiscally will continue to be
Speaker 3: the path until that limit is hit.
Speaker 4: Until the bond vigilantes come back.
Speaker 3: Yeah, and it won't be speculators are too small relative
Speaker 3: to what's going on. It's really the FED, the and
Speaker 3: generally the size of that issuance. And so what is
Speaker 3: going to be the limit is inflation. If there's no
Speaker 3: inflation problem, there won't be a problem for bonds. It
Speaker 3: it won't come from anything other than inflation currency problem.
Speaker 2: I want to talk about something people are really excited about.
Speaker 2: That's artificial intelligence, greg By. We recently reported that just
Speaker 2: about a week ago, exactly a week ago, Bridgewater started
Speaker 2: its own AI strategy in a new format here, a
Speaker 2: new fun format. But also you were an early investor
Speaker 2: in open AI in anthropic How do you think about
Speaker 2: investing in AI at Bridgewater? Do you buy into those
Speaker 2: high flying names or are you better off doing it
Speaker 2: in the private names personally given where valuations are today.
Speaker 3: Yeah, well, i'd say when we think about it from
Speaker 3: a pure AFFAM perspective, So what we built up at
Speaker 3: Bridgewater is an expert system based on everything we've learned
Speaker 3: over the forty years, mainly on how economic cycles work,
Speaker 3: and big productivity miracles are pretty separate from economic cycles.
Speaker 3: So when you look at what we're doing in pure AFA,
Speaker 3: we're generally trying to make sure we don't have too
Speaker 3: much exposure to whether the productivity miracle works out or not.
Speaker 3: So when we trade US equities, we trade them kind
Speaker 3: of with AI hedge because the pressures, the normal cyclical
Speaker 3: pressures will play out on the regular companies. And when
Speaker 3: you look at US stocks, it's kind of the regular
Speaker 3: companies that Wou'd say are pretty expensive.
Speaker 1: Relative to the rest of the world.
Speaker 3: Mediocre companies in the US have a US premium in
Speaker 3: them relative to the rest of the world. Now, the
Speaker 3: great companies in the US are the companies hitting the
Speaker 3: cutting edge. That's a different story, and it's very different
Speaker 3: than nineteen ninety nine two thousand. Been at Bridgewater for
Speaker 3: twenty nine years and I lived through ninety nine two thousand.
Speaker 3: That bubble was all about future expectations. Most of what's
Speaker 3: priced into equities today actually say, are based on what's
Speaker 3: happening right now. I mean, what's happening with Nvidia's demand
Speaker 3: just is incredible, and whether.
Speaker 1: It's slightly over priced or slightly underpriced or whatever, it's
Speaker 1: a close call.
Speaker 3: This is not like the ninety nine bubble, and at
Speaker 3: least in my view, because the earnings for those companies
Speaker 3: are actually there in a way they weren't there for
Speaker 3: a company like Cisco in nineteen ninety nine, So there
Speaker 3: is a big difference. Now you still need those earnings
Speaker 3: to be sustainable, which requires a continued growth in those areas,
Speaker 3: but not a not an outlandish one. And that really
Speaker 3: comes to what internally, So there's we need to understand
Speaker 3: AI from a macro perspective, and then we need to
Speaker 3: understand it from a as a user a micro perspective.
Speaker 3: Right that RI Labs, which is twenty five people, we
Speaker 3: set aside a bridge where are fully focused on using
Speaker 3: machine learning for everything you need to do to invest
Speaker 3: in markets.
Speaker 1: That group we're hands on. We see both the problems.
Speaker 3: There are many problems that language models off the shelf
Speaker 3: have many problems with them, but if you can combine
Speaker 3: them with data models, you can create this incredible strength.
Speaker 3: And right now I expect over the next five years
Speaker 3: so much of what human investors and analysts can do
Speaker 3: can be better done with machine intelligence.
Speaker 1: So that's been a journey for me. I've been looking at.
Speaker 3: This for Bridgewater s built an expert system based on
Speaker 3: human intuition being translated into algorithms for AI. Having machine
Speaker 3: learning generate the ideas, generate the algorithms. That's been kind
Speaker 3: of a dream for me, and the technologies really came
Speaker 3: together in twenty twenty two or so that the pieces
Speaker 3: came together such that I thought we were ready to
Speaker 3: build an artificial investor, and we've moved down that track
Speaker 3: at rapid rate.
Speaker 2: Greg, thank you so much for giving us a preview
Speaker 2: on this new strategy over at Bridgewater, and of course
Speaker 2: the view of a very complicated markets of course, that
Speaker 2: is Greg Jensen, CIO at Bridgewater Associates Cocio