On the back of a winning day yesterday, stocks opened generally higher this morning, with the S&P 500 (SNPINDEX: ^GSPC ) up 0.32% and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI ) totally flat as of 10:10 a.m. EST.
The macro view
While pundits are arguing over whether or not a "Great Rotation" out of bonds and into stocks is beginning, one super-investor has made up his own mind and acted on it.
According to Bloomberg, Bridgewater Associates -- the world's largest hedge-fund manager, with $140 billion in asset under management -- told its investors in a conference call on Jan. 23 that it is "long stocks around the world" and "generally shifting to long commodities positions." ("Long," as opposed to "short," indicates that the firm owns stocks.) Bob Prince, the firm's co-CIO, offered a clear-cut rationale for this positioning:
The point is not so much that we're going to be in the gangbuster period of growth. It's more that growth is likely to be better, particularly in the United States, than it has been. It's more of a movement of capital. The money moving out the risk curve and into risk assets won't take much growth to trigger that kind of shift.
The reason it's worth paying attention to Bridgewater's outlook is not the size of its assets under management or Mr. Prince's fancy title, but rather the firm's extraordinary long-term track record: Its flagship Bridgewater Pure Alpha fund has secured a 14% annualized return for its investors since its inception in 1991.
Furthermore, Ray Dalio, Bridgewater's eccentric founder -- you can read his 210 Management Principles here (link opens PDF) -- has produced a persuasive account of the aftermath of the credit crisis based on an extensive study of previous crises, including the Great Depression in America and the hyperinflation of the Weimar Republic. He described the U.S. recovery as "the most beautiful deleveraging (link opens PDF) yet seen."
Mind you, it's not all blue skies ahead. As Prince warned his investors:
You're likely to do reasonably well until you hit the tail end of that cycle [wherein cash moves into risk assets]. ... That can continue for some time until the Fed no longer continues to inject liquidity. That would end that cycle and push all yields up which would, of course, hurt asset returns.
For long-term, fundamental investors, that need not be a problem. But understanding how the cycle works helps steel one's nerves during the dips.
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