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COVID-19 HAS ACCELERATED

THE PARADIGM SHIFT

Greg Jensen

Co-CIO Bridgewater Associates

Summary

• Six big forces have shaped our lived experiences as investors over

the last decade and longer:

– Corporate profit growth outpacing that of the economy

– Rising debt and other IOUs relative to incomes

– Interest rates and QE as effective tools for monetary policy

– Relative stability in the rules

– The US dollar as a stable reserve currency

– Low and stable inflation

• The COVID-19 shock has pushed all of these forces to their limits.

For information about the data sources used to inform the analysis in this outlook and other important information,

please review the “Important Disclosures and Other Information” located at the end of the presentation. 2

An Unprecedented Hit

to Corporate Balance SheetsHow Global Non-Financial Companies Fill the Revenue Hole (USD, Bn)

Updated as of June 22, 2020. Based on Bridgewater analysis.

Please review the “Important Disclosures and Other Information” located at the end of the presentation. 3

G lobal

Total

G lobal

Li sted

G lobal

Unlisted USA EUR JPN CHN G BR CAN AU S KOR BRZ SAF IND

Rest of

W orld Total

Est. Revenue Decline -19,646 -6,968 -12,678 -3,715 -4,445 -725 -3,306 -993 -517 -166 -218 -233 -48 -1,257 -4,024

Est. Revenue Decline %GDP -22% -8% -14% -17% -34% -14% -23% -37% -32% -13% -14% -15% -15% -48% -25%

Immediate Cuts w/ Less Output 15,319 5,360 9,959 2,824 3,336 592 2,710 747 378 130 178 180 38 1,003 3,202

- Labor Costs 2,597 743 1,854 551 541 79 309 176 73 23 25 27 10 189 594

- Intermediate Goods 12,721 4,617 8,105 2,273 2,796 513 2,401 571 304 107 153 154 28 814 2,609

Cuts w/ Weaker Cyclical Conditions 5,832 3,084 2,748 1,763 980 308 892 202 238 91 106 64 13 206 970

- Capex 3,467 1,284 2,184 876 547 155 703 91 142 55 85 42 6 135 630

- Buybacks / M&A / Dividends 2,365 1,801 564 887 433 152 188 111 96 36 21 22 6 72 340

Remaining Capital Need

(Sum of Negatives) -3,720 -1,122 -2,598 -729 -179 -95 -637 -72 -153 -52 -54 -112 -28 -309 -1,302

Memo: 2019 Profits 14,545 7,200 7,345 3,939 2,392 888 1,947 498 382 258 326 284 66 355 3,209

Memo: Est Avg. 2020-2021 Profits 11,982 6,278 5,704 3,493 1,838 822 1,649 375 312 240 305 257 61 228 2,399

Memo: % Profit Change -18% -13% -22% -11% -23% -7% -15% -25% -18% -7% -6% -9% -7% -36% -25%

55%

57%

59%

61%

63%

65%

10%

13%

15%

18%

20%

1980 1990 2000 2010 2020

Unionization and Labor

Union Members (% Labor Force) Labor Share of Output

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

100

200

300

400

500

600

1970 1980 1990 2000 2010 2020

Deregulation and Corporate Taxes# of DOJ Monopoly, Competition, & Mergers Investigations

Effective Tax Rate (Listed Corps)

Secular Supports to Margins

Were Already Unsustainable• Falling interest rates, globalization, falling corporate taxes & deregulation,

and shrinking power of labor were already reaching their limits.

Please review the “Important Disclosures and Other Information” located at the end of this presentation. 4

The “Big Squeeze”: Too Many Promises• IOUs are increasing at the same time as incomes to service them have

taken a big hit.

125%

150%

175%

200%

225%

250%

275%

300%

0%

4%

8%

12%

16%

1980 1990 2000 2010 2020

Lower Interest Rates Have

Supported Debt GrowthDev. World Bond Yield Dev. World Debt

Dev. world debt shows non-financial debt as a share of GDP.


35%

55%

75%

95%

115%

135%

155%

175%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

35%

55%

75%

95%

115%

135%

155%

175%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

Short Rate Private Sector Debt (%GDP)

0%

10%

20%

30%

40%

50%

60%

70%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

Short Rate Fed Balance Sheet (%GDP) Private Sector Debt (%GDP)

2 3 4 5 6 71

The Policy Paradigm We Have Experienced

Is Just One of Many

Pre-1934: Gold peg, deflationary depression

1934: US breaks gold peg, initial recovery from Great Depression

1942: Fed pegs interest rates, war-ear fiscal stimulus

1951: Treasury-Fed Accord; independent monetary policy with a focus on growth; inflationary pressures emerge

1979: Volcker tightening: inflation preemption & interest rate normalization; secular disinflation

2009: QE and rates to 0 in responseto deleveraging

2019: Central banks shifting to a new paradigm?

1

2

3

4

5

6

7


The Necessary Shift Toward Monetary Policy 3

MP1

(interest rate policy)

Borrowers (interest rate

induced spending)

MP3

(coordinated

fiscal-monetary actions)

Government

(direct spending financed by

money printing)

MP2

(QE)

Savers (asset/liquidity

induced spending)


Growing Internal and External Conflict

• The risk is rising that the rules governing the global flow of goods

and capital will change.

Data in bottom left chart is through December 2016, and data in bottom right chart is through December 2017.

Estimates are based on Bridgewater analysis. Please review the “Important Disclosures and Other Information” located at the end of this presentation. 8

The Decline of an Empire

• Shifts in the dominant empire are inevitable. Reserve currency status is

typically the last to go.

Please review the “Important Disclosures and Other Information” at the end of this presentation. 9

A Wide Range of Potential Outcomes,

With Increased Risk of a Secular Inflationary

Turning Point1980

Disinflation

Nominal

GDP Growth

Cross-currents:

Inflation

?

?

Policy Responses

Tight money

Globalization

Inflation targeting

“MuddlingThrough”

Secular Deleveraging

Forces

• Deficit spending + money printing?

• Pro-labor policies?

• Reversal of globalization?

• Constrained central banks

• Japan-style deleveraging?

COVID-19Shock

+

This exhibit is a conceptual illustration.

Please review the “Important Disclosures and Other Information” at the end of this presentation. 10

Massive Divergences Across Countries

Updated as of June 22, 2020. Based on Bridgewater analysis.


2020 Corporate

Revenue Losses

(%GDP)†Next 12m

Growth Drag†

Headline

Stimulus

(%GDP)

Stimulus

Impact

(%GDP)

Net Growth

Impact

QE Flow

(%GDP)

Mexico -- -16% 1.5% 0.6% -15% --

Russia -- -14% 9.9% 1.9% -13% --

Netherlands -- -16% 6.7% 3.4% -12% *

Turkey -- -14% 9.2% 3.3% -11% 1%

South Africa -15% -13% 8.1% 2.3% -11% 2%

Italy -- -16% 32.2% 5.6% -10% *

Spain -- -16% 20.6% 5.7% -10% *

United Kingdom -37% -18% 24.1% 7.6% -10% 17%

India -48% -12% 8.6% 2.7% -10% 2%

Brazil -15% -12% 14.0% 3.8% -9% --

France -- -14% 22.7% 5.4% -8% *

Eurozone -34% -13% 29.7% 5.3% -8% 15%

Canada -32% -11% 17.7% 5.8% -6% 15%

Germany -- -9% 42.0% 5.6% -3% *

United States -17% -13% 28.5% 9.7% -3% 9%

Japan -14% -7% 37.3% 6.3% -1% 11%

Australia -13% -5% 8.8% 4.5% -1% 0%

Korea -14% -3% 10.5% 2.4% -1% --

China -23% -6% 14.0% 6.5% 0% --

†Corporate Revenue Losses and Next 12m Growth Drag exclude the impact of fiscal stimulus programs. *Part of Eurozone.

+Total ReturnCash

(Don’t Invest)Beta

(Hold Assets)

Alpha

(Make Bets)+=

– Likely to be ~0% for

a while

– Central banks are

trying to diminish

the value of cash

– Expected returns

are low

– Diversification has

never been more

important, but also

never more difficult

to achieve

–Need to consider

how to get balance

in an MP3 world

– Alpha is difficult:

requires unique

insight

– Unprecedented

environment with

different linkages

– Potential to be

uncorrelated

Three sources of return:

It Has Never Been More Difficult to Be an Investor


The Role of IL Bonds and GoldLocal Asset Excess Returns by Case (Scaled to 10% Risk)

Growth versus expectations and inflation versus expectations analyses are based on Bridgewater analysis. Information shown is the result of analyses of actual and

simulated market data.. Please review the “Important Disclosures and Other Information” at the end of this document. 13

Important Disclosures and Other Information

14

Please read carefully the following important disclosures and other information as they provide additional information relevant to understanding the assumptions, research and performance

information presented herein. Additional information is available upon request except where the proprietary nature of the information precludes its dissemination.

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performance could, and may have, differed materially from the information presented herein. Past performance is not indicative of future results.

Bridgewater research utilizes data and information from public, private and internal sources, including data from actual Bridgewater trades. Sources include the Australian Bureau of Statistics,

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Repository (U.S.), LLC, Ecoanalitica, EPFR Global, Eurasia Group Ltd., European Money Markets Institute – EMMI, Evercore ISI, Factset Research Systems, Inc., The Financial Times Limited, GaveKal

Research Ltd., Global Financial Data, Inc., Haver Analytics, Inc., ICE Data Derivatives, IHSMarkit, The Investment Funds Institute of Canada, International Energy Agency, Lombard Street Research,

Mergent, Inc., Metals Focus Ltd, Moody’s Analytics, Inc., MSCI, Inc., National Bureau of Economic Research, Organisation for Economic Cooperation and Development, Pensions & Investments

Research Center, Refinitiv, Renwood Realtytrac, LLC, Rystad Energy, Inc., S&P Global Market Intelligence Inc., Sentix Gmbh, Spears & Associates, Inc., State Street Bank and Trust Company, Sun Hung

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Important Disclosures

15

Every investment involves risk and in volatile or uncertain market conditions, significant variations in the value or return on that investment may occur. Investments in hedge funds are complex,

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Important Disclosures

16

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