Forget Rate Hikes: Bridgewater Says QE4 Is Next; Warns World Is Approaching End Of Debt Supercycle

Tyler Durden's picture

In a just released letter to clients, the head of the world's largest hedge fund delivers one of his usual sermons about the economy as a perpetual motion machine, affected by central banks, and where interest rates are supposed to boost asset returns by being below "the rates of return of longer-term assets."

None of that is terribly exciting and it is in fitting with what Bridgewater has said for a long time (incidentally, it is curious that just over the weekend, the FT released a piece in which a "US asset manager warns over risk parity" which is what Bridgewater's bread and butter is all about).

What is exciting is the following part:

That's where we find ourselves now—i.e., interest rates around the world are at or near 0%, spreads are relatively narrow (because asset prices have been pushed up) and debt levels are high.  As a result, the ability of central banks to ease is limited, at a time when the risks are more on the downside than the upside and most people have a dangerous long bias.  Said differently, the risks of the world being at or near the end of its long-term debt cycle are significant.

 

That is what we are most focused on.  We believe that is more important than the cyclical influences that the Fed is apparently paying more attention to.

We suppose this gis suppoed to justify the Fed's preoccupation with hiking rates, and why Yellen has on more than one occasion spoken against soaring asset prices. And yet...

While we don't know if we have just passed the key turning point, we think that it should now be apparent that the risks of deflationary contractions are increasing relative to the risks of inflationary expansion because of these secular forces.  These long-term debt cycle forces are clearly having big effects on China, oil producers, and emerging countries which are overly indebted in dollars and holding a huge amount of dollar assets—at the same time as the world is holding large leveraged long positions.

 

While, in our opinion, the Fed has over-emphasized the importance of the "cyclical" (i.e., the short-term debt/business cycle) and underweighted the importance of the "secular" (i.e., the long-term debt/supercycle), they will react to what happens.  Our risk is that they could be so committed to their highly advertised tightening path that it will be difficult for them to change to a significantly easier path if that should be required.

Leading to the conclusion that "We Believe That the Next Big Fed Move Will Be to Ease (Via QE) Rather Than to Tighten"

Odd, that: it's precisely what we have been saying since the announcement of the taper in 2013.

As for why stocks just took a major leg down once the letter hit, Dalio's warning that the era of easy debt-funded returns is over, appears to be striking a chord...

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pelican's picture

Don't worry, I am sure they will find a way the little guy will keep his debts and pay more on them.

Captain Debtcrash's picture
Captain Debtcrash (not verified) pelican Aug 24, 2015 2:29 PM

The St Louis Fed just said QE was ineffective! They are telegraphing they are going to try a new policy. They will let this crash continue to give them political cover and try some new form of easing.

CrazyCooter's picture

And here I was expecting CC1.

Regards,

Cooter

HINT: It rhymes with apital ontrols.

Buckaroo Banzai's picture

Nobody's expecting a rate hike, so that's exactly what we'll get.

El Vaquero's picture

Just wait until companies start going under and are unable to make payments on all of the junk bonds they sold.  Interest rates will hike themselves. 

Divided States of America's picture

45 S&P500 pt move up in 10 minutes??? Yup, this is a normal market alright

Headbanger's picture

Not this fucking QE-4 shit again..

It's to keep the last few Muppets in the market to slaughter.

The Limerick King's picture

 

 

My butt is incredibly sore

I can't afford food at the store

I went to my Doc

She said with a shock

"You suffer acture QE4"

Alexandre Stavisky's picture

Sittin' by de ticker, me heart, she feel so sad

Sittin' by de NazDaq, me pocket, she feel so bad

Don't got de money Duh get me New York city cab!

Fine calypso woman, she cook me shrimp and rice

Fine calypso woman, she cook me shrimp and rice

Dese yankee hot dogs Don't treat me stomach very nice

In Trinidad, one dollar buy

Papaya juice, banana pie

Six coconut, one female goat

An' plenty fish to fill de boat

One bushel bread, one barrel wine

An' all de town, she come to dine

But here is bad, one dollar buy

fallen splinter APPL, an' no pie.

Me throat she sick from necktie

Me feet hurt from shoes

Me pocket full of empty

I got Apocalypto blues

Dese yankee fraud give me big scare

Is preach de bull, but teeth de bear

Her quote id false, all pig wid paint

And stick da save are where buyer she ain't

She dips and darts when she should waltz

I even think her lies is false

But calypso girl is good a lot

Is what you see, is what she got

Sittin' in tradin' space, me heart, she feel so sad

Sittin' wid'out me face, me heart, she feel so sad

Don't got de money To take me back to Trinidad

https://www.youtube.com/watch?v=R0QLYH3vOCc  Marley & NKC

SWRichmond's picture

The debt super cycle which is ending is the 35 year Treasury cycle which started in 1980.  Too many young pups haven't been alive long enough to see it.  

They are printing fucking money to maintain it.  This mean it's over.  PeriodEOS.

Look at the long term chart on Fred graph of Treasury 10-year constant maturity rate and tell me where we go from here.  It's fucking over.

QE crack addict's picture

The party has to end some time

Tonesvette's picture

You're missing one major difference between then and now.  Currencies are now fiat.  Free capital means the economy is peaked.  Until the US loses is hegemony, the present circumstances will continue quite well.  You really think you're getting out of the dollar?  Kaddafi tried to offer at true global reserve currency of merit since the Swiss Franc went fiat in 1999.  What happened to him?   You think the Remnimbi is going to overtake the dollar ?  You know better.  The dollar and the present QE to infinity system will work just fine for a long time.  Who cares what the debt level is when interest rates are effectively 0% and debt service becomes de minimis ?   Check out all the free stuff on Craigslist.  Entire business models succeed on people DONATING their cars.  Admit it.  Supply is plentiful and capitalism won.  I don't think it's pretty either and I worry about that great a concentration of power.  But that's why we have a Second Amendment.  Enjoy it.  It's a new world indeed.

 

SWRichmond's picture

You're missing one major difference between then and now.  Currencies are now fiat.

Currencies have been fiat since before 1980.  In fact, this is the enabling reason for the 35 year Treasury cycle which is ending.  You missed that?

The dollar and the present QE to infinity system will work just fine for a long time.  Who cares what the debt level is when interest rates are effectively 0% and debt service becomes de minimis ?

Who cares when "money-things" can be created endlessly from nothing, given cost-free to the 0.01%, then used to buy real things?  The liars telling everyone it's different this time are more sophisticated, just sophisticated enough to get away with it until they can't, just like last time.  Just like very time.

Tonesvette's picture

You're missing one major difference between then and now.  Currencies are now fiat.  Free capital means the economy is peaked.  Until the US loses is hegemony, the present circumstances will continue quite well.  You really think you're getting out of the dollar?  Kaddafi tried to offer at true global reserve currency of merit since the Swiss Franc went fiat in 1999.  What happened to him?   You think the Remnimbi is going to overtake the dollar ?  You know better.  The dollar and the present QE to infinity system will work just fine for a long time.  Who cares what the debt level is when interest rates are effectively 0% and debt service becomes de minimis ?   Check out all the free stuff on Craigslist.  Entire business models succeed on people DONATING their cars.  Admit it.  Supply is plentiful and capitalism won.  I don't think it's pretty either and I worry about that great a concentration of power.  But that's why we have a Second Amendment.  Enjoy it.  It's a new world indeed.

 

runswithscissors's picture

Any way this ends the oligarchy is going to steal your money sooner or later...so you might as well get used to that.

J Jason Djfmam's picture

"I don't know where you've come to get that Bettie Davis wheeze."

"Worst of all young man you've got Industrial Disease."

Haus-Targaryen's picture

"no shit" comes to mind.  

In 5 years this guy will be on the CNBC peanuts futures segment ranting on about how correct he was.

They are all assholes.  

BeanusCountus's picture

You may be right.  But I specifically remember this guy correctly predicted the Fed's purchasing of US Treasuries back in early 2009 at least a couple months before they did.  And while I don't cover everyone in the investment advisory business, I do read a number of them.  And nobody else I read was mentioning it at all.

THE 4th Quadrant's picture

So you're saying he is a blind squirrel? Or he really can predict the future?

Wake up muthr fulkr.

NihilistZero's picture

Interest rates will hike themselves.

That's the beauty of it.  The FED is fucked either way.  Those companies are iether going to be squeezed by FED tightening which raises their costs or FED easing which will bring even more inflation (at least initially) in RE, Food and Energy strangling the consumers they need to survive.

Liquidity.  Trap.  Janet Yellin is facing pressure from both sides.  I sense a FED Double Penetration.

Ghostdog's picture

Wouldnt that be a hideous site.. That whore with two red white and blue dildos up her crank

thesonandheir's picture

Yellen checking in at Dildos Anonymous. Ouch.

SWRichmond's picture

It's a trap they built for themselves from whole cloth.  They knew it while they were doing it.  I have no sympathy.

THE 4th Quadrant's picture

Greater israel is the plan. It's no trap, it's a very well orchestrated plan to rape America then the joos will flee and leave the mexicans and naggers in charge.

Why are there any real white people even left in USSA? Stoopids that like the raping.

lasvegaspersona's picture

Actually they didn't.

Jacques Reuff said they made a mistake and the world would someday look back on it with astonishment and wonder.

All the genius government officials created a system that was a design by committee and just settled for it. This is actually the way the world works. A lot more shortsightedness and a lot less conspiracy than many imagine.

They will truley be surprised when it collapses though a few are beginning to see it is coming apart at this point...and they think they just have insight even as they lived in denial for years.

conscious being's picture

"Actually they didn't." know what they were doing.

Look here Vegas. You just don't seem to understand Babylonian Money Magic.

Serfs Up's picture

WTF needs QE anything when "they" can just pour on 5 SNP points a minute like they have here in the closing moments?

nidaar's picture

Agree, looks like the rate hike rumor is completely priced in. So if it realizes, there shouldn't be much space left for devastation. I think they'll do it; for a while and after collecitng everything at lower prices, they'll start pumping again...

conscious being's picture

Disagree. You can see, after the mind bending ramps off the lows today, ie. 500 pt. ES ramp in one trade during the initial market halt, that they dearly do not want this thing going down. They already own all of it and there's no one to sell it to.

Skateboarder's picture

Paying with cash? Arrest him!

edit: more and more small-biz places, especially bakeries, I notice, are going for the iPoop tablet payment systems. I asked at a local bakery "which do you prefer, cash or card?", and the guy thinks for a second before saying "anything is fine", but reconsiders and says "well, if you have 68 cents... I don't have any change." I had 68 cents. He did have a fiver and enough G-Dubs to give me the remainder. This is a bakery with many loyal customers.

Lore's picture

If they don't take cash, my rule is to leave the merchandise and walk away.

On that note, I stocked up on Kleenex tissues over the weekend. CAD$5.35.  I handed the cashier $6.35 in Canadian coins (three toonies, a quarter and a dime), and she was stumped, literally incapable of doing the math.  I had to explain it to her.  The same kind of thing happened later at a restaurant.  These children will regurgitate the "global warming" narrative at length, but they can't do basic MATH!

El Vaquero's picture

And what new forms of easing are left to them?  The only things that I see are buying stocks directly, which won't do much for credit markets, buying junk bonds, which isn't really that much different from what they've been doing, and a helicopter drop to the masses, which if big enough to have an effect will eventually spiral out of control.  Oh, and NIRP, which is fucking insane. 

KnuckleDragger-X's picture

QE won't do a damned thing, but the mercenary financial groups like Bridgewater are the people fucking it all up, and like all mercenaries, always demand to be payed first.......

Captain Debtcrash's picture
Captain Debtcrash (not verified) KnuckleDragger-X Aug 24, 2015 2:51 PM

I'd say banning cash and implementing seriously negative rates, it will only result in super bubbles but it will also kick the can.  The E dollar is more viable but still fits the mould of shifting monetary systems, namely the banks and governments get stronger, so I'm not a big fan. Of course, I would want to take a step toward sound money, but I don't have the con of this economic ship.

El Vaquero's picture

The bankers may want a cashless society, but there are too many black markets that it would fuck up.  It would cause some real problems.

chubbar's picture

Plus I don't think there is enough time to go cashless. It will take several steps through congress, etc., before that can be approved. Not that they wouldn't buy off everyone but still the time element doesn't fit what appears to be an imminent crash. Maybe on the backside to double fuck us when the reset hits.

Captain Debtcrash's picture
Captain Debtcrash (not verified) chubbar Aug 24, 2015 3:48 PM

You'd be amazed at how fast politicians move when they are pissing themselves. 

slightlyskeptical's picture

That will be the reset. In exchange for having your debt forgiven and your assets confiscated, everyone will get 1000 Hillarybucks or trumpbucks if you prefer. It simply deosn't matter who wins.

 

WillyGroper's picture

EV,

spose it'll be gold for heroin?

Iam_Silverman's picture

"There are too many black markets that it would fuck up."

 

#blackmarketsmatter!

chunga's picture

We were talking yesterday about a QE.4 helicopter drop of cash for the sheeple. Now I can see an innovative helicopter drop of STAWKS for the sheeple. Kill 3 birds with one stone.

1. address the disparity of the poor, downtrodden left out of the wealth effect because fairness.

2. find muppets for student, auto loan debt

3. ramp the mocket with new fake money

plane jain's picture

I figure this is what the talk about raising minumum wage is about...helicopter drop to the masses.

They could rather easily increase EBT/SSI/Social Security payments, forgive/cut student debt, etc.

Yes, it would increase overall debt, but they need inflation. Enough inflation then the debt is less difficult to manage.

And what have they got to lose at this point? Might as well give the masses a big slice of government cheese...should even turn down the temp on civil unrest.

Fahque Imuhnutjahb's picture

The Fed is working on a new regime, a totally different paradigm shift, to be called "Easing Quantitatively".

With this program the Fed will create digital fiat from the ether, and distribute it to their 13 member institutions,

who in turn will lend it to "qualified" recipients, who can buy real things with it.  Such a novel approach.

Ham-bone's picture

It's demographics and credit that no CB can overcome that is bringing this show down...go to the link and stare at the last chart and only the ramping debt creation offset the declining demand...Demographics of 0-64yr/old global "high consumer nations" population have been declining and now go negative...

http://econimica.blogspot.com/2015/08/depression-does-not-come-close-to.html