When the 'Shocktober' selloff was only just heating up, Bridgewater CIO Bob Prince made a call that turned out to be astonishingly prescient: The selloff wouldn't be a 'one week event', he said. In fact, Prince said the Fed's monetary tightening in spite of the president's wishes would lead to an 'inflection point' in markets.
At the time, seemingly every pundit on CNBC was telling whoever would listen that the selloff would be just another dip to buy, and that stocks would most likely rally into the year end - as they always do.
Two months later, stocks are on track to post their worst end-of-year performance since 1931. And right on cue, Prince's co-CIO, Greg Jensen is out with another bearish forecast. During an interview with Reuters, Jensen said he expects economic growth to be "significantly weaker" in 2019. The contraction, he said, will reach "near recession" levels, which, if correct, would put the US economy on the road to recession as soon as next year - sooner than the consensus forecast for a recession in 2020.
Echoing comments made by David Tepper Thursday morning, Jensen said markets are "not pricing in" 2019 growth close to 1%, and that, between now and the end of next year, cash will be a "viable alternative" to stocks and bonds. Bridgewater remains "bearish on equities" as part of a "diversified set of positions across asset classes." Jensen is making his call one day after the Fed cut its growth outlook for next year.
"The biggest theme developing is that you are going to have significantly weaker growth, near recession level growth in 2019, based on our measures, and the markets are generally not pricing that in," said Jensen, who helps oversee more than $160 billion in assets.
"Although the movement has been in that direction, the degree of it is still small relative to what we are seeing in terms of the shifts in likely economic conditions. And so, we think that’s going to be the big story going forward, weaker growth and central banks struggling to move from their current tightening stance to easing and finding it difficult to ease because they have very little ammunition to ease."
If there is a silver lining to be found in Jensen's comments, it's that he doesn't expect a catastrophe on par with the financial crisis, given that the financial system isn't as levered as it was back then (though across the economy, debt bubbles have emerged in areas that could pose systemic risks).
Reuters' Jennifer Ablan tweeted out the bullet points from her interview with Jensen:
GREG JENSEN, CO-CIO OF BRIDGEWATER ASSOCIATES, THE LARGEST HEDGE FUND IN THE WORLD, FORECASTS 'SIGNIFICANTLY WEAKER, NEAR RECESSION LEVEL GROWTH' IN 2019 @Reuters— Jennifer Ablan (@jennablan) December 20, 2018
JENSEN SAYS FINANCIAL MARKETS 'NOT PRICING IN' 2019 U.S. GROWTH CLOSE TO 1 PERCENT; GDP 'LITTLE BIT LOWER' FOR THE REST OF THE DEVELOPED WORLD NEXT YEAR @Reuters— Jennifer Ablan (@jennablan) December 20, 2018
JENSEN SAID BRIDGEWATER IS 'BEARISH ON EQUITIES' BUT IT'S A PART OF A DIVERSIFIED SET OF POSITIONS ACROSS ASSET CLASSES @Reuters— Jennifer Ablan (@jennablan) December 20, 2018
JENSEN SAYS BECAUSE FINANCIAL SYSTEM IS NOT AS LEVERED AS IT WAS, 'WE DON’T EXPECT A FINANCIAL CRISIS LIKE WE EXPERIENCED IN 2008' @Reuters— Jennifer Ablan (@jennablan) December 20, 2018
U.S.-BASED STOCK FUNDS POST $34.6 BLN WITHDRAWALS IN WEEK ENDED WEDNESDAY; 5TH STRAIGHT WEEK OF OUTFLOWS -LIPPER via @trhunnicutt— Jennifer Ablan (@jennablan) December 20, 2018
If stocks keep moving lower, that's will be good news for Bridgewater's clients, and bad news for the many investors who are clinging to BTFD for dear life.