June 24, 2020 / 8:15 PM / 17 days ago

UPDATE 1-COVID risk likely to outlast U.S. stimulus - Bridgewater CIO

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By Kate Duguid

NEW YORK, June 24 (Reuters) - U.S. stimulus efforts may be able to support corporate cash flows for the summer, but economic risk from the coronavirus pandemic is likely to extend far beyond that, Bridgewater Associates Co-Chief Investment Officer Bob Prince said on Wednesday.

U.S. corporate income has been decimated by global business shutdowns and record layoffs. Unprecedented Federal Reserve measures to back financial markets and Treasury Department programs to fund individuals and small businesses can tide companies over for the summer if incomes remain low, he said.

But the coronavirus risk will probably last 18-24 months, Prince said at the Bloomberg Invest Global conference. “I refer to that as a duration mismatch.”

Westport, Connecticut-based Bridgewater has roughly $138 billion in assets and manages the world’s largest hedge fund.

Though some companies may falter because of the limits of the U.S. stimulus operations, Prince also said those programs have added companies to a class considered “too big to fail.” The designation was given to U.S. banks bailed out during the 2007-2009 financial crisis because they were deemed systemically important.

“The government is now involved in making choices about where capital goes and we can call that ‘state capitalism,’” said Prince.

Four major tools can be used to promote recovery from a recession, Prince said, citing monetary policy, fiscal policy, debt restructuring and currency devaluation.

Since U.S. fiscal and monetary policy has been loosened, Prince said the question for Bridgewater and its clients is, “Do we transition to debt restructurings and currency devaluation? And from there, what is the status of the dollar as a reserve currency?”

Reporting by Kate Duguid; editing by Jonathan Oatis

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