In January 2021, Bridge Water Fund (Bridgewater), the world's largest hedge fund, released its investment strategy and market outlook for 2021. Despite poor performance last year and rumors of bursting positions, Qiaoshui is still the most profitable hedge fund in history, earning a total of $46.5 billion since its inception in 1975.

In the report, after the epidemic era, the global economy will usher in a new pattern under the influence of "flooding", "normalization of differences between the East and the West" and other factors. In this pattern, the priority of choosing the right "currency" is even higher than that of the right "assets". The "currency" mentioned by Qiaoshui is not limited to the general equivalent issued by the central bank, but the "AltCash" is also highly respected because of its high margin of purchasing power.

Under the new situation, Qiaoshui believes that 2021 is the year with the greatest opportunity for its employment in decades. After experiencing the triple blows of currency depreciation, falling stock prices and rising interest rates, assets in some countries are more cost-effective than dollar assets. Therefore, investment in 2021 should be considered not only at the asset level, but also at the monetary level.

Although this report still focuses on the United States, similar to 2020, Qiaoshui mentioned China many times in the report, and said that in the post-epidemic era, the power of the East and the West has been rebalanced. China, which has more policy space and less debt, will maintain rapid development in the future. The gradual liberalization of the capital account will also make the RMB play an important role in the international market.

Generally speaking, the report bridge water for 2020 is from the perspective of asset allocation, for example, because there is more policy space (there is room for MP1,MP2,MP3), so "heavy positions in China". In 2021, Qiaoshui, starting from the carrier "currency" of assets, believes that under the new paradigm economy (MP3), the US dollar cannot undertake its original functions, and some positions should be shifted to other alternatives.

According to the order of the article, the Yuanchuan Capital Management report Department selected 8 key points from the Qiaoshui report, and attached the original English text.

Selection of key points:

1. Pushing the zero interest rate model and the co-ordinated "new paradigm" of monetary and fiscal policy (MP3) to the limit would seriously damage wealth.

The risk of severe wealth destruction if the new paradigm of zero interest rates and coordinated monetary and fiscal policy (MP3) is pushed to its limits.

two。 When you apply the same template to eastern economies, especially China, you will see some very different situations. As can be seen from some key indicators of long-term productivity growth, these countries will maintain strong productivity growth over the next decade and remain in the early stages of the long-term debt cycle.

When you apply the same template to a number of other economies, you see a very different set of conditions, particularly for economies in the East, most importantly for China. The determinants of long-term productivity growth indicate a coming decade of strong productivity growth, and these countries are still in the earlier stages of their long-term debt cycles.

3. The huge differences between East and West, the US and China are putting another kind of pressure on the system: emerging powers challenge the geopolitical conflicts of existing powers, which Harvard political scientist Graham Allison calls the "Thucydides trap" (Thucvdides Trap).

The big differences between East and West and between the US and China are exerting another pressure on the system: geopolitical conflict of the rising power challenging the incumbent power, referred to by the Harvard political scientist Graham Allison as the Thucydides Trap.

4. We believe that from an investment point of view, the most important thing is to diversify between currencies, countries and asset classes.

We believe what's most important from an investment standpoint is diversification across currencies and countries as well as asset classes.

5. The wealth reserve design of "alternative cash", which we believe is a safer alternative to cash in terms of long-term purchasing power.

AltCash, which we believe is a safer alternative to cash with respect to purchasing power over time.

6. We believe that China's gradual opening of its capital account will help the renminbi play a more important role in the world. From a monetary point of view, great changes are taking place in the world, and we should all be prepared.

We see China's incremental opening of their capital account as accommodating the path toward a more prominent global role for the RMB. There is a big shift going on in the world from a monetary point of view that we should all get ready for.

7. These imbalances are leading to the biggest opportunity for me to work in decades.

The sorts of imbalances are leading to some of the largest opportunities we have seen in our decades of managing money.

8. Behind all this, we are faced with record easing and more and more debt being created relative to long-term dollar holdings. So choosing the right "currency" is a big problem.

And behind a lot of what is going on, you have the record amount of dollars and dollar debt being created relative to the long-term demand to hold dollars. Currency exposure is going to be a big deal.

Refined translation of the original text:

In a market, when unsustainable capital flows and credit-dominated prices converge, you are less likely to simulate the future economic situation, which is both an opportunity and a risk. Today, we encounter more and more such phenomena, which will exist for a long time and periodically. Specifically, pushing the zero interest rate model and the co-ordinated "new paradigm" of monetary and fiscal policy (MP3) to the limit would seriously damage wealth.

From a cyclical point of view, the extreme economic difficulties of the past year have superimposed the policies adopted by countries in response to them, pushing prices to extremes and deviations. The degree of deviation has been overpriced because it has even taken into account the change in the condition of the currency Xiaobai Maimai Inc caused by a very small probability event.

From a long-term point of view, due to differences in epidemic prevention policies over the past year, the economic power between the East and the West and between China and the United States has accelerated rebalancing. At the same time, the capital flows caused by these epidemic prevention policies are also included in the long-term asset prices after the long-term recovery. But beyond that, we are seeing a crisis that disrupts real-world wealth in terms of assets and money.

How do we get these ideas? Although this study is about our prospects, it is important that we do not attach great importance to conclusions or viewpoints. Because these conclusions will inevitably change with the change of the actual situation. On the contrary, what we attach importance to is the basis of these conclusions, the logic of causal self-consistency.

Since the attribute of periodicity is born in the long term, we will first discuss it from a long-term perspective.

1. Long-standing differences

Through our model, we have found four sources of economic growth. Today, these forces create long-standing differences between countries or regions.

How these four driving forces affect the economy:

Productivity: the source of real income and wealth

Long-term debt cycle: the extent and causes of differences

Short-term debt cycle: what happens when the differences intensify and how they will be interpreted after the differences

Politics: deciding who will exacerbate differences and how they will intensify

Note: in the 2020 report, what are the four major driving forces of Qiaoshui science?

Productivity: this is the source of the increase in real income over time, but not the cause of the cycle.

Long-term debt cycle: involves income-related debt levels, reflecting potential credit growth and the ability of the economy to respond to changes in interest rates.

Short-term debt cycle: the business cycle, usually driven by the central bank by changing interest rates.

Politics: the choices of leaders and the decisions they make.

Using this template, we see that most advanced economies will experience low productivity growth over the next decade. They are also in the later stages of the long-term debt cycle, characterized by high debt and near-zero interest rates.These two factors limit the potential for spending and income growth and make economic recovery more difficult. That is why we now live in a "new paradigm" world where fiscal and monetary policies work together to manage the economy.

At the same time, traditional policy leverage is more limited, and populism driven by the gap between rich and poor and opportunities is exacerbating internal conflicts, polarizing politics and placing greater demands on the system. As the range of policy options narrows and internal pressures increase, debt and currency restructuring have to tend to reduce stress in a more desirable way. Unload the burden of debt in exchange for freedom of policy.

When you apply the same template to eastern economies, especially China, you will see some very different situations.As can be seen from some key indicators of long-term productivity growth, these countries will maintain strong productivity growth over the next decade and remain in the early stages of the long-term debt cycle.

As a result, they have greater policy flexibility in stimulating growth and managing cyclical conditions. But they face the risk of a huge gap between the rich and the poor, and the culture and governance of managing the gap is different from that of the West. While it remains to be seen how much leverage these countries will pull to address the gap between rich and poor, addressing these gaps has become a top priority.

The huge differences between East and West, the US and China are putting another kind of pressure on the system: emerging powers challenge the geopolitical conflicts of existing powers, which Harvard political scientist Graham Allison calls the "Thucydides trap" (Thucvdides Trap).This has happened many times in history, and we and others have studied its impact.

The past record is worrisome; about 75% of the cases lead to war. Wars are generally carried out in stages and in different forms. We have experienced a small-scale trade war, plus capital war and technology war, which let us smell the smell of war. We think the election of Joe JoeBiden has reduced geopolitical tensions. But it is the differences between the East and the West that are the source of tension, and this power will continue to accumulate.

The forces of these long-standing differences can also have a significant impact on asset returns and investment.Varying degrees of monetary stimulus and liquidity regulations have resulted in countries with higher returns on assets more likely to have faster productivity growth and are in the early stages of the long-term debt cycle, as well as the most flexible policies, the most beautiful balance sheets and the least amount of money printed.

However, the higher return on assets means that these countries will make a big discount to those with zero interest rates in calculating forward cash flows. Countries with zero interest rates are characterized by low productivity growth, late in the long-term debt cycle, less policy flexibility and more internal conflicts, and are more and more accustomed to dealing with their situation through monetization. Debt and monetary restructuring need to be resolved step by step.

From an investment point of view, this at least requires geographical diversification to balance risks. From a tactical point of view, we are more likely to hold cash and assets that are not hedged with dollars.

two。 The destruction of wealth

We want to warn about the "new paradigm" we are in and the possible destruction of wealth.

In the Xiaobai Maimai Inc part of the currency under the "new paradigm", a large amount of fiscal debt is supported by printing money so that checks can be handed over to people so that you do not feel depressed or have revolutionary ideas. It is necessary for this situation to continue. This is a way to transfer wealth and make it easier for us to pay off excess debt. While printing money to finance government debt and reduce the value of money and debt, it will also prompt us to shift to a "new paradigm" under zero interest rates.

It is rare that zero interest rates superimpose the low policy effectiveness of the central bank. This has prompted us to expand our sample of nearly 200 years of panic and re-inflation, as well as the history of empires and reserve currencies over the past 500 years.

Through these surveys we have seen a picture of the continued destruction of the wealth of all types of financial assets as countries inevitably take all necessary measures to restore tolerable economic conditions.The process of re-inflation is usually divided into four stages, depending on the nature of the problem and the choice of policy makers.

They usually start with monetary stimulus and switch to fiscal stimulus if it doesn't work. If it doesn't improve, it means debt restructuring, and if it still doesn't work, it means monetary restructuring. In almost 100 per cent of cases, re-inflation eventually played a role-that is, it alleviated economic woes. The only question is how far you need to go and what impact this will have on asset holders.

What is most interesting is that the past economic environment and policy actions have shownAt some point in history, the real purchasing power of each asset (including cash) has fallen by 50-80%, so from a purchasing power point of view, the risk of holding assets will be greatly magnified.

This has led to the development of "re-inflationary indicators" (i.e., when to short cash and when to short re-inflationary), as well as the wealth reserve design known as "AltCash", which we believe is a safer alternative to cash in terms of long-term purchasing power.

The "new paradigm" we find today bears the mark of a dangerous period in the past.Cash and bonds are already destroying wealth through negative yields. Printing money to finance government debt-increasing lost revenue rather than making productive investments-is reducing the value of these currencies, at a time when the nominal return on holding bonds is close to zero. The late stages of the long-term debt cycle, coupled with gaps in wealth and opportunities and increased geopolitical conflicts, mean that the pressure to borrow, print money and raise taxes will stay with us until the monetary system breaks down.

Similar to the history we have studied, we are now in an era of money printing and devaluation, and the decision on the fate of the currency Xiaobai Maimai Inc will be controlled by the government.How much money will be used to improve economic productivity and how much money will be used to help people is an open question. We are not saying that this is a bad thing; it depends on how efficiently the government solves problems at the economic and social levels.

Of course, the above view is mainly focused on the United States, affecting the dollar and US capital markets. But Europe also has its own paradigm. To some extent, the same is true of other reserve currencies, such as the Japanese yen and sterling, which are the currencies of countries at the end of the ultra-long debt cycle.

As noted above, there are other countries in other stages of the long-term debt cycle. This has a certain impact on investment around the world.We believe that from an investment point of view, the most important thing is to diversify between currencies, countries and asset classes.

Think about currency allocation, not just asset allocation.

We find that investors pay high attention to asset allocation, but do not pay enough attention to currency allocation, and currency allocation can be managed separately. Devaluation is not only an ideal way to solve the debt problem, but also a covert way. In the process, no one will pay the price. Devaluation also nominally stimulates the local economy and pushes up the prices of assets denominated in that currency; resulting in indirect wealth destruction.And that's a big problem.

As mentioned above, in this context, China and other countries have obvious differences in response to the epidemic and economy between China and Western countries in 2020. At the same time, there is a big difference in the supply and demand of the currency Xiaobai Maimai Inc. Western economies generate a lot of money and debt, while East Asian / Asian economies produce less. In addition to these differences, we believe that China's gradual opening up of its capital account will help the renminbi play a more important role in the world.From a monetary point of view, great changes are taking place in the world, and we should all be prepared.

Turning to a cyclical perspective, we will focus on some of the more important opportunities we see.

3. The flood of liquidity

With regard to the source and use of funds, we see a large amount of liquidity accumulated in the form of cash, which may be detrimental to cash, but conducive to a diversified portfolio.

Looking back on the past year, the main economic forces are:

Income plummeted

Epidemic situation

Zero interest rate

This leads to:

• Re-inflation and the use of the "new paradigm"The government borrows money to make up for the loss of revenue, which is financed by the central bank printing money. The creation of the currency Xiaobai Maimai Inc has created a lot of excess liquidity.

With the influx of liquidityThe assets used for wealth reserves have performed well.

Assets that are affected by the decline in consumption and those that benefit from liquidityThere is a big difference in performance.

Although the epidemic is extraordinary and the policy response is novel, the impact can be understood in terms of economic sources and the use of funds. For any entity, the source of funds must be equivalent to the use of its funds, while for an economy, the sources and uses of funds need to take the following forms.

The situation we are in today is that the global currency Xiaobai Maimai Inc is sufficient to offset the loss of income, resulting in a net surplus of income relative to expenditure.These excess funds now exist in the form of cash, the nominal rate of return is close to zero, the real rate of return is negative, investors are looking for investment direction for it.This will have an important impact on the near future.

In this environment, we expect cash to depreciate relative to the diversified portfolio. In the case of the recent economy, pent-up demand is likely to be released to some extent as the impact of the epidemic recedes, especially in the consumer sectors most affected. At the industry level, after a decade of supply contraction, near-zero mortgage rates, extra money in bank accounts for down payments, and increasing demand / desire / ability to work from home, all make housing a market with great potential.

4. Imbalance and mispricing

We see that current prices reflect unsustainable flows and imbalances, creating a mature environment full of opportunities.

For investment, the most important thing is how the price is formed, and once formed, what it means for the future. We have used the following diagram many times to convey these key building elements. It means that the price is formed by the exchange of money and quantity, and once the price is formed, it means a discount to the future economic scenario. The system is driven by the currency Xiaobai Maimai Inc, which is a source of funding for transaction pricing and for financing discounted expenditure.

When the price formed by the unsustainable currency Xiaobai Maimai Inc flow cannot be maintained until the next round of currency Xiaobai Maimai Inc cycle, the greatest opportunity arises.Due to the recent extreme level of currency Xiaobai Maimai Inc flow, there are great differences between countries. We have also seen many cases in which asset prices reshaped by unsustainable cash flows have covered future low-probability financial events.

Mexico, for example, is a country that has experienced the twin shocks of recession and liquidity withdrawal, but it has not offset the recession through fiscal stimulus or excessive monetary issuance. Their spending, income and imports have fallen sharply, and their fiscal and monetary balance sheets have remained largely unchanged. As a result, their current account surpluses have fallen while currency and asset prices have fallen.

As a result, Mexico's exchange rate and asset prices have been depressed because it vaguely contains a continuous outflow of cash flows and the risk that income consumption will collapse with these cash flows. Any move towards normalizing the flow of currency Xiaobai Maimai Inc would create a much better economic scenario than the above scenario and would also ease the risk of current portfolio liquidity contraction.

These imbalances are leading to the biggest opportunity for me to work in decades.According to our signal, which represents our belief in the views of various markets, there are already many markets that are close to extreme values. Some countries have experienced three shocks of currency depreciation, falling stock prices and rising interest rates, making their future discounted cash flows denominated in dollars very cheap (that is, their unhedged assets). In the developed world, pure Japanese stocks denominated in dollars (not hedged against dollar assets) are undervalued, as we have seen for decades. In emerging countries, Brazil is a similar example to Mexico.

Behind all this, we are faced with record easing and more and more debt being created relative to long-term dollar holdings. So choosing the right "currency" is a big problem.