Ray Dalio Says US Corporations Will Lose $4 Trillion to Coronavirus

Art by Nigel Buchanan

After admitting he underestimated the impact of the coronavirus, hedge fund honcho Ray Dalio said Thursday that he thinks US corporations will lose $4 trillion because of the disease.

The founder of Bridgewater Associates said the economic impact of COVID-19 is greater than most people are conveying. Globally, the amount of money needed for businesses could notch up to $12 trillion, he said.

“What’s happening has not happened in our lifetime before,” Dalio said on CNBC’s “Squawk Box.” “There’s a need for the government to spend more money, a lot more money,” he added.

How much more money? About $1.5 to $2 trillion at a minimum, Dalio said. This week, US lawmakers are scrambling to put together a $1 trillion economic stimulus plan that will include aid for companies, as well as direct payments to millions of Americans.

Already, Americans in retail, food service, entertainment, and travel industries have been hit hard by the economic impact. In a LinkedIn post Wednesday, Dalio said the amount of money needed to protect individuals affected by the pandemic also would be “enormous.”

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On Thursday, Goldman Sachs released an apocalyptic figure: About 2.25 million Americans are projected to have filed jobless claims this week. That’s up from 281,000 last week.

Dalio changed his tone about the coronavirus just as his own hedge fund reportedly declined about 20% last week from the economic effects of the virus. It’s a missed opportunity, Dalio says, for Bridgewater, which is known for posting gains during the financial crisis.

“We’re kicking ourselves for missing that move,” Dalio told CNBC. “What happened was it didn’t come from the usual places, it came from not the usual ways that downturns come.”

On Friday, stock futures in the US ticked upward about 1%, thanks to massive stimulus packages rolled out around the world in response to the pandemic. In Norway, lawmakers have proposed a bill giving the government emergency powers during the crisis.

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Eaton Partners examines institutional investors’ adaptive strategies to the market and outlooks across several key considerations regarding the coronavirus.

Eaton Partners’ latest LP Pulse Survey questioned 69 leading limited partners over the past two weeks on their insight with regards to the impact and concerns about COVID-19.

About 70% of respondents said that the outbreak is having an effect on their daily investment-related operations, including current trade executions and forecasting investments, and pacing plans for the remainder of the year. Those activities are being impacted by externalities in market valuations (29% of respondents say), with the coronavirus (29%) and a potential US recession (33%) rounding out the heavily weighted answers with regards to speculation on what will affect markets most severely.

The survey also found varying levels of confidence in the US government’s capability to contain and eradicate the spread of the virus. While 13% are very confident in the government’s ability, 49% are somewhat confident, and 38% are not confident at all.

More than three-quarters (78%) of respondents said these concerns don’t influence their participation in the market and said they will maintain their holdings without reducing allocations to specific regions because of the virus.

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The majority (70%) of respondents said that the federal government’s decision to cut interest rates from 1.0%–1.25% to 0.0%–0.25% was “not an appropriate remedy to the coronavirus crisis because the problem is biological, not financial, in nature,” Eaton Partners said.

Opportunities and shortfalls are surrounding the coronavirus outbreak. Leuthold Group strategist Scott Opsal identified 148 shares of 4% yielding securities that materialized in the wake of COVID-19’s influence. The alternative assets industry, according to data provider Preqin, grows in unmitigated fashion as investors seek to capitalize on opportunistic returns in relatively shaky markets.

“There’s a general feeling that private equity could be a well-positioned, steady-hand investor during the recent coronavirus-induced volatility. In fact, our survey found that 52% of investors believe PE is the most appealing alternative asset class going forward, on the heels of lower interest rates, falling valuations, and more clarity in the presidential race,” Eaton Partners’ Peter Martenson said.

IHS Markit is predicting a material risk of the economy grinding into a recession by the second quarter of this year and lasting until the end of the year. In the year’s second period, the drop in gross domestic product (GDP) will total 5.4% annualized, the firm’s chief US economist, Joel Prakken, wrote in a report. Such a negative forecast “doesn’t feel like a stretch,” he argued.