A Selection of

Bridgewater Research
August 2021

One Glendinning Place | Westport, CT 06880 | (203) 226-3030 | www.bridgewater.com

Table of Contents

A Tri-Polar World December 20, 2019 1

Grappling with the New Reality of Zero Bond Yields July 13, 2020 5
Virtually Everywhere Part 1: The Facts and the Implications

Engineering Equity Return Streams: Top-Down, Bottom-Up November 30, 2020 12

MP3 Will Likely Be Pushed Until It Produces Excesses March 18, 2021 18

What Markets Are Discounting July 20, 2021 32

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 Bridgewater ®

Daily Observations
July 13, 2020 ©2020 Bridgewater Associates, LP

(203) 226-3030 Bob Prince

Greg Jensen
Melissa Saphier

Grappling with the New Reality of Zero Bond Yields Virtually Everywhere
Part 1: The Facts and the Implications
It is now a reality that long-term bond yields are at or near zero in the US and virtually everywhere. There are so
many implications of this that it takes some time to recognize and absorb them all and then more time to work
through what to do about it, which is what we’ve been doing and what we see the biggest and most sophisticated
institutional investors doing as well. Given the status of the US dollar as the primary reserve currency and US
bonds as the “risk-free asset,” having the US bond yield at or near zero goes beyond the implications for bonds the
asset because the interest rate is the price of credit and is the discount rate on all other cash flows. A zero interest
rate effectively means that there is no interest rate, and if it stays at zero, it means no change in the interest rate.
Thus, any asset or any form of credit that is impacted by the level or the change in the interest rate is impacted,
which extends to all economies and markets and the policies that drive them.

For us to say that we are here is something, since, as you know, we’ve explained for a decade or more why low
bond yields are not really a problem, and during this time, we’ve put low bond yields to good use in beta and in
alpha. But we’ve now crossed a line, and we all have to deal with this new reality.

Among the questions that this raises are the following:

 How much room is left for bonds to rally?
 What is the potential to earn a risk premium by holding leveraged bonds funded by cash?
 What are the asymmetries pertaining to the range of potential bond returns?
 For portfolios that include equities and bonds, how much support is lost from bonds no longer being able
to cushion a decline in equities?
 How does the downside of equities and other assets change if the discount rate on cash flows can’t fall?
 For the economy and earnings, how does this impact the ability to cushion or pull out of a downturn?
 How does this impact the operation of monetary and fiscal policy?
 What are the portfolio implications, and what can be done to make portfolios more resilient?

Given such questions, in one way or another, the zero bond yield has been the gravitational center of our research
in recent months, and we’ve both made adjustments and developed new insights related to it. The purpose of this
Observations and the next two is to walk through some of this. The topics are obviously deep and complex. Today,
we will just touch on these questions and then in the next couple of days begin to get into the what-do-you-do-
about-it. Before we go to the specifics, the following chart showing US bond yields since 1800 starts to convey the
uniqueness of the current circumstances.

© 2020 Bridgewater® Associates, LP. By receiving or reviewing this Bridgewater® Daily Observations, you agree that this material is confidential intellectual
property of Bridgewater® Associates, LP and that you will not directly or indirectly copy, modify, recast, publish or redistribute this material and the information
therein, in whole or in part, or otherwise make any commercial use of this material without Bridgewater’s prior written consent. All rights reserved.

Bridgewater® Daily Observations 7/13/2020

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 Fed Funds Rates¹

Low Date Nominal Change Period % Change High Date

(in months)

3.96% Oct-19 1.92% 14 49% 5.88% Dec-20

-3.96% 43 -67%

1.92% Jul-24 2.88% 64 150% 4.80% Nov-29

-4.80% 34 -100%

0.00% Sep-32 2.09% 251 - 2.10% Aug-53

-1.44% 10 -69%

0.65% Jun-54 2.94% 40 452% 3.59% Oct-57

-2.71% 8 -75%

0.88% Jun-58 3.69% 18 419% 4.57% Dec-59

-2.30% 19 -50%

2.27% Jul-61 3.32% 62 146% 5.59% Sep-66

-2.26% 9 -40%

3.33% Jun-67 4.75% 30 143% 8.08% Dec-69

-4.08% 26 -50%

4.00% Feb-72 7.00% 28 175% 11.00% Jun-74

-6.25% 30 -57%

4.75% Dec-76 11.75% 39 247% 16.50% Mar-80

-5.50% 5 -33%

11.00% Apr-80 8.00% 9 73% 19.00% May-81

-11.00% 18 -58%

8.00% Nov-82 3.44% 21 43% 11.44% Sep-84

-5.56% 26 -49%

5.88% Oct-86 3.87% 31 66% 9.75% May-89

-6.75% 40 -69%

3.00% Sep-92 3.50% 99 117% 6.50% Dec-00

-5.50% 30 -85%

1.00% Jun-03 4.25% 50 425% 5.25% Aug-07

-5.25% 100 -100%

0.00-0.25% Dec-15 2.25% 43 - 2.25% Jul-19

-2.25% 7 -100%

(1) Prior to 1975, T-bills used as proxy for Fed funds target rate

Avg Increase 4.38% 53

Range of Increases 1.9% to 11.8% 9 to 251
Avg Decrease -4.64% 27
Range of Decreases -11.0% to -1.4% 5 to 100

Bridgewater® Daily Observations 7/13/2020

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 Bridgewater ®

Daily Observations
November 30, 2020 ©2020 Bridgewater Associates, LP

(203) 226-3030 Bob Prince

Engineering Equity Return Streams: Top-Down, Bottom-Up

The world of zero interest rates presents a number of investment challenges and in our view calls for new ways of
thinking in order to create new betas, new alphas, and new ways of constructing portfolios. Although there are no
new asset classes, there is the potential to create new beta and alpha return streams from what exists. This is
possible because macro conditions are manifest in the spending and incomes of businesses, creating the potential
to engineer new cash flow streams from collections of companies whose cash flows and pricing are fundamentally
driven by specified macro conditions. The returns of these engineered equity portfolios can be further refined by
combining them with hedges or diversifying exposures in other liquid markets, and this can be done either passively
or actively. The net result can be newly engineered return streams to create portfolios which have less risk at the
same or higher returns as traditional equity or multi-asset portfolios, without holding nominal bonds.

One way that we have applied this way of thinking is through what we refer to as stable cash flow equities. The
goal is to engineer a stable cash flow stream from equities in order to replicate some of the properties of a bond.
The process starts with identifying stable and reliable types of spending in the economy, connecting that spending
to the revenues received by the companies that offer those goods and services, and then screening for a relatively
unobstructed passage of that revenue to earnings. The selected companies are effectively used as pass-through
vehicles to earn a sliver of the cash flow stream generated by stable forms of spending in the economy. The
constituents of the portfolio rotate over time to continuously source their income stream from the associated types
of spending, creating a new cash flow stream that you can hold passively or manage tactically. Below is what that
cash flow stream looks like compared to the cash flow stream of the overall equity market in the US since 1963
and in other developed countries since 1990.

Cumulative Op Inc per Share (ln, Simulated)

USA Dev Wld ex-USA
Stable Cash Flow Equities Total Market Stable Cash Flow Equities Total Market
1.0
4.5 0.8
0.6
35
0.4
2.5 0.2
0.0
1.5 -0.2
-0.4
0.5
-0.6
-0.5 -0.8
60 80 00 20 85 95 05 15 1

1
These perspectives are a product of current and ongoing Bridgewater research that is subject to change without notice and are shown for
illustrative purposes only. The “stable cash flow equities” shown here represent a dynamic equ ty allocation created w th Bridgewater’s
proprietary process for selecting companies at each point in time that are expected to have the most stable underlying earnings.
© 2020 Bridgewater® Associates, LP. By receiving or reviewing this Bridgewater® Daily Observations, you agree that this material is confidential intellectual
property of Bridgewater® Associates, LP and that you will not directly or indirectly copy, modify, recast, publish or redistribute this material and the information
therein, in whole or in part, or otherwise make any commercial use of this material without Bridgewater’s prior written consent. All rights reserved.

Bridgewater® Daily Observations 11/30/2020

12
Given the stability of this cash flow stream, the returns of the portfolio take on a more bond-like character, which
we estimate to be roughly 70% stocks and 30% bonds. The returns are less growth-sensitive, more inflation-
sensitive, and less sensitive to risk premiums and tight money than the overall equity market. Because the cash
flows are stable and reasonably predictable, price changes mostly reflect changes in market discount rates and
imply a change in expected yield rather than a change in future earnings. This makes price changes substantially
hedgeable through liquid market proxies that reflect these discount rates (e.g., short bonds, long breakeven
inflation, etc.) of the portfolio. The net effect of stabilizing the cash flows and hedging changes in the discount rates
reduces the volatility of the portfolio and reduces the impact of changes in the macro environment on returns. As
an illustration, the following charts, based on our estimates, show the degree to which changes in macro conditions
impact the overall equity market compared to how much they impact the stable cash flow equities hedged.

Macro Impact on Stable Cash Flow Equities

Macro Impact on Total Market (Simulated)
60% 60%

40% 40%

20% 20%

0% 0%

-20% -20%

-40% -40%

-60% -60%
60 70 80 90 00 10 20 60 70 80 90 00 10 20 2

Another example of this engineering process pertains to stable balance sheets. Whereas stable cash flow equities
are designed to have a stable income stream, resilient companies have balance sheets and operating characteristics
which enable them to emerge intact after periods of severe economic stress, even if they experience substantial
declines in sales and earnings. At the opposite end of this spectrum are susceptible companies that have vulnerable
balance sheets and operating characteristics, leading to permanent impairment from economic stress.

Companies are continuously assessed for their balance sheet resilience by running pro forma cash flow projections
under stress conditions and sorting them according to how well their liquidity conditions hold up. From a portfolio
standpoint, spreading one against the other isolates extreme differences in financial durability whose impact scales
as a function of the depth and duration of the stress environment. This creates a recession hedge cash flow stream
that is negatively correlated to changes in risk premiums without paying the risk premium, making it quite valuable
from a portfolio-construction standpoint.

2 These perspectives are a product of current and ongoing Bridgewater research that is subject to change without notice and are shown for
illustrative purposes only. The “stable cash flow equities” shown here represent a dynamic equ ty allocation created w th Bridgewater’s
proprietary process for selecting companies at each point in time that are expected to have the most stable underlying earnings. This analysis
of equity market and stable cash flow equities performance uses the All Weather Lens which is an analytical approach to assess the behavior
of the major drivers of asset performance and their impact on markets during any given period, based on Bridgewater’s understanding of global
financial markets. Information shown is the result of analyses of actual and simulated market data. HYPOTHETICAL PERFORMANCE RESULTS
HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY
ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP
DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY
PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE
GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL
RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL
TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF
TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS
OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM
WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH
CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
CONFIDENTIAL AND PROPRIETARY. Please review the “Important Disclosures and Other Information” located at the end of this report.

Bridgewater® Daily Observations 11/30/2020

13
The below illustrates a few of the financial characteristics that are isolated through this process. For susceptible
companies, stress environments often lead to a big shift in the proportionate claim of debt holders relative to equity
holders as debts rise relative to market cap. For resilient companies, the relative claims remain stable.

Debt (% Market Cap)

Resili
Resilientt Companies Susceptible Companies
200%
1989 tightening Post-dot-com-bubble recession
Oil shock and slowdown
Financial crisis 150%

COVID

100%

50%

0%
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 3

Similarly, in stress periods susceptible companies are often forced to recapitalize, permanently diluting shareholders.
For resilient companies, this is more rare.

Equity Net Issuance (% Market Cap, Ann)

Resilient Companies Susceptible Companies
10%

8%

6%
Net dilution of
4% shareholders

2%

0%

-2%
Net share
-4% buybacks

-6%
1970 1980 1990 2000 2010 2020 4

3
These perspectives are a product of current and ongoing Bridgewater research that is subject to change without notice and are shown for
illustrative purposes only. The “susceptible” and “resilient” companies shown here represent dynamic equity allocations created with
Bridgewater’s proprietary process for selecting companies at each point in time that are expected to be especially susceptible or resilient to
economic shocks.
4
These perspectives are a product of current and ongoing Bridgewater research that is subject to change without notice and are shown for
illustrative purposes only. The “susceptible” and “resilient” companies shown here represent dynamic equity allocations created with
Bridgewater’s proprietary process for selecting companies at each point in time that are expected to be especially susceptible or resilient to
economic shocks.

Bridgewater® Daily Observations 11/30/2020

14
Similarly, resilient companies generally sustain positive yields to investors through all environments, while susceptible
companies regularly dilute or draw capital from investors during and after stress periods.

Payout Yield (Trailing 12m)

Resilient Companies Susceptible Companies
10%
8%
6%
Cash returned
4% to shareholders
2%
0%
-2%
-4% Cash drawn
-6% from shareholders
-8%
-10%
1970 1980 1990 2000 2010 2020 5

And, given differences in financial durability, resilient companies generally continue to invest, while susceptible
companies are forced to retrench to conserve cash.

Capex Cumulative Growth (ln)

Resilient Companies Susceptible Companies
12
10
Resilience
8 enables
6 reinvestment
in growth
4 and efficiency
2
0
Financial
-2 weakness
reduces ability
-4 to invest
-6
1970 1980 1990 2000 2010 2020 6

5
These perspectives are a product of current and ongoing Bridgewater research that is subject to change without notice and are shown for
illustrative purposes only. The “susceptible” and “resilient” companies shown here represent dynamic equity allocations created with
Bridgewater’s proprietary process for selecting companies at each point in time that are expected to be especially susceptible or resilient to
economic shocks.
6
These perspectives are a product of current and ongoing Bridgewater research that is subject to change without notice and are shown for
illustrative purposes only. The “susceptible” and “resilient” companies shown here represent dynamic equity allocations created with
Bridgewater’s proprietary process for selecting companies at each point in time that are expected to be especially susceptible or resilient to
economic shocks.

Bridgewater® Daily Observations 11/30/2020

15
In both of these applications, the cash flows associated with macroeconomic spending conditions are pushed
through companies’ income statements and balance sheets in order to engineer a new set of cash flow and financial
characteristics that meets specific parameters with respect to the macro environment. This creates new betas
which can then be held or actively managed to create new alphas. These betas can be combined and held passively,
producing reliable forms of diversification rooted in the nature of the underlying cash flows. Or they can be actively
managed based on views of macro conditions and how this will impact one in relation to another. And this can be
done without holding or trading nominal bonds.

This top-down, bottom-up engineering process can be used to produce other betas according to other specifications.
The starting point is an understanding of how economic conditions impact spending and how that spending impacts
the cash flows and balance sheets of companies, making the approach equally applicable to private and public assets.

Bridgewater® Daily Observations 11/30/2020

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 IMPORTANT DISCLOSURES

The Best of Bridgewater and its component Bridgewater Daily Observations are prepared by and are the property of Bridgewater Associates, LP and are
circulated for informational and educational purposes only. There is no consideration given to the specific investment needs, objectives or tolerances of
any of the recipients. Add tionally, Bridgewater's actual investment pos tions may, and often will, vary from its conclusions discussed herein based on
any number of factors, such as client investment restrictions, portfolio rebalancing and transactions costs, among others. Recipients should consult their
own advisors, including tax advisors, before making any investment decision. This material is for informational and educational purposes only and is not
an offer to sell or the solicitation of an offer to buy the securities or other instruments mentioned. Any such offering will be made pursuant to a definitive
offering memorandum. This material does not constitute a personal recommendation or take into account the particular investment objectives, financial
situations, or needs of individual investors which are necessary considerations before making any investment decision. Investors should consider
whether any advice or recommendation in this research is suitable for their particular circumstances and, where appropriate, seek professional advice,
including legal, tax, accounting, investment or other advice.

The information provided herein is not intended to provide a sufficient basis on which to make an investment decision and investment decisions should
not be based on simulated, hypothetical or illustrative information that have inherent lim tations. Unlike an actual performance record simulated or
hypothetical results do not represent actual trading or the actual costs of management and may have under or over compensated for the impact of
certain market risk factors. Bridgewater makes no representation that any account will or is likely to achieve returns similar to those shown. The price
and value of the investments referred to in this research and the income therefrom may fluctuate. Every investment involves risk and in volatile or
uncertain market cond tions, sign ficant variations in the value or return on that investment may occur. Investments in hedge funds are complex,
speculative and carry a high degree of risk, including the risk of a complete loss of an investor’s entire investment. Past performance is not a guide to
future performance, future returns are not guaranteed, and a complete loss of original capital may occur. Certain transactions, including those involving
leverage, futures, options, and other derivatives, give rise to substantial risk and are not su table for all investors. Fluctuations in exchange rates could
have material adverse effects on the value or price of, or income derived from, certain investments.

Where shown, “stable cash flow equities” represent a dynamic equ ty allocation created with Bridgewater’s proprietary process for selecting companies
at each point in time that are expected to have the most stable underlying earnings. Such perspectives are a product of current and ongoing Bridgewater
research that is subject to change w thout notice and are shown for illustrative purposes only.

Bridgewater research utilizes data and information from public, private and internal sources, including data from actual Bridgewater trades. Sources
include, the Australian Bureau of Statistics, Barclays Capital Inc., Bloomberg Finance L.P , CBRE, Inc., CEIC Data Company Ltd., Consensus Economics
Inc., Corelogic, Inc , CoStar Realty Information, Inc , CreditSights, Inc , Credit Market Analysis Ltd , Dealogic LLC, DTCC Data Repository (U S.), LLC,
Ecoanalitica, EPFR Global, Eurasia Group Ltd., European Money Markets Inst tute – EMMI, Factset Research Systems, Inc , The Financial Times Lim ted,
GaveKal Research Ltd., Global Financial Data, Inc , Guidepoint Global, LLC, Harvard Business Review, Haver Analytics, Inc , The Investment Funds
Inst tute of Canada, Intercontinental Exchange (ICE), Investment Company Institute, International Energy Agency, Lombard Street Research, Markit
Economics Limited, Mergent, Inc., Metals Focus Ltd, Moody’s Analytics, Inc., MSCI, Inc., National Bureau of Economic Research, Organisation for
Economic Cooperation and Development, Pensions & Investments Research Center, RealtyTrac, Inc., RP Data Ltd, Rystad Energy, Inc., S&P Global
Market Intelligence Inc , Sentix Gmbh, Shanghai Wind Information Co , Ltd., Spears & Associates, Inc., State Street Bank and Trust Company, Sun Hung
Kai Financial (UK), Thomson Reuters, Tokyo Stock Exchange, Un ted Nations, US Department of Commerce, Wood Mackenzie Limited, World Bureau
of Metal Statistics, and World Economic Forum. While we consider information from external sources to be reliable, we do not assume responsibility
for its accuracy.

This information is not directed at or intended for distribution to or use by any person or entity located in any jurisdiction where such distribution,
publication, availability or use would be contrary to applicable law or regulation or which would subject Bridgewater to any registration or licensing
requirements within such jurisdiction. No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed
w thout the prior written consent of Bridgewater ® Associates, LP. By receiving or reviewing this material, you agree that this material is confidential
intellectual property of Bridgewater® Associates, LP and that you will not directly or indirectly copy, modify, recast, publish or redistribute this material
and the information therein, in whole or in part, or otherwise make any commercial use of this material without Bridgewater’s prior written consent. All
rights reserved. © 2021 Bridgewater® Associates, LP.

The views expressed herein are solely those of Bridgewater as of the date of this report and are subject to change without notice. Bridgewater may have
a sign ficant financial interest in one or more of the positions and/or securities or derivatives discussed. Those responsible for preparing this report
receive compensation based upon various factors, including, among other things, the quality of their work and firm revenues.

Bridgewater® Daily Observations 11/30/2020

17
 Bridgewater ®

Daily Observations
March 18, 2021 ©2021 Bridgewater Associates, LP

(203) 226-3030 Greg Jensen

MP3 Will Likely Be Pushed Until It Produces Excesses

With a strong US recovery in sight as the pandemic fades and a massive second round of fiscal stimulus underway,
the Fed is nearing the point where it will face a difficult trade-off between growth/asset prices and inflation. We
believe a mark of the new paradigm we are in is that the Fed (and policy makers elsewhere) will likely lag the economy
much more than it has in decades, and it will continue lagging until that path encounters a limit. This is because
pushing these policies is in some sense necessary, given the secular and societal challenges of too many promises
and too much wealth relative to incomes and too much wealth concentrated in the hands of too few. The Fed decision
on Wednesday and Powell’s dovish comments were consistent with intentionally staying behind the curve. Huge QE
remains in place despite the Fed forecast of a 4.5% unemployment by year-end and pockets of equity market froth.
And most FOMC members are not signalizing a desire or expectation to raise rates before 2024.

While being necessary, these policies are not without risk. In fact, we are confident that these policies will result
in growing excesses of some kind—whether it’s inflation, currency weakness, and/or asset bubbles. Inflation is
likely an important part of the most likely endgame. And while we could be wrong about that being the excess that
materializes, the risk of higher inflation is high enough that it has to be considered and planned for in strategic
portfolios, which by and large remain positioned for a continuation of low and stable inflation.

Below, we bring together our thoughts on how we see MP3 policies playing out over time and the excesses we
think they will eventually produce:

1. We are in a new policy paradigm, with the end of preemptive inflation fighting and the shift to Monetary
Policy 3/MP3 (the fusion of monetary and fiscal policy) as the primary policy tool.
2. MP3 is inherently more inflationary than past policies because it injects so much demand into the real
economy without corresponding supply, the response has been rapid and massive, and more is on the
way in the US.
3. With the likely surge in growth as the virus fades and economies reopen, the Fed is approaching the point
where it may face difficult trade-offs, but the incentives are skewed toward lagging the economy.
4. Longer term, higher inflation (probably via wages) is desirable from a policy perspective, as it is the least
painful way to resolve the basic challenge of too little income relative to claims on income in the form of
a) future IOUs and b) current wealth.
5. De facto debt monetization eventually leading to inflation is the classic playbook and is already underway:
this is the modern-day jubilee.
6. Most of the major secular forces that have supported a secular downwave in inflation since 1980 are at
their limits or turning. The deflationary impact of technology/automation alone (which is arguably
slowing) would have to outweigh the fading of these other forces to support continued low inflation.

With respect to inflation risk, the policies that are now in place and are being conducted on a huge scale will
produce inflation if pushed far enough. In the extreme, imagine if everyone stopped working and producing goods
and services and the government replaced all of that lost income with printed money—there’s no question that
would be massively inflationary. The critical question is how far the policies will be pushed. As we’ll explain, there’s
a need to push them pretty far—and a real opportunity to address societal challenges in the process. And the
policies feel great in the moment and are enacted (or not) by political bodies that have to face regular elections.
We would bet that the limits of these policies will be tested.
© 2021 Bridgewater® Associates, LP. By receiving or reviewing this Bridgewater® Daily Observations, you agree that this material is confidential intellectual
property of Bridgewater® Associates, LP and that you will not directly or indirectly copy, modify, recast, publish or redistribute this material and the information
therein, in whole or in part, or otherwise make any commercial use of this material without Bridgewater’s prior written consent. All rights reserved.

Bridgewater® Daily Observations 3/18/2021

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 United States Euroland Japan
Fiscal Support (%GDP) Fiscal Support (%GDP) Fiscal Support (%GDP)
15.0% 15.0% 15.0%
12.5% 12.5% 12.5%
10.0% 10.0% 10.0%
7.5% 7.5% 7.5%
5.0% 5.0% 5.0%
2.5% 2.5% 2.5%
0.0% 0.0% 0.0%
-2.5% -2.5% -2.5%
2010 2015 2020 2010 2015 2020 2010 2015 2020

United Kingdom Canada Australia

Fiscal Support (%GDP) Fiscal Support (%GDP) Fiscal Support (%GDP)
15.0% 15.0% 15.0%
12.5% 12.5% 12.5%
10.0% 10.0% 10.0%
7.5% 7.5% 7.5%
5.0% 5.0% 5.0%
2.5% 2.5% 2.5%
0.0% 0.0% 0.0%
-2.5% -2.5% -2.5%
2010 2015 2020 2010 2015 2020 2010 2015 2020

The size of the fiscal package that was just passed in the US is unprecedented, particularly given the strength of
the underlying economy. $2.8 trillion in spending (headline size nearly 13% of GDP) is coming at a time when the
level of activity and unemployment rate are better than they have been on average during past stimulus efforts.

Major US Fiscal Stimulus Packages since 2000

Components Size (Annual) Conditions
Level of Activity Unemployment
USD, Bln %GDP
vs Potential Rate

2001 Bush Tax Cuts HH & Corp Tax Cuts 150 1.4% 1.5% 4.5%

2003 Bush Tax Cuts HH & Corp Tax Cuts 50 0.4% -1.0% 6.1%

Credits & Transfers to HH, Corps;

2009 American Recovery
Healthcare, Education, Infrastructure 830 5.5% -4.0% 9.6%
and Reinvestment Act
Spending

Credits & Transfers to HH, Corps,

2020 CARES Act* State/Local Govt; Healthcare Spending; 2,200 10.3% -8.9% 14.7%
Massive new Funding for Public Lending
spending into
materially Credits & Transfers to HH, Corps,
2021 Phase IV Deal +
stronger State/Local Govt; Healthcare, Education, 2,800 12.7% -1.2% 6.3%
American Rescue Plan
economic Vaccine Spending
conditions *Includes several supplementary bills (Families First Coronavirus Response Act, PPP expansion) passed around the same time. Only includes actual funds
spent; $500 bln in unused funding has been rolled into the new package.

For reasons we’ll elaborate on below, we believe this is the new normal: more fiscal into a stronger economy (at
least, stronger at the aggregate level), as this is what’s required to address the secular challenges of too many
promises, too much paper wealth, and too much social division/wealth concentration.

Bridgewater® Daily Observations 3/18/2021

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So, while the pressures on the Fed to tighten are building and will likely accelerate, the critical question with
respect to inflation is whether the Fed lags the economy and allows inflation to rise. In each previous case of the
Fed lagging the economy, excesses eventually emerged—sometimes inflation, and more recently bubbles in asset
and credit markets. Below, we show the last ~50 years of periods when the Fed has lagged the economy (defined
here as keeping nominal interest rates below nominal growth, while levels of activity are above potential). As you
can see, excesses have not always emerged in the same places, but in each period conditions eventually forced the
Fed’s hand.

Previous Cases Where the Fed Has Lagged the Economy

Growth vs Interest Lvl of Activity vs Prv Sector Credit
Case Core Inflation Result
Rates Potential Creation (%GDP)

Late 1960s ('67- 70) 2.0% 3.2% 5.5% 5.6% Increase in Inflation

Early 1970s ( 71-'73) 2.5% 0.5% 3.4% 8 5% Increase in Inflation

Late 1970s ( 77-'79) 2.8% 2.0% 5.0% 12 5% Increase in Inflation

Late 1990s ( 97- 99) 1.5% 2.2% 2.1% 11.0% Equity Market Bubble

Mid 2000s ('04-'06) 3.5% 1.9% 1.9% 14.0% Credit Bubble & Deleveraging

Thus far, there are only limited signs of the excesses that have ended past expansions, but we are paying close
attention. Inflation has risen from its levels during the worst of the crisis, but it remains around target. There’s little
sign of credit excesses—household borrowing has increased slightly with the strength of the housing market, but
net private sector leverage levels aren’t frothy (most of the headline increase in corporate borrowing in 2020 was
either corporates hitting their revolving credit lines, which they largely kept in cash or paid back, or PPP, which for
most firms is functionally a grant). And while there are signs of froth in the equity market and our bubble gauge
shows meaningful signs of excesses (particularly within certain sectors), we don’t think the overall market is in a
bubble yet.
Current Conditions Compared to Previous Bubbles
Today: Emerging
Roaring 1920s Dot-Com Bubble 2007 Today: Total Mkt Tech
Prices Are High Relative to Traditional Measures Bubble Bubble No Bubble Somewhat Frothy Frothy
Prices Are Discounting Unsustainable Conditions Bubble Bubble No Bubble No Bubble Frothy
New Buyers Have Entered the Market Bubble Bubble Frothy Frothy Bubble
There Is Broad Bullish Sentiment Bubble Bubble Frothy Frothy Bubble
Purchases Are Being Financed by High Leverage Bubble Bubble Bubble Somewhat Frothy Bubble
Buyers/Businesses Have Made Extended Forward Purchases Frothy Bubble Bubble No Bubble Somewhat Frothy

USA Aggregate Bubble Gauge Percentile

100%

80%

60%

40%

20%

0%
1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

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 Number of Leading-Edge
Semiconductor Manufacturers

30

25

20

15

10

0
2000 2010 2020

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Bridgewater research utilizes data and information from public, private and internal sources, including data from actual Bridgewater trades. Sources
include the Australian Bureau of Statistics, Bloomberg Finance L.P., Capital Economics, CBRE, Inc , CEIC Data Company Ltd., Consensus Economics Inc.,
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Group Ltd., European Money Markets Institute – EMMI, Evercore ISI, Factset Research Systems, Inc , The Financial Times Lim ted, GaveKal Research
Ltd., Global Financial Data, Inc., Haver Analytics, Inc , ICE Data Derivatives, IHSMarkit, The Investment Funds Inst tute of Canada, International Energy
Agency, Lombard Street Research, Mergent, Inc., Metals Focus Ltd, Moody’s Analytics, Inc., MSCI, Inc., National Bureau of Economic Research,
Organisation for Economic Cooperation and Development, Pensions & Investments Research Center, Renwood Realtytrac, LLC, Rystad Energy, Inc., S&P
Global Market Intelligence Inc., Sentix Gmbh, Spears & Associates, Inc , State Street Bank and Trust Company, Sun Hung Kai Financial (UK), Refinitiv,
Totem Macro, Un ted Nations, US Department of Commerce, Wind Information (Shanghai) Co Ltd, Wood Mackenzie Lim ted, World Bureau of Metal
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The views expressed herein are solely those of Bridgewater as of the date of this report and are subject to change without notice. Bridgewater may have
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Bridgewater® Daily Observations 3/18/2021

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 Bridgewater ®

Daily Observations
July 20, 2021 ©2021 Bridgewater Associates, LP

(203) 226-3030 Greg Jensen

Jason Rotenberg
Kate Dunbar
Nikolai Doytchinov

What Markets Are Discounting

More a reflection of what policy makers deem necessary, and increasingly diverging from conditions.

In today’s Observations, we illustrate and describe what we see markets discounting. Before doing that, it is worth
laying out how our thinking on market pricing has evolved over the last decade as economic policy has shifted. If
you go back several decades, it was reasonable to think of asset prices as reflecting a largely private-sector-
determined outlook for the value of the future cash flows that an asset would produce. So, interest rates roughly
reflected anticipated growth and economic conditions, corporate spreads roughly reflected probabilities of default,
and equity valuations roughly reflected expected growth rates and market interest rates. The MP3 policy world
turns a lot of pricing on its head. It is probably more accurate to think of what level of interest rates will generate
the economic outcomes that policy makers want than to think of rates as reflecting conditions in the economy.
Credit spreads are more reflective of the liquidity and purchases of central banks determining the spreads that
meet their policy goals than private-sector-formulated odds of default, although those things are related. Equities
reflect market participants being driven out of interest-bearing products that are affected by the policies above.
The big issue for all markets will be how long policy makers can sustain policies that are becoming increasingly
divergent from the underlying economic conditions and incentives.

We will discuss in more detail our own market views and the areas where we disagree with what is priced in in
future notes. Looking at conditions today and the pressures going forward, we see wider divergences between
macro conditions and what is priced in than have existed for most of the last decade. In particular, the divergence
between what is priced into US bonds and the strength of cyclical conditions, inflation and inflation pressures, and
the looseness of fiscal policy is the widest since we started managing money in the 1970s.

Market pricing in aggregate is consistent with:

 Continued near-zero rates indefinitely, achieving only very modest growth and inflation outcomes.
 A transitory inflation surge, with inflation rates reverting to, or falling below, central bank targets.
 This will be accomplished with low volatility.
 Continued US outperformance and EM underperformance.
 Low future returns, but a large spread between earnings yields and bonds.
 Pockets of excesses within the equity market not impacting the macro.

When it comes to the recent bond market action, we believe we understand why the bond market is clearing at
current prices and think that these prices are unlikely to be sustained. The drivers we see are:

1. COVID fears driving concerns of renewed economic weakness, uncertainty, and an easier path for
monetary policy. We will hit our thoughts on COVID in an upcoming Observations and will adapt our views
if these concerns begin to materialize in higher savings rates or new shutdowns. But, for now, we continue
to see massive savings across the world that are more likely than not to be spent down.
2. Market deference to the Fed’s stated likely policy path. As is always the case, the Fed will react to
conditions even if its reaction function has changed. What matters most is how conditions play out.
3. A lack of demand for credit from households and businesses that are flush with liquidity, and other flows
dynamics, which we think are likely to fade over time.

© 2021 Bridgewater® Associates, LP. By receiving or reviewing this Bridgewater® Daily Observations, you agree that this material is confidential intellectual
property of Bridgewater® Associates, LP and that you will not directly or indirectly copy, modify, recast, publish or redistribute this material and the information
therein, in whole or in part, or otherwise make any commercial use of this material without Bridgewater’s prior written consent. All rights reserved.

Bridgewater® Daily Observations 7/20/2021

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 Important Disclosures

Information contained herein is only current as of the printing date and is intended only to provide the observations and views of Bridgewater
Associates, L.P. (“Bridgewater”) as of the date of writing unless otherwise indicated. Bridgewater has no obligation to provide recipients hereof
with updates or changes to the information contained herein. Performance and markets may be higher or lower than what is shown herein and
the information, assumptions and analysis that may be time sensitive in nature may have changed materially and may no longer represent the
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and uncertainties and are informational in nature. Actual performance could, and may have, differed materially from the information presented
herein. Past performance is not indicative of future results.

Bridgewater research utilizes data and information from public, private and internal sources, including data from actual Bridgewater trades.
Sources include the Australian Bureau of Statistics, Bloomberg Finance L.P., Capital Economics, CBRE, Inc., CEIC Data Company Ltd., Consensus
Economics Inc., Corelogic, Inc., CoStar Realty Information, Inc., CreditSights, Inc., Dealogic LLC, DTCC Data Repository (U.S.), LLC, Ecoanalitica,
EPFR Global, Eurasia Group Ltd., European Money Markets Institute – EMMI, Evercore ISI, Factset Research Systems, Inc., The Financial Times
Limited, GaveKal Research Ltd., Global Financial Data, Inc., Haver Analytics, Inc., ICE Data Derivatives, IHSMarkit, The Investment Funds
Institute of Canada, International Energy Agency, Lombard Street Research, Mergent, Inc., Metals Focus Ltd, Moody’s Analytics, Inc., MSCI,
Inc., National Bureau of Economic Research, Organisation for Economic Cooperation and Development, Pensions & Investments Research
Center, Refinitiv, Renwood Realtytrac, LLC, Rystad Energy, Inc., S&P Global Market Intelligence Inc., Sentix Gmbh, Spears & Associates, Inc.,
State Street Bank and Trust Company, Sun Hung Kai Financial (UK), Totem Macro, United Nations, US Department of Commerce, Wind
Information (Shanghai) Co Ltd, Wood Mackenzie Limited, World Bureau of Metal Statistics, and World Economic Forum. While we consider
information from external sources to be reliable, we do not assume responsibility for its accuracy.

The views expressed herein are solely those of Bridgewater and are subject to change without notice. In some circumstances Bridgewater
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