Investor Ray Dalio said the coronavirus outbreak will cost U.S. corporations up to $4 trillion.
“What’s happening has not happened in our lifetime before … What we have is a crisis,” Dalio said on Thursday on CNBC’s “Squawk Box.“There will also be individuals who have very big losses… There’s a need for the government to spend more money, a lot more money… A lot of people are going to be broke.”
The total GDP of the U.S. at the end of 2020 was more than $21 trillion. The founder of Bridgewater Associates also estimated the global corporate losses will amount to $12 trillion due to the pandemic.
Dalio added the fiscal stimulus package should be $1.5 trillion to $2 trillion as a minimum, depending on the form of the financial relief such as loan guarantees and credits.
The White House is proposing a stimulus package worth anywhere from $850 billion to more than $1 trillion to fight the impact of COVID-19 and that could help soften the blow of a sudden recession. The package will include direct payments or tax cuts and small business assistance.
On the monetary front, the Federal Reserve announced it plans to pump an additional $1 trillion into the U.S. economy through asset purchases and cut interest rates to zero. Global central banks have also taken steps to keep borrowing cost in check as countries get ready to ramp up spending to offset coronavirus impact.
However, Dalio said there’s an “inability of central banks to stimulate in a way that’s normal,” adding they have less capacity to ease monetary policies when interest rates have already hit the floor.
“We are now at a point where there will have to be a debt restructuring and a monetization of that,” Dalio said. “We’re living in a different world like the 1930s in which 1930s, 1932 you have a devaluation of the dollar. You have the printing of money.”
10% to 20% loss for Bridgewater
Bridgewater, the world’s biggest hedge fund, has lost up to 20% during the coronavirus-triggered sell-off, Dalio said.
“We’re down … somewhere in the vicinity of 10% to 20% kind of decline,” Dalio said. “We missed that, you know, we’re kicking ourselves for missing that move….What happened was it didn’t come from the usual places, it came from not the usual ways that downturns come.”
The markets have been in a tailspin amid the coronavirus pandemic as investors dumped stocks on fears that governmental response to the outbreak won’t be sufficient to prevent the economy from tipping into a recession. The S&P 500 was now nearly 30% below a record set last month.
Bridgewater has about $160 billion assets under management, according to its website.
Dalio didn’t disclose specifically what his hedge fund is invested in during the crisis, but said “the mechanics” he described that the central banks are losing their power is influencing his investing decisions.
— CNBC’s Kevin Stankiewicz and Michael Sheetz contributed to this report.
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