Ray Dalio: all calm at sea

“The economy is now at or near its best, and we see no major economic risks on the horizon for the next year or two,” says Ray Dalio, founder of hedge fund giant Bridgewater. Investors shouldn’t expect large returns from here, because “real and nominal interest rates are low — as they should be, given where we are in the long-term debt cycle”.

Indeed, his analysis suggests that a portfolio equally split between bonds and cash should return an average of 4% over the next ten years. But there are no “classic storm clouds on the horizon”, such as “big unsustainable debt flows or a lot of debts maturing that can’t be serviced”.

But don’t get too comfortable. In the long run, Dalio is a lot less sanguine. “Debt and non-debt obligations (eg, for pensions, healthcare entitlements, social security, etc) are high.” He is also concerned about the fact that in the US “productivity growth is low”. That’s a problem because “over the long term, what raises living standards is productivity — the amount that is produced per person — which increases from coming up with new ideas and implementing ways of producing efficiently”.

However, what really worries Dalio is political risk. “Big differences in wealth and opportunity” have led to “social and political tensions that are significantly greater than normal, and are increasing”. Since such tensions “are normally correlated with overall economic conditions, it is unusual for social and political tensions to be so bad when overall economic and market conditions are so good”.
Hence he “can’t help but worry what the social and political fragmentation will be like in the next downturn”.


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