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Investors are too bullish on the economy and they’re overlooking global threats, Ray Dalio says.
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He’s skeptical of a Goldilocks scenario with strong growth and tumbling inflation and rates.
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Either Trump or Biden winning reelection could spell trouble for markets, the investor says.
Investors are too optimistic about the economy and not worried enough about global threats, Ray Dalio says.
Assets are trading roughly in line with fundamentals with US stocks and bonds perhaps a “bit expensive,” and there’s no sign of a 2008-style financial crisis on the horizon, the billionaire investor wrote in a LinkedIn post on Tuesday. However, internal and external conflicts as well as climate change “add risks for markets and economies in 2024,” he said.
Dalio is the founder of Bridgewater Associates, the world’s largest hedge fund with roughly $100 billion of assets, and an official mentor to its co-chief investors. He warned that markets are pricing in a “Goldilocks economy” this year with moderate growth, dissipating inflation, and interest rates tumbling.
In contrast, Dalio expects growth to disappoint as pandemic savings dwindle and debt costs rise, inflation to remain about 1 percentage point above central banks’ targets, and rates to fall more slowly than predicted. But he hasn’t placed any “strong bets” on those outcomes given the uncertainty of what lies ahead, he said.
Separately, the author of “Principles for Dealing with The Changing World Order” warned of potential trouble for investors whether Joe Biden or Donald Trump win the US presidential election this year.
“I think they’re both threatening for the markets,” he told CNBC at the World Economic Forum in Davos, Switzerland on Tuesday. A victory for either man could ignite political tensions in America, he said, underlining the immense divide on issues ranging from taxes and trade to foreign aid and raising children.
“If we’re looking at the geopolitics, I don’t think that those risks are priced in,” Dalio continued, referring to not just internal strife but also the US-China power struggle and the Russia-Ukraine and Israel-Gaza wars. “That uncertainty isn’t priced in.”
Lastly, Dalio counseled investors against liquidating their assets and stockpiling dollars to ride out the storm. “Cash is a trashy investment over a long period of time,” he said.
Read the original article on Business Insider