After a shaky start to 2018, not everyone is a snorting bull, one of those preaching caution is Ray Dalio – the founder of Bridgewater Associates, who not only predicted but also profited during the 2008 financial crisis.
Dalio doesn’t believe the stock market is over-valued as such, but he’s worried that some of the underlying fundamentals fueling the soaring prices could drag down growth in the years to come, he told the Wall Street Journal.
Specifically, he’s concerned about debt. Americans have more debt than assets – and the payments on that debt are growing.
In order to keep the cost of debt service affordable, the Federal Reserve will be forced to keep interest rates low, Dalio told The Journal.
“It may not be a problem in the next year or two, but the risk of not getting it right increases with time,” he said.
He also cautions that the incredible returns of the last 18 months are not the new normal. He believes inflation-adjusted returns on the typical stock and bond portfolio could be near zero in the next decade, thanks to the combination of debt and inflationary pressure.
Dalio – whose Bridgewater Associates is the largest hedge fund firm in the world, managing $150 billion – is also concerned about the 60% of Americans who have almost no assets and aren’t directly benefiting from the soaring corporate profits and stock prices.
“If we do have an economic downturn, I worry we will be at each other’s throats,” he said. However, on Monday morning Kleinwort Hambros CIO claimed it was too early to tell if we are seeing a correction or a genuine sell off having experienced 5 similar corrections in a 9yr bull market.
Feb.12 — Mouhammed Choukeir, chief investment officer at Kleinwort Hambros, discusses the market selloff and where he thinks they’re heading. He speaks on “Bloomberg Markets: European Open.”
Terry Simpson, when interviewed by Bloomberg, said “Short-term market volatility can blur the lens, but at the same time fundamentals are still supportive,”