Ray Dalio, the founder of Bridgewater, the world’s largest hedge fund, says the economy has gotten as good as it can get. That makes future improvement unlikely. As a matter of fact, he writes the future looks “scary.”
Dalio, in a LinkedIn post called “The Big Picture,” gave his reasons:
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,
There are significant long-term problems (e.g., high debt and non-debt obligations, limited abilities by central banks to stimulate, etc.) that are likely to create a squeeze,
Social and political conflicts are near their worst for the last number of decades, and
Conflicts get worse when economies worsen.
His detailed argument uses data that dates back to 1970 for some illustrations and 1920 in others. His primary concern is that when the economy weakens, as it has to eventually, the factors about which he is anxious will quickly magnify.
Dalio’s Bridgewater manages $150 billion. While he does not have the title of CEO, the final say on investment policy belongs to him and a small cadre of associates. He has brought senior management into the company, and he has promoted some long-timer employees. So far, these executive changes have turned out poorly, and Bridgewater is known for a musical chairs leadership cycle.
Dalio’s opinions have become an ever greater part of the public debate on investing and the economy, both as Bridgewater assets have grown and his willingness to appear in public has as well. He recently was among the headliners in Davos and was interviewed at the forums given by The New York Times. He has attacked the press for its characterization of Bridgewater as a company that keeps some of its workers under surveillance and allows many of its workers to attack the work of fellow employees in public.
Dalio makes his comments when the economy is at “full employment,” a term that usually means unemployment is below 5%. However, U.S. GDP growth has slowed, and there is major concern about the tensions between the United States and its trade partners. His opinions also come at a time when income inequality and race relations in the America are part of the news cycle most days.
Dalio gets listened to today because he manages massive amounts of money. Whether he is right about when the economy could break lower won’t be proven or disproven for several years.