Ray Dalio (Trades, Portfolio) is the founder and chairman of Bridgewater Associates, which is arguably the world's premier hedge fund. He's well known for his all-weather strategy as well as his recent book, "Principles," which ascends the realm of finance. Dalio talked at the International Monetary Fund last week and CNBC just released the video on Oct. 17.
Dalio identified three key themes and, lately, has very consistently highlighted them.
The first is the wealth gap. Dalio discussed the large wealth gap he sees in the world. He doesn't believe this as an isolated problem to the U.S., but it is also present in China. I'd argue it is also present in other parts of the world. He believes the wealth gap is larger than at any time since the 1930s.
The second theme he highlighted was that central banks don’t have the ability to ease through monetary policy anymore (because we’ve reached the end of it).
Third, there is a rising power in conflict with the existing power. The cycle is not going to continue forever, but then there are elections that are going to cause further division. Dalio identified four types of war (between these powers, i.e., U.S. and China) to watch for; trade war, technology wars, currency wars and geopolitical war.
Meanwhile, Dalio believes we are in a self-reinforcing sag. As China and the U.S. slow down, everyone will experience headwinds. That makes it less good for other countries.
Corporate balance sheets have borrowed a lot of money. With low interest rates, the return on equity exceeded borrowing costs. The notion in leveraged loans is that you can just roll over continuously and you hardly pay interest. We are reaching extremities, but we are not likely to reach a debt crisis. We have limited the options that you have and, ultimately, it creates a big bust.
I've not yet heard Dalio say we are already in the "sag"; he merely pointed out a heightened probability of recession.
Disclosure: No positions.
Read more here:
- 3 Equity Ideas From Bill Gross
- Steve Eisman's Favorite Shorts and Longs
- Ariel's Rhupal Bhansali's Philosophy of Non-Consensus Investing
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