The World According to Ray Dalio

ECONOMY The World According to Ray

Francis Scialabba

When he’s not using LinkedIn to brag about his summer internship, Ray Dalio writes 6,622-word novellas on the evolving nature of market forces and human psychology. In a post yesterday, hedge fund legend/LinkedInfluencer Ray Dalio explained his concept of “paradigm shifts”—inevitable, cyclical changes to markets and market relationships. Why do people listen to Ray? His hedge fund, Bridgewater Associates, is the world’s largest, and he’s been a global macro investor for almost 50 years. As Dalio sees it, most paradigms last ~10 years before people adapt to market conditions so strictly that those conditions become “overdone” and change follows. Now that the current economic expansion has lasted over a decade, the tide is turning...and Dalio has some ideas about where it’ll take us.  Forget stuffing it under your mattress Dalio suggests investors are facing diminishing returns because they’ve been backed into stocks and other assets with equity-like returns.  He says the next shift will favor assets that perform well when 1) the value of money is being depreciated and 2) domestic and international conflicts are “significant.” Translation: gold. Domestic and international conflicts feel like a no-brainer, but money depreciation? Dalio argues the growth of stock buybacks, M&A, private equity, and venture capital is partly the result of cheap money in a cash-flush system. That’s raised equity prices, hampered future returns, and made cash “nearly worthless.” Adding to the drama: Since the financial crisis, central banks have kept interest rates low to stoke risk-taking. That’s driven up corporate and government debt. Meanwhile, there is a “wave of liabilities,” including Medicare and Social Security payouts, about to smack the U.S.  Looking ahead...Dalio thinks central banks will eventually “run out of stimulant,” but Fed Chair Jerome Powell still has some Red Bulls left in the fridge from Saturday night. The market’s expectation of a Fed rate cut next meeting? 100%.