World’s Top Hedge Fund Manager Sees Higher Inflation
One of the biggest fund managers in the United States doesn’t have a good news for bond investors.
Bridgewater Associates, LP founder Ray Dalio says that bond market has likely reached its peak and that the way forward is a long dismal performance of the fixed-income securities when compared to other asset classes.
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Dalio, whose firm manages about $150.0 billion, says Donald Trump’s election is net positive for the U.S. economy, but he is cautioning that his assessment is preliminary and may change.
“We think that there’s a significant likelihood that we have made the 30-year top in bond prices,” Dalio wrote on his “LinkedIn” page on Tuesday. “We probably have made both the secular low in inflation and the secular low in bond yields relative to inflation.” (Source: “Reflections on the Trump Presidency, One Week after the Election,” LinkedIn, November 15, 2016.)
Dalio made these remarks after a record sell-off in global bonds, started by Trump’s election victory, as traders feared inflation will pick up and interest rates will rise. The president-elect has pledged to cut taxes, spend more than $500.0 billion on infrastructure, and restrict imports.
On the political implications of the Trump victory in the U.S. election, Dalio thinks that the President-elect will likely follow a similar path which Ronald Reagan adopted.
The new period will likely be characterized by decreasing globalization, increased U.S. growth, and higher inflation, according to Dalio.
“We believe that we will have a profound president-led ideological shift that is of a magnitude, and in more ways than one, analogous to Ronald Reagan’s shift to the right,” Dalio said. “Donald Trump is moving forcefully to policies that put the stimulation of traditional domestic manufacturing above all else, that are far more pro-business, that are much more protectionist.” (Source: Ibid.)
After Trump’s surprise victory, markets have reacted in a very unpredictable way. Despite analysts’ prediction of a massive sell-off in equity markets, stocks rose to new record highs in the U.S., while investors moved their funds from bonds to equities.
The Dow Jones Industrial Average (DJIA) finished the day with a fourth consecutive record close as investors bought stocks of banks and infrastructure companies, hoping they’ll benefit during Trump’s presidency and his expansionary fiscal policies.
