Ray Dalio Economic Predictions
America must be doing just mighty fine. That’s the only conclusion any casual observer would reach after President Donald Trump’s first State of the Union (SOTU) address on January 30. Such speeches have often served as platforms to unveil U.S. foreign policy.
In 1823, President James Monroe introduced the “Monroe Doctrine” to warn European colonial powers that they should start pulling back from the Americas and the Caribbean. George W. Bush used his first SOTU address to introduce the “Axis of Evil” concept, which President Obama never quite abandoned. As for President Trump, his SOTU address focused on the economy. And judging by the numbers, from lowest unemployment rates to income gains in the lower classes, it was a home run.
The feeling in the Chamber of the U.S. Congress was one of overwhelming satisfaction. There’s no other way to explain the fact that Trump gladly interrupted his words to savor 115 resounding applause breaks. Didn’t somebody describe Trump as divisive? Even the jeering from the Democratic aisles lacked conviction. Then again, if you trusted the spectacularly optimistic picture of the American economy that the President described, there was nothing to rebuff.
However, Ray Dalio, founder and chairman of Bridgewater Associates, LP, throws a hot dose of reality over Trump’s magical vision. He admits that the data indicators are good but warns that the economy happens to be enjoying its last successes of the economic growth cycle that effectively began years ago. Rather, he warns that Wall Street is heading for what could be the most bearish bond market in the past 40 years. (Source: “Dalio Says Bonds Face Biggest Bear Market in Almost 40 Years,” Bloomberg, January 24, 2018.)
Ray Dalio Prediction for the Bond Market
Ray Dalio’s Bridgewater says the economy will continue its run for the next one to two years. However, he warns, the Federal Reserve could tighten monetary policy much faster than expected. That’s what could turn everything back. Ray Dalio is not one you should dismiss. Ray Dalio’s hedge fund, Bridgewater Associates, posted a record net profit for his clients. (Source: “Ray Dalio made $50 billion for his clients, topping list of biggest hedge fund moneymakers ever,” CNBC, January 26, 2018.)
Ray Dalio’s portfolio is set up to literally consider all possible market situations. That’s why they call it an “all-weather portfolio.” He runs the “Jeep” of hedge funds. (Source: “Remember the ‘All-Weather’ Portfolio? It’s Having a Killer Year,” September 27, 2016.)
Nobody will want bonds after the Federal Reserve reduces their monetary stimulus. This will cause larger deficits, encouraging the government to sell securities to raise money. When Trump was elected in November 2016, many raised concerns about inflation and the fiscal tightening that the Fed would employ to fix it. They were right, says Dalio. Except the concerns are about to get tested a little later than expected.
Therefore, given Ray Dalio’s principles, the advice for investors is to not hold cash, even as he sees a mountain of risks on the horizon. Perhaps, what he’s really saying is to consider investing in gold, which averts the risks. Despite what Trump’s SOTU address implied, Dalio has noticed significant warning signs related to political divisions and economic disparity. This is remarkably honest, given that Ray Dalio’s net worth is $17.0 billion.
So Have We, as Trump Said, Reached “A New American Moment”?
The SOTU address promised everything that Dalio did not. Trump mentioned that so far in his administration, the economy has created some 2.4 million new jobs, 200,000 of which are in manufacturing. Of course, Trump boasted about the benefits of his tax reform—claiming that it was the biggest in American history (It wasn’t. Reagan’s was bigger). More significantly, he suggested that the tax cuts would deliver the bulk of the benefits to the middle classes and small business owners.
He wasn’t lying, though he was lacking in precision. The numbers are clear; larger companies are the biggest beneficiaries of the tax cuts. Their shareholders and executives are as well. The president also promised the start of a massive infrastructure improvement campaign. There was no data from previous years to compare the numbers he put forth, but it sure sounded impressive. In the end, Trump had plenty of reassuring points for the military-industrial complex. ISIS may have been defeated, but the threats just keep piling on.
The best part is that when it comes to defense, there’s generally bipartisan support. So, of all the promises and statements, the ones referring to threats that need defeating will inevitably get the most attention. Thus, you can be sure that the Lockheed Martins and Northrop Grummans of this world will have no shortage of contracts or hiring campaigns.