The Register Citizen (Torrington, CT)
Dalio sees rising risks of recession
Billionaire hedge fund manager Ray Dalio, who last month said it felt stupid to own cash, says the U.S. is further along in the business cycle than he’d thought and that he now sees a growing risk of recession in the next 18 to 24 months.
Now that the S&P 500 index has posted its worst rout in two years on concern over rising borrowing costs, he said in a LinkedIn post Monday that he doesn’t know how far the stock market is from its peak, though “it is clear we are past the top in the bond market.”
A week ago, the Greenwich resident said the selloff in equity markets -which at that point was just beginning -- was a minor correction typical of latecycle behavior.
The pressure on equities has been emanating from the Treasury market and the outlook for inflation. The Federal Reserve will face growing pressure to increase interest rates after a nearly $300 billion spending package signed into law Friday juices a U.S. economy already souped up on a $1.5 trillion tax cut.
“There is a whole lot of hitting the gas into capacity constraints that will lead to nominal rate rises driven by the markets,” Dalio wrote. “We are in the part of the cycle in which the central banks’ getting monetary policy right is difficult and that this time around the balancing act will be especially difficult.”
In today’s post, he said that while many investors are focusing on the U.S.’s potential economic strength in 2018, “we are focusing more on 2019 and 2020 (which is the next presidential election year),” he added. “Frankly, it seems to be inappropriate oversight to not be talking about the chances of a recession and what that recession might look like prior to the next election.”
At the World Economic Forum in Davos last month, Dalio said he expected the Federal Reserve to tighten monetary policy faster than they have signaled. He said while economic growth is in the late stage of the cycle, it could continue to improve for another two years.
Dalio also said in Davos that the economic environment was good for stocks but bad for bond investors, and that “it feels stupid to own cash in this kind of environment. It’s going to be great for earnings and great for stimulation of growth.”