There are a number of reasons to disregard Dalio-speak on a number of subjects, his bullishness on China being a prime example.* However on this point he gets both the direction and the magnitude right on, though because of human emotions you could probably look for an overshoot to the downside. A further 20% decline would shift market enthusiasm further to the right on the crabby—despondent—apathetic—suicidal spectrum and by itself create the bottom.
From Bloomberg via Yahoo Finance, September 14:
Ray Dalio came out with a gloomy prediction for stocks and the economy after a hotter-than-expected inflation print rattled financial markets around the globe this week.
“It looks like interest rates will have to rise a lot (toward the higher end of the 4.5% to 6% range),” the billionaire founder of Bridgewater Associates LP wrote in a LinkedIn article dated Tuesday. “This will bring private sector credit growth down, which will bring private sector spending and, hence, the economy down with it.”
A mere increase in rates to about 4.5% would lead to a nearly 20% plunge in equity prices, he added.
The rate market suggests traders have fully priced in a 75-basis-point hike next week by the Federal Reserve, with a slight chance for a full percentage point move. Traders expect the Fed fund rate to peak at about 4.4% next year, from the current range of 2.25% and 2.5%.
Dalio noted investors may still be too complacent about long-term inflation. While the bond market suggests traders are expecting an average annual inflation rate of 2.6% over the next decade, his “guesstimate” is that the increase will be around 4.5% to 5%. With economic shocks, it may be even “significantly higher,” he added.
Dalio said the US yield curve will be “relatively flat” until there is an “unacceptable negative effect” on the economy....
Speaking of China, Bridgewater's Ray Dalio Has Some Thoughts
"Western Greed Fuels China's Domination"
It's good to name names. Unfortunately Dalio, Dimon, Fink and Cook sounds like the law firm from hell.....
"Dalio’s Hedge Fund Risks Being Dumped by Pension on Weak Returns"
Bridgewater's Dalio Cuts His Odds of a Recession Occurring Before the Next U.S. Presidential Election.
Our bet, from two years ago had the U.S. stock market peaking this year and a recession to follow in 2020.
We'll be revisiting that prognostication....
