Ray Dalio founded Bridgewater Associates in 1975 and grew it into one of the world’s largest hedge funds by 2005. As of 2022 his hedge fund has 107 clients with over $235.5 billion in total assets under management. Ray Dalio is ranked the 67th richest person in the world according to Forbes with a net worth of approximately $22 billion. He is a macro investor that tracks economics, politics, markets, and geopolitics.
Here are his predictions and warnings for 2022 and beyond from a recent interview.
He says there are three things happening in out lifetimes that have not happened before in our lives that he sees based on his own study of history.
- The creation of a huge amount of both currency and debt by governments and central banks.
- The amount of internal conflict the U.S. is having over how our taxes are spent and different values.
- The changing world order and how China and Russia now compete with the U.S. like never before in modern history of the past 80 years.
Ray Dalio Inflation
Dalio explains that the huge printing of money that escalated in the world since 2020 initially created credit and seemed good evolved into too much money chasing a fixed amount of goods and led to inflation. Economics is simply math and as you increase money in circulation you increase prices by the same amount of excess cash in the system.
The U.S. government’s budget deficit and the Federal Reserve’s expanded balance sheet and money printing teamed up to create a high inflation rate that is running at 8.3% or 12% if you consider core inflation. When money printing exceeds supply of goods and services it causes inflation regardless of supply chain bottlenecks or not. This decreases the buying power of a currency.
Inflation is the strategy governments use now as it is more acceptable to people than taxing them as they receive checks and see the consequences later in prices and decreased purchasing power. Inflation is a tax on savings accounts, bond holdings, and paychecks through decreasing their value.
Also with investments, if the S&P 500 index is down 20% year-to-date and inflation is up 8% then your portfolio is really down 28%.
Ray Dalio Predictions 2022
The Federal Reserves current policy of increasing interest rates while also limiting money in the system is creating a double squeeze in the markets of both inflation and less capital available for credit and also an increase in the cost on new debt with rising interest rates.
Inflation can cause people to realize that holding cash is a losing proposition as buying power falls and this can lead them to use their money to buy things that maintain value like real estate and investments, this can lead to ever increasing inflation.
What happened in the 1970s and early 1980s is that people went to extremes preparing for increasing inflation and the Federal Reserve raised interest rates too much with both going too far and finally inflation was broken by an over reaction to it. Dalio believes this previous cycle repeats now with this current inflation cycle.
China has rose to be a rival to the U.S. on many levels like economic trade and military power and how they work out these disputes will determine the future path of the world’s power dynamics.
The war in Ukraine has made the world decide sides on who they will align with for trade and sanctions. These alliances will create the world of the future.
Ray Dalio Forecasts
The most successful countries will be the ones with the best education systems to create high earning and productive citizens. Much of the success of nations can be tracked by their levels of education.
Countries that have a well established rule of law and keeps law and order will be successful as they attract investments and immigration while those countries with the problems of high crime and corruption will not be prosperous over time. There is a -52% negative correlation with a countries growth rate and their corruption over the next ten year period. Russia is the richest country in commodities but also one of the most corrupt hurting its productivity.
Ray Dalio puts the odds of stagflation in 2022 at 33%, which means inflation during a recession.
Dalio believes the U.S. has a high probability of over 33% of a civil war soon as citizens pick sides and even move to states to align with their political beliefs.
Dalio sees a greater than 33% chance of the Ukraine war evolving into World War 3 if Russia loses and feels the need for a win in another way.
Dalio recommends diversifying assets between stocks, real estate, gold and businesses to hedge against both inflation and stagflation.
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