Wednesday, December 12, 2012
RAY DALIO: The US Economy Is Facing A Rare Set Of Circumstances That Will Be Bad For Markets
At the Dealbook conference, Ray Dalio, Steve Schwarzman and David Rubinstein just wrapped up a panel on investing and markets.
Of particular interest was Ray Dalio, the hedge fund god who has been killing it throughout the crisis.
And so you have to be intrigued that he's bearish.
He's not wildly so (thinks stocks will do better than bonds) but his basic idea is that risk premiums are maxed out, and have to come down. In other words, people have paid up max dollar for all risk assets thanks to the Fed dropping rates to rock bottom. Now that will reverse.
His novel set of circumstances he sees is an economy that faces austerity (due to the Fiscal Cliff, etc.) coupled with a Fed that's mostly blown its bazooka, and can't get much more juice out of QE (he believes that QE does less and less because the Fed can't push that much that much more money from bonds into riskier assets).
So the novel set of circumstances are:
Yields can't go down anymore.
Austerity is coming.
Economy is running out of steam.
QE is losing its efficacy.
Rate turn probably finally coming late in 2013.
So there you go: Rates going up, austerity coming, Fed out of bullets. Bad for risk assets.