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Ray Dalio to Investors: ‘Keep Dancing but Closer to the Exit’

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Ray Dalio to Investors: ‘Keep Dancing but Closer to the Exit’ PART 1 OF 4

Ray Dalio to Investors: ‘Keep Dancing but Closer to the Exit’

Ray Dalio shared his views on LinkedIn

On July 6, Ray Dalio—chairman and CEO of Bridgewater Associates, the world’s biggest hedge fund by assets—shared his views on central banks’ shifting strategies and gradual rate hike process on LinkedIn.

Ray Dalio to Investors: ‘Keep Dancing but Closer to the Exit’

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According to Dalio, the era of lower interest rates and money printing is ending. Central banks across the major developed countries lowered interest rates near zero and introduced stimulus to the economy (VFINX) in the form of money printing after the global debt crisis in 2008. These processes, which continued for nearly a decade, are now showing signs of ending.

Central banks’ steps

The Fed started its gradual rate hike process back in December 2015. Between December 2015 and June 2016, the Fed hiked its key interest rate four times. Each time, we saw a 25 basis point hike. In June 2017, other central banks across major developed countries—such as the European Central Bank (or ECB), the Bank of England (or BoE), and the Bank of Canada (or BoC)—has hawkish tones. They indicated that they’d gradually remove the stimulus they provided to support the economy, and there will be no room for further rate cuts.

Central banks’ easy monetary policy inflated asset prices, hampered bond yields (BND) and fueled economic growth with huge debt growth. According to Ray Dalio, these things aren’t good for the economy. However, he thinks the recent hawkish stance from central banks is good for the economy (QQQ)(IWM)(SPY). They want to tighten rates by keeping economic growth and inflation in balance. He said, “Recognizing that, our responsibility now is to keep dancing but closer to the exit and with a sharp eye on the tea leaves.”

In the next part of this series, we’ll analyze why Ray Dalio is worried about the next downturn.

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