Why Ray Dalio Is Concerned about the Next Downturn


Oct. 11 2020, Updated 11:58 a.m. ET

Ray Dalio on the next downturn

In the previous part of this series, we saw that Ray Dalio is comfortable with the steps central banks have taken. He thinks policy makers have taken appropriate steps for the economy (SPY)(QQQ)(IVV). But he’s still a little concerned about the next downturn.

Dalio focuses on two cycles. According to him, the persistent lower interest era is ending. He focuses on the beginning of the new cycle, when central banks are focusing on tightening policy by keeping economic growth and inflation in balance. However, he also thinks that, if these steps aren’t carried out carefully, we might see a risk of the next downturn.

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The big picture

In May 2017, Dalio shared his concerns about the economy (VOO)(VFINX) in his LinkedIn post “The Big Picture.” He said he’s more concerned about the long-term economic picture. However, he doesn’t see any major risks for short-term economic growth. Higher debt and rising political and social conflict are major concerns.

However, now he’s thinking that central banks’ change in strategy will help their balance sheets, reducing debt gradually. He also said, “Looking ahead, we don’t project a big debt bubble bursting anytime soon, though we do see an increasingly intensifying ‘Big Squeeze.'”

In the next part of this series, we’ll analyze how central banks’ hawkish tone impacted the market.


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