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Why Ray Dalio Changed His Mind about US Recession

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Ray Dalio’s recession predictions

Earlier this month, Ray Dalio, the founder of the world’s largest hedge fund, Bridgewater Associates, predicted a recession in the US before 2020. According to a Reuters report, at the Harvard Kennedy School’s Institute of Politics, Dalio described the current economic situation as “a pre-bubble stage that could go into a bubble stage.” He added, “The probability of a recession prior to the next presidential election would be relatively high, maybe 70 percent.”

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Change of mind

Dalio seems to have found a reason to change his mind about the US recession prediction. Earlier today, in a LinkedIn blog post, Dalio said that he continues to “expect that there will be a significant slowing of growth in the US and most other countries.” But he has lowered his “odds of a US recession” before 2020 “to about 35 percent.” Dalio based his new argument on weaker markets and a change in the Fed’s view of the economy and inflation.

Q4 2018 US GDP data

Earlier today, the Bureau of Economic Analysis released better-than-expected fourth-quarter US GDP data. Q4 GDP came in at 2.6% as compared to expectations of 2.2%. Nonetheless, the figure was much lower as compared to 3.4% in the third quarter and 4.1% in the second quarter of 2018.

Today at 1:36 PM EST, the broader market was trading on a mixed note without any major changes for the day. As of February 27, the S&P 500 Index (SPY) has risen 11.4% YTD. General Electric (GE), Boeing (BA), Apple (AAPL), NVIDIA (NVDA), Microsoft (MSFT), Alphabet (GOOG), Amazon (AMZN), Intel (INTC), Oracle (ORCL), Advanced Micro Devices (AMD), AT&T (T), Ford (F), and IBM (IBM) have risen 39.5%, 35.0%, 10.9%, 16.4%, 10.4%, 7.5%, 9.3%, 13.4%, 16.0%, 27.2%, 8.8%, 14.8%, and 22.4%, respectively.

In comparison, Chinese companies Tencent Holdings (TCEHY), Baidu (BIDU), JD.com (JD), and Alibaba (BABA) have also gone up by 10.5%, 2.3%, 24.2%, and 34.7%, respectively.

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