Ray addressed his note for the eyes of privileged clients only. Minimum net worth, US$5 billion.
This was a note from the world’s most powerful hedge fund manager. A fearsome genius who manages US$169 billion with peerless performance.
Its contents were explosive…and if its predictions come to pass, your retirement funds face grave danger.
We’re lucky Ray’s note leaked to the press. Because when stock prices are about to collapse, nobody ‘rings a bell’.
Sometimes, the global power elites do ring a bell…but they ring it only for the wealthiest people on the planet.
It’s an alarm bell that everyday investors like you are not meant to hear. But with Aussie stocks coasting close to a seven-year high, you can’t afford to miss this warning…
The ‘Ray’ we’re talking about is Ray Dalio. Ray heads Bridgewater Associates, the world’s biggest hedge fund. Forbes puts Ray’s own net worth at US$15.4 billion — good enough to be 29th richest man in the US.
Ray’s record is the envy of the investment world. Since he launched his Pure Alpha Fund in 1991, he and his firm have generated 21% compound annual returns before fees. This kind of wealth, power and performance ensures that when Ray speaks, people listen.
Before we reveal his predictions, you should know that Ray boasts a remarkable Australian connection. According to the Australian Financial Review, Bridgewater counts the Future Fund, MLC and at least five Aussie industry super funds as clients.
That makes Ray’s firm one of the biggest external hedge fund managers of Aussie assets — and it leaves Ray well placed to cast judgement on the ructions facing our economy.
How severe are those ructions? Well, according to his leaked note, Ray fears a rerun of the 1937 ‘depression within the Depression’…
Six eerie similarities
In short, Ray sees danger for the market if the US Federal Reserve raises interest rates.
The way Ray sees things, today’s economy is eerily similar to that of 1937. In case (like your editor) you’re too young to remember what happened back then, here’s a reminder: the Fed raised interest rates eight years after the 1929 financial crisis, after a period of ultra-low rates aimed at boosting the economy. Sound familiar?
An eight-year wait still ended up being too soon. In less than one year, the benchmark Dow Jones Industrial Average [INDEXDJX:DJI] lost nearly half of its value. Ouch.
Ray urges the Fed to stay cautious about raising rates. To make his case, Ray offers six unnerving parallels between then and now (this list quotes Dalio’s note)…
- Debt limits reached at Bubble Top, causing the economy and markets to peak (1929 & 2007)
- Interest rates hit zero amid depression (1931 & 2008)
- Money printing starts, kicking off a beautiful deleveraging (1933 & 2009)
- The stock market and ‘risky assets’ rally (1933-1936 & 2009-2014)
- The economy improves during a cyclical recovery (1933-1936 & 2009-2014)
6. The central bank tightens, resulting in a self-reinforcing downturn (1935 & 2015?)
Your editor admits the similarities are remarkable. And by all accounts, taking the other side of a Ray Dalio tip is a brave bet. No less an authority than Sam Sicilia, the chief investment officer of industry super fund Hostplus, views Ray as one of the smartest investors on the planet.
Sam says that if he got four pieces of advice from four different sources in the market — and had no personal bias towards any outcome — ‘you wouldn’t bet against the Bridgewater one’.
All this fear and fervour might make you want to sell everything on Monday and head for the hills. We agree that the Federal Reserve could be setting up the stock market for a huge fall. But Ray needs to check his watch, because he’s arrived at this game too early…
Don’t hold your breath
Ray is avoiding large bets on today’s market because, as he puts it,
‘We don’t know — nor does the Fed know — exactly how much tightening will knock over the apple cart. What we do hope the Fed knows, which we don’t know, is how exactly it will fix things if it knocks it over. We hope that they know that before they make a move that could knock over the apple cart.’
That’s a lot of wishing and hoping…and it’s why Ray is right to point out that it’s risky to punt on stocks, even as they’re going up.
But Wednesday night’s statement from Fed chair Janet Yellen revealing something important. The US central bank is in no rush to raise interest rates. The Fed still holds concerns about the economy, wages, and deflation.
When you look more broadly, just about every central bank in the developed world is erring on the side of easy money — including the Reserve Bank of Australia.
The central banks of the world have ample excuses to continue with the low interest rates and money printing that have kept markets afloat. That means your editor expects the Fed to leave the ‘apple cart’ unmolested.
Risky assets have had an amazing run. The US just celebrated the sixth birthday of this central bank-led stock bull market. And if we’re right about the dynamics shaping up at the small end of the market, certain emerging stocks could be set for a breakout year.
We’re no longer early in the boom…but before you sell all your stocks on a Ray Dalio tip, you should know that the fun doesn’t have to end tomorrow. If you’re waiting for a mega-crash, don’t hold your breath.
Editor, Money Morning