Ray Dalio: An Economic Downturn Could Lead to Depression-Like Conditions

August 30, 2019 | Hedge Funds, News

The Bridgewater founder painted a grim picture of current economic conditions

The Ray Dalio Depression chatter is picking up again. In a LinkedIn post, the hedge fund manager said three factors could hammer investors. He cited high global debt, weak central banks, and trade wars as reasons we could see Depression-like conditions.

Dalio had earlier warned of a “paradigm shift” in the current economic environment that could catch investors on the wrong foot. Dalio recommended investing in gold.

Deflationary forces and central banks

The hedge fund manager warned of deflationary conditions sparked by a surge in production capacity. Dalio said central banks had to tackle this situation by lowering interest rates amidst very dovish monetary conditions.

These factors would “lead to enormous deficits that would be monetized, creating the blow-off in bonds that is the reciprocal of the 1980-82 blow-off in gold,” he said.

Deja vu? Ray Dalio Depression chatter

Dalio said we should draw a parallel from conditions that prevailed in 1935-45, and study the “mechanics of what happened then (and in other analogous times before then) to understand the mechanics of what is happening now.”

In a disconcerting warning Dalio wrote:” “If/when there is an economic downturn, that will produce serious problems in ways that are analogous to the ways that the confluence of those three influences produced serious problems in the late 1930s.”

Dalio’s flagship fund falters

Dalio’s Pure Alpha fund is down 6% thus far during the current year. That compares rather unfavorably with MSCI World Index’s 13% return.

The fund made a call, so far proved incorrect, that interest rates would rise.

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