Ray Dalio's Bearish 2013 Outlook: Austerity Coming, QE Losing EfficacyVW Staff
On Wednesday at the daylong Dealbook conference, an array of topics had been discussed, beginning at 8:40 a.m. in New York.
In one panel afternoon panel, Head to Head: The Global Deal – Follow the Money, it included some commentary regarding a 2013 outlook by panelist Ray Dalio, founder of the largest hedge fund, Bridgewater Associates.
Joined by David Rubenstein (Co-C.E.O. and Co-Founder, The Carlyle Group) and Stephen A. Schwarzman (Co-Founder, Chairman and C.E.O., The Blackstone Group L.P. (NYSE:BX), Dalio made the following remarks on Wednesday per The Business Insider that may pique your interest.
To set the stage, Dalio said he was bearish looking ahead with a prediction that stocks will fare better than bonds. He thinks that risk premiums have maxed out, according to Business Insider, and they will need to fall.
He then laid out a novel set of circumstances for an economy that will confront austerity thanks to the fiscal cliff–among other reasons. Now, he said to combine this with a Fed Reserve that has blown its wad to give anything more for QE as well as it will do less as it will not place any additional money out of bonds into assets with greater risk.
Take a look at Dalio's “novel set of circumstances”:
- Yields can't go down anymore.
- Austerity is coming.
- Economy is running out of steam.
- QE is losing its efficacy.
- Rate turn probably finally coming late in 2013.
The Business Insider also included the following notes from the panel:
Dalio: The world is still in deleveraging. Sounding bearish: Risk premiums are likely to expand.
Rubinstein: Likes energy, healthcare and China. Suggests buying non-European assets off of distressed European banks. Investing in sub-Saharan banks.
Schwarzman: Likes energy and China. Looks like it's turned, though tough to call bottoms.
One interesting topic that had been discussed via a question to the panelists, “What are you steering clear of?”
Here's two responses:
Rubinstein: There are certain countries that we don't invest in: Russia. Also not keen on Russia.
Dalio: It all comes down to interest rates. As an investor, all you're doing is putting up a lump-sump payment for a future cash flow.
In all deleveraging, you get through them by having an interest rate that's lower than the growth rate. The big question is: When will the term structure of interest rates change? That's the question to be worried about.
Effects of QE diminishing as we do more rounds. We're facing austerity. And growth is flagging. This is an unprecedented risk the economy is facing. A slowdown with very little room to maneuver. Back up in rates will probably happen in late 2013.
The yield curve is certainly at the bottom. And so we're squeezed on where they've gotten us in terms of.