Ray Dalio’s Big Picture: Near-Term Looks Good But Longer Term Looks Scary 2

Ray Dalio on the near-term

Over the near-term, Ray Dalio, founder, and CEO of the world’s largest hedge fund, Bridgewater Associates, sees “no major economic risks on the horizon for the next year or two.” Ray Dalio’s Bridgewater Associates has more than half of its reported $8.8 billion investment portfolio invested in the emerging markets. As of 1Q17, the Vanguard FTSE Emerging Markets ETF (VWO) constituted 32.5% of the portfolio. The iShares MSCI Emerging Markets ETF (EEM) comprised another 17.5%, while a good 3.1% was invested in the iShares Core MSCI Emerging Markets ETF (IEMG).

Within the emerging market universe, Brazil and South Korea currently figure among the top 6 holdings of the fund. The reported fund has 2.5% of its portfolio invested in iShares MSCI Brazil Capped ETF (EWZ), and another 1.3% invested in the iShares MSCI South Korea Capped ETF (EWY). The fund upped its stake in both EWZ and EWY in the first quarter this year.

Ray Dalio on the longer term

Over the longer-term, Dalio sees “significant long-term problems,” such “that are likely to create a squeeze.” The issue which he went on to cite include:

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  1. High debt and non-debt obligations
  2. Limited abilities by central banks to stimulate

We’ve also heard Bill Gross stressing on the limitations of credit creation in the system. In his investment outlook for March 2017, Bill Gross highlighted the high levels of leverage that the global economy has reached, especially China (FXI) (YINN), where credit has doubled in the past decade.  The situation in the U.S. (SPY) (IWM) (QQQ) reminds Gross of the collapse of Lehman Brothers. He finds the fractional reserve banking system, in part, responsible for leading the world (ACWI) (VTI) economy into such a situation.

Read, The Road From $2 trillion to $12 trillion: How Central Bankers Are Destroying Capitalism.

Ray Dalio also noted that presently the social and political conflicts globally are near their worst for the last number of decades. And should economic conditions worsen in the event that global growth slows further, these conflicts could only get shoddier.

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