The co-chief investment officer at Bridgewater Associates has warned of a recession that is “much more difficult” and “much more painful” than we are used to. “The dam has been broken where fiscal policy makers are now part of history,” said the executive of the world’s largest hedge fund.
Bridgewater executive recession warning
Karen Karniol-Tambour, co-chief investment officer at Bridgewater Associates, warned of recessions that are very different from previous ones in an interview with Bloomberg last week. Founded by billionaire Ray Dalio, Bridgewater Associates is the world’s largest hedge fund, with around $130 billion in assets under management.
When asked about the next big risk he sees coming in five to 10 years, Karniol-Tambour replied:
The next big risk is recessions that are deeper and longer than we are used to.
In past economic downturns, “central banks could just step in and turn it around,” he noted, adding that when central banks just made it easy, downturns were “quick and shallow,” not “deep and long.”
He explained that the Covid pandemic was a turning point because, for the first time, those responsible for fiscal policy are “deeply involved in solving the problem.” In addition to central banks printing money, “policymakers basically come in and direct money to the people,” he said, explaining:
So, to me, the dam has been broken where fiscal policymakers are now part of the story… They are much more likely to step in with big fiscal expansions.
“Monetary policy, on the one hand, will be less important because the fiscal will be doing what it is doing,” he described. “On the other hand, they are going to be in an even more difficult situation because they will have much more entrenched inflation due to secular inflationary pressures and at the same time the stimulants of fiscal policies.” The Bridgewater executive continued:
Therefore, they will be forced to adjust much more than they otherwise would have wanted, or to relax much less. Those become recessions that are much more difficult, much more painful.
“We are in a place where to solve many of our most important problems, you can not only depend on market forces, you also need political forces to work,” he stressed, noting that the risks are “exacerbated by how fast the pace of deglobalization.
Karniol-Drum opined:
The biggest wild card here, of course, is how difficult the relationship with China becomes, because China is so entrenched in supply chains.
“There is a big difference between having to modestly remove them or really disengaging from China. That could be a very inflationary event that significantly exacerbates this whole environment,” the executive concluded.
In December of last year, Blackrock, the world’s largest asset manager, also fixed that we are headed for a recession that is “the opposite of past recessions,” signaling that “recession politics” will take over. Jim Cramer of Mad Money said that the market has already decided that a recession is coming. However, US President Joe Biden said last week that he does not see the US economy slipping into recession this year or next.
Do you agree with the chief investment officer at Bridgewater Associates? Let us know in the comments section.
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