NEWSLETTER
Look at the stock market profits in the last two years, and would not be blamed for thinking that things are roses and margaritas.
Certainly, consecutive returns of S&P 500 of more than 20%, including a 24% gain in 2024, are impressive.
However, values of the stock market, especially in the tail in the late 2024, are masking a big and growing problem.
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While inflation is lower than it was in 2022, the budgets of Americans who work continue to push. Meanwhile, the monetary policy of the Federal Reserve in 2023 caused increasing interest rates in houses, cars and credit cards, further pressing consumers. Add the constant flow of layoffs last year, and you have a good argument that the US economy is wobbly.
That fact is not lost in the billionaire and the legendary pioneer of the Ray Dalio coverage fund.
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Dalio founded Bridgewater Associates, a coverage fund that manages more than $ 112 billion. Recently, he offered his opinion on the US economy.
Given his long experience and his success history in economic navigation and falls, his comments raised many eyebrows.
Cracks are being formed in the US economic armor.
The US economy grew 2.3% in the fourth quarter. That was a solid sample, but also marked a 6% and 3.1% GDP deceleration in the second and third quarter, respectively.
Until now, the first quarter data suggests that the economy has weakened.
Related: the popular analyst makes a shocking prediction of the stock market
The GDP tracker of the first trimester of the Atlanta Fed was recently reviewed to 2.8% negative after the disappointing expense of personal consumption and private data of fixed income adjusted by inflation were reported last week.
It is likely that the measure will be recovered as there are more available data. Even so, negative reading has captured attention and has caused the concern of the recession, since the majority considers that a recession is two consecutive quarters of negative GDP.
There is a good argument that the US economy is not as healthy as last year. Inflation reached a maximum of 8% in 2022, which caused the most aggressive monetary policy of the Federal Reserve since Paul Volcker crushed inflation in the 1980s.
That strategy worked mainly. The consumer price index inflation fell to 2.4% in September 2024, providing the necessary maneuvering margin for the Fed to change and reduce interest rates. The president of the Fed, Jerome Powell, continued to decrease, further reducing rates in November and December.
However, inflation has been recovered at 3%, which puts the change of Pake of the Fed in a pause. Powell kept the stable rates in January, and the Fedwatch tool of CMe rates the possibilities of a cut in the next meeting on March 19 to 7%.
The possibility of slowing GDP and increasing inflation places the in front and the center.
It does not help the job market has become more agitated. Unemployment is still relatively low in 4%, but there has been a drum of constant layoffs last year, especially in high -payment technology works. According to the recent report by Challenger, Gray and Christmas, 407,000 technological jobs have been lost since 2022.
And let's not forget the issue that was most talked about this week: tariffs threatened by the Donald Trump administration.
The uncertainty about whether tariffs will feed more inflation and slow economic activity due to negative impacts on productivity is a focus of many, including former Treasury Secretary Robert Rubin.
Ray Dalio delivers a hard nose message about the economy of the United States
Dalio has seen his part of the good and bad economies since the Bridgewater foundation in 1975, including the inflation peak of the 70s, the crisis of savings and press in the 1990s, the bust on the Internet in the early 2000s, the great recession in 2008 and the Covid Tumble in 2000.
What he is seeing now is not encouraging: Dalio says that the most pressing problem facing America today is the debt out of control.
The United States government had already lost sight of austerity before Covid, but the massive spending after coefficient, although necessary, catapult debt rates, and appetite expense remained high.
More economic analysis:
- American consumers wilt under renovated risks
- Job reports provide a critical look at the economy, could root the markets
- The fed inflation meter indicates great changes in the key economic driver
As a result, Dalio is hitting the table, urging the Government to reduce the debt now or face a crisis, maybe sooner rather than later.
“If you don't, you're going to be in trouble,” Dalio said in Bloomberg Lots Odd Lots Podcast. “I can't tell you exactly when it will come; it's like the heart attack … You're approaching. My assumption would be three years, I would give or take a year, something like that.”
Until now, buyers have presented to a large extent that absorb all the values of the treasure that we have been issuing to finance the federal budget, but Dalio is concerned that we will soon reach a turning point in which there are very few sellers for too many bonds.
“Today with sanctions and too many bonds, etc., when I calculate who buyers are and how much we have to sell, I find a great imbalance and I know how it works,” Dalio said.
If buyers disappear, interest rates will increase, taxing the economy even more. If it becomes bad enough, the United States government could consider something unthinkable, a restructuring of its debt, Dalio suggests.
What should an inverter do given such a worrying backdrop? The situation of all is different, but Dalio believes that possessing gold in the portfolios makes sense.
'What you don't know about the future is much greater than anything someone knows about the future. So we always have to be humble. What you need is adequate diversification to create a portfolio, “said Dalio.
Dalio believes that from 10% to 15% is a prudent allocation to yellow metal, and adds: “That type of gold serves as protection and diversifies the portfolio. And what I think the most important thing is that you don't have much exhibition. “
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