Dalio explained as recently as 10 days ago that he thought the stock market would likely have one big move higher, but his view changed after a stronger-than-expected wage number and higher deficit budget deal.
“Recent spurts in stimulations, growth, and wage numbers signaled that the cycle is a bit ahead of where I thought it was. These reports understandably led to the reactions in bonds, which affected stocks as they did,” he wrote. “Then on Friday, we heard the announced budget deal that will produce both more fiscal stimulation and more T-bond selling by the Treasury, which is more bearish for bonds. And soon ahead, we will hear about a big (and needed) infrastructure plan and the larger deficits and more Treasury bond selling that will be needed to fund them.”
As a result, Dalio is focused on how the Fed will react to the data and fiscal stimulus.
Investors are now concerned the central bank will reduce its monetary stimulus and increase interest rates more aggressively as the economy continues to strengthen.
“There is a whole lot of hitting the gas into capacity constraints that will lead to nominal rate rises driven by the markets,” he wrote. “Frankly, it seems to be inappropriate oversight to not be talking about the chances of a recession and what that recession might look like prior to the next election.”
Dalio founded Bridgewater Associates in 1975. The hedge fund now manages about $160 billion, according to its website.
Bridgewater also has the biggest cumulative net profit for a hedge fund firm ever, according to data from LCH Investments. From inception to 2017, Dalio’s firm posted a nearly $50 billion gain for its investors, the data showed.
