Ray Dalio, founder of the world’s largest hedge fund, is fearful for stock investors, as most are not equipped to handle the next bear market.
In a panel at Connecticut’s Greenwich Economic Forum broadcast by CNBC, the Bridgewater Associates chief said that since the world is “leveraged long,” he doesn’t “think there’s much to protect investors.”
He advised contrarians to brace themselves by having a strategic asset mix in their portfolios, maintaining a neutral balance in a downturn, and staying in good shape for the rebound. “That will distinguish the winners and losers,” he said.
Dalio, who noted that the US is in the seventh or eighth inning of the current cycle, said that the current bull market was driven by the Federal Reserve’s low interest rates, which are now being undone as the Fed has raised rates three times in 2018.
“Everybody’s sort of leveraged long,” he said of the now “asymmetric” risks. “If you have a downturn, there’s not that much ability for that downturn to be dealt with effectively with monetary policy.”
A fourth interest hike is expected in December, pointed out Charley Ripley, a senior investment strategist at Allianz Investment Management.
“A December rate hike appears to be a likely event at this point, but the outlook ahead is very different as the market and the Fed have differing views on how many rate hikes are in the cards for next year,” Ripley told CNBC earlier this month.
The markets have experienced increased volatility throughout the year, most recently in October, when the S&P 500 almost saw a correction before November’s plodding rebound.
Afsaneh Beschloss, CEO of the $13.5 billion Rock Creek Group, who also spoke at the Greenwich panel, said rates will continue to go up 25 basis points along with wage boosts in the next 12 months.
“Those two things will potentially lead to a stagflation scenario later on in the cycle,” she said.
Bridgewater has about $160 billion in assets under management.