Ray Dalio may not be a household name. But the fact that he runs the largest hedge fund in the world means that when he speaks, most investors listen. Dalio's fund Bridgewater Associates manages over US$160 billion, which includes money from many Australian superannuation and pension funds. Dalio received widespread fame when Bridgewater sidestepped the carnage of the GFC last decade – banking profits in a time where most investors and funds were nursing double-digit losses.
According to reporting in the Australian Financial Review (AFR), Ray Dalio has been in Sydney this week, attending the Sohns Hearts and Minds Investment Leaders Conference.
In this conference, the AFR reports that Dalio spoke at length about the current state of the global economy – especially the recent trends that have seen debt amongst advanced economies like the US explode.
Although Dalio doesn't see a repeat of the credit crunches we saw in 2007, he does warn of a 'prolonged squeeze' or sag resulting from rising healthcare and pension costs that governments around the world will increasingly struggle to cover.
"We'll have large deficits and then there will be more monetisation of that," Dalio is quoted as saying. "There will be a limit to pushing that and then there will be the politics. Of course, as investors that will have a big impact on returns of asset classes… it's a risky environment."
What does this mean for investors?
It's hard to say Dalio doesn't have a point, especially when the United States is running an annual budget deficit that was close to US$1 trillion last financial year (FY19). Over time, this may lead to further instability in the world's money markets, and by extension the global economy.
In my opinion, the best defence is to diversify your capital across different asset classes, and make sure the ASX shares you invest in belong only to the best quality companies you can find – ones that can withstand any kind of economic weather.
