"The economy is now at or near its best, and we see no major economic risks on the horizon for the next year or two," says Ray Dalio, founder of hedge fund giant Bridgewater. Investors shouldn't expect large returns from here, because "real and nominal interest rates are low as they should be, given where we are in the long-term debt cycle".
Indeed, his analysis suggests that a portfolio equally split between bonds and cash should return an average of 4% over the next ten years. But there are no "classic storm clouds on the horizon", such as "big unsustainable debt flows or a lot of debts maturing that can't be serviced".
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However, what really worries Dalio is political risk. "Big differences in wealth and opportunity" have led to "social and political tensions that are significantly greater than normal, and are increasing". Since such tensions "are normally correlated with overall economic conditions, it is unusual for social and political tensions to be so bad when overall economic and market conditions are so good".Hence he "can't help but worry what the social and political fragmentation will be like in the next downturn".
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