In December 2007, Ray Dalio, founder and co-chief investment officer of Bridgewater Associates, the world's biggest hedge fund, went to Washington to warn White House officials that the banking system was at risk of suffering trillions of dollars in losses. "It was initially perceived as... pretty kooky." Of course, his warnings turned out to be entirely correct.
So what does he see lying ahead now? "I don't think something as systemically threatening as that which occurred in 2008 is at our doorstep," he tells Bloomberg's Peter Coy. He monitors "seven indicators of bubbles". Signs to watch for include asset prices being high relative to "traditional measures" and the existence of "broad bullish sentiment". Other red flags include purchases "financed with high leverage" and buyers stocking up on inventories "to speculate or to protect against price appreciation".
Today, he says, his bubble indicators are "flickering but not flashing". Yet even if he is not expecting a full-blown repeat of the credit crisis, he is concerned about what will happen when the next recession hits.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Firstly, central banks have far less room to cut interest rates. They can do more quantitative easing, but this "has much less marginal effectiveness". More worryingly though is that "we have right now a higher level of populism and a worse wealth gap, so that when we have a downturn, the rich and the poor, the left and the right, will be more at each other's throats." That will make it harder for politicians or central banks to act effectively.
-
Who is the richest person in the world?The top five richest people in the world have a combined net worth of $825 billion. Who takes the crown for the richest person in the world?
-
Top 10 stocks with highest growth over past decade - from Nvidia, Microsoft to Netflix, which companies made you the most money?
We reveal the 10 global companies with the biggest returns since 2013. One firm has posted an astonishing 9,870% return, meaning a £1,000 investment would now be worth almost £82,000.
