Thursday, February 22, 2018
The roaring American economy will probably sink into a recession before President Trump stands for re-election in 2020.
At least that's the view of Ray Dalio, the billionaire investor who predicted the 2008 financial crisis.
"The probability of a recession prior to the next presidential election would be relatively high, 70% or something like that," Dalio said on Wednesday evening during an appearance at the Harvard Kennedy School's Institute of Politics.
Dalio, the mercurial chairman of hedge fund behemoth Bridgewater Associates, suggested Trump's efforts to pump up the economy with massive tax cuts and surging spending could backfire.
Even though the economy is booming right now, Dalio noted that "for various reasons, there has been a lot of stimulation hitting the gas."
He said that this raises the risk of interest rates going up, hurting all asset prices.
Wall Street was rocked earlier this month by fears that higher inflation will force faster interest-rate hikes. Goldman Sachs (GS) CEO Lloyd Blankfein told CNN last week he's concerned about the Trump administration's spending spree overheating the economy.
Dalio believes the U.S. economy is in a "pre-bubble stage," but warned it could quickly morph into a bubble -- "followed by a bust."
Dalio is best known for his peculiar management style of "radical transparency," which among other things calls for recording most meetings. Bridgewater, which manages about $160 billion and used to employ former FBI director James Comey, has been called the world's "strangest hedge fund."
But Dalio knows a thing or two about economic busts. In 2007, he warned the Bush administration that many of the world's largest banks could go insolvent, according to a 2011 article in The New Yorker.
"We anticipated the financial crisis," Dalio said on Wednesday.
A recession by November 2020 isn't a crazy notion. The good times can't last forever, after all.
In May, the recovery from the Great Recession is poised to become the second-longest economic expansion in American history.
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