Confirming his previous op-ed, the founder of the world’s largest hedge fund warned that the current environment is analogous to the 1935 to 1945 period in America…
We have “reached the limits” of [central banks] “ability to stimulate” the economy ” and raise global asset prices.”
Three simple minutes of painful reality from the world’s biggest hedge fund manager… “it’s probably nothing”
As Dalio states,
“there’s only so much you can squeeze out of a debt cycle… we are there… you can’t lower interest rates materially, and you are also at the limit on QE (because spreads are limited).”
“Globally, those forces that were behind us are no longer there… we are at the end of a debt cycle… and everybody will have a lower growth rate than we are used to.”
As Dalio previously concluded in his Op-Ed: he admits that QE has reached its limits…
What I am contending is that there are limits to spending growth financed by a combination of debt and money. When these limits are reached, it marks the end of the upward phase of the long-term debt cycle. In 1935, this scenario was dubbed “pushing on a string”. This scenario reflects the reduced ability of the world’s reserve currency central banks to be effective at easing when both interest can’t be lowered and risk premia are too low to have quantitative easing be effective.
* * *
[Now] the expected returns of bonds (and most asset classes) are relatively low in relation to the expected returns of cash.
As a result, it is difficult to push the prices of these assets up and it is easy to have them fall. And when they fall, there is a negative impact on economic growth.
When this configuration exists — and it is also the case that debt and debt service costs are high in relation to income, so that debt levels cannot be increased without reducing spending — stimulating demand is more difficult, and restraining demand is easier, than is normally the case.
Not at all what the crowd at CNBC’s ‘Delivering Alpha’ wanted to hear.