Ray Dalio Warns Of "Significant" Bond Market Risk

Casting his vote in the ongoing debate of which is a bigger bubble, bonds or stocks, Bridgewater's billionaire founder Ray Dalio, who has continued his whirlwind of media appearances in recent years, said that he sees a "significant amount of risk in the bond market" envisioning a growing risk to stability as the U.S. moves toward a bigger deficit and the Federal Reserve unwinds its balance sheet. He is, of course, referring to this projection by the CBO of the US debt over the next 30 years which, sadly, remains quite unsustainable especially in a rising rate environment and in which central banks no longer monetize deficits (which is precisely why the Fed will promptly resume QE after a brief cool off period).

Addressing this, Dalio said that "tightenings become progressively more concerning because as you move along they’re more and more difficult to get perfect." Speaking to Bloomberg radio, Dalio also warned that "as we’re progressing, we’re entering a period of greater risk in the nature of the market."

Meanwhile, confirming what anyone who has seen the fund's 13F knows, Dalio said that Bridgewater has been long equities, but didn’t provide more details on how the world’s biggest hedge fund is trading the market. He also said he doesn’t think the Fed can continue the pace at which it has begun to unwind its $4.5 trillion balance sheet. Dalio also said he expects the U.S. budget deficit to increase to 1.5% of GDP, growing the supply of debt at the same time the central bank is offloading bonds.

“I think they’ll be cautious in this but when you’re caught in this part of the cycle it’s very delicate,” he said.

As we have discussed previously, with total federal debt over $20.4 trillion, rising interest rates will increasingly redirect a growing portion of US tax revenues to covering interest expense; the question is at what point will this become prohibitively high, and detract from other critical spending programs.


Bam_Man Thu, 10/26/2017 - 12:10 Permalink

Yeah, right Ray.It's not like the Fed will be cutting rates with a machete (to zero or less) and buying every bond/MBS in sight at the first whiff of recession and the accompanying stock market sell-off. Right?Talk your book to someone else, please. 

Cutter Thu, 10/26/2017 - 12:13 Permalink

Again Dalio underwhelms with his simplistic analysis, reiterating something that only dozens of analysts before him have stated.  Gundlach is much more descriptive in his assessements of bonds.Still wondering why Dalio is seen as such the guru?  I guess the size of Bridgewater just wows people.  Jim Grant's assessment looms large.  And I haven't heard Dalio reply at all.

buzzsaw99 Thu, 10/26/2017 - 12:18 Permalink

...especially in a rising rate environment and in which central banks no longer monetize deficits (which is precisely why the Fed will promptly resume QE after a brief cool off period). thank you for that last bit. it is the sound of inevitability. [/agent smith]

Clowns on Acid Thu, 10/26/2017 - 12:19 Permalink

No Ray... please talk about how we got here. Y'kmow...the Fed making you a riskless billionaire.

  • Repeal of Glass Steagal - Bill the rapist Clinton ...(oh yeh calling his buddy Harvey), Robert Rubin, Sandy Weill and Larry Summers. Largest crime in US history.
  • NAFTA (it obviously NOT "free trade!)
  • Fed bailing out the over leveraged Bank Holding companies with QE.
  • TALK ABOUT the ABOVE....RAY !!
small axe Thu, 10/26/2017 - 12:50 Permalink

can't we get a different picture of Ray? Maybe with horns on this head? A pic that shows his true character...you know, like an amoral prick, or Satan

michigan independant Thu, 10/26/2017 - 13:21 Permalink

The issue is you must conform because He said so. They worship paper because they are communists. Even China told you that recently that they are not that much different then them. Your status is now of a grain colony who are slaves who surrender nuclear fuel your new masters and will eliminated on request to maximize the remaining resources. 

CoCosAB Thu, 10/26/2017 - 13:53 Permalink

The only risk is if the A.I. that run the markets are disconnected from the printing presses... It's like cut the power supply! Imagine Puerto Rico...