Barrons: Ray Dalio Says It is Starting to Feel Like the 1930s for Investors

Article by Barbara Kollmeyer in Barron's

When we look back on the biggest calls of 2018, no doubt the word “stupid” is going to stand out.

In January, the manager of the biggest hedge fund in the world, Ray Dalio, made some headlines when he declared that investors holding cash were going to “feel pretty stupid” because they would miss out on the “blowoff rally” to come.

The Bridgewater Associates founder took some heat for that call. It was just a couple of days later, on Jan. 26, that the S&P 500 surged all the way to 2,821, and everyone said, “buy into this market now, are you crazy?” But then after a choppy spring, stocks resumed a march higher and the index made it nearly to 3,000, that is until October when things got rough again and generally stayed that way.

Dalio is back, as he says we’ve “squeezed a lot out of U.S. markets,” and investors should get more comfortable expecting less from that cash cow.

“I think we’re in an environment where we’re going to have low returns going forward for a very, very long time,” Dalio told Bloomberg in an interview. And in a refrain we’ve heard elsewhere, he says stocks were juiced by a period of lower interest rates and liquidity injections, which has “largely run its course.”

“I think the world by and large is leveraged long,” he said, explaining that low interest rates have fueled buybacks and M&A, boosting stock prices, which also got a lift from the effect of White House tax breaks. “We’ve pushed assets up to levels where it is difficult to see where you can squeeze that.”

His words might be echoing around Tuesday as investors look down the barrel of another messy day and maybe just wish we could fast-forward to Thursday’s holiday. He’s got some company as Goldman Sachs is also suggesting investors start boosting cash levels.

Dalio, who has just come out with a new book “Principles for Navigating Big Debt Crises,” compared the current era of investing to that of the 1930s. Back then, the U.S. was also in the late stages of a business cycle with populist politics and tons of debt swirling around.

To read this article in Barron's, click here.