Despite admitting he is still hooked, the finance pioneer signalled last September that he will bow out “in a year or two”.
It may come at a good time. Dalio cemented his status on Wall Street by outperforming during the 2008 financial crisis, but coronavirus has proven trickier to navigate.
Bridgewater suffered hefty losses of $12.1bn in 2020, according to LCH Investments, as many other hedge funds shone amid pandemic-induced market volatility. Meanwhile, former co-chief executive Eileen Murray filed a lawsuit against the Connecticut-based hedge fund over compensation, alleging it attempted to “silence her voice”. A settlement was reached in October 2020.
Reports suggest the first half of 2021 proved to be stronger for Bridgewater, however, putting it on track to be in the black for the full year.
According to Dalio’s crystal ball, stock markets are set for a strong 2022, before faltering come 2023.
Powered by huge Covid stimulus, global stocks have come out of the pandemic relatively unscathed – the MSCI World Index has surged 33pc since the start of 2020. Dalio predicts 2022 will be a “transition year” with “less volatility, less up, less down and growing pressures”. But he warns that 2023 will be the “beginning of a more difficult year” as pressures mount on a number of fronts, namely inflation.
While economies in the West are expected to continue a brisk post-Covid recovery in 2022, as long as omicron doesn’t spoil the party, the surge in inflation is becoming a headache for policymakers.
Central banks initially insisted that rapid price rises would be ‘transitory’, yet many now fear inflationary pressures will be more persistent and dangerous. In December the Bank of England and US Federal Reserve took hawkish turns in response to inflation worries, with the former hiking interest rates and the latter quickening the pace of its tapering. The Fed’s rate-setters now forecast six rate rises in the next two years, a sharp increase to tackle inflation that could roil markets.
“Right now stocks have more attractive yields than bonds but as interest rates rise, that’ll begin to squeeze the difference,” Dalio says.
“In 2023 the effects of the stimulation are going to fade so we’re going to have slower growth and more inflation, and that has political consequences.
“We’re in a relatively euphoric period, because of all the money and credit that has been created.”
But that will “wear off” and market conditions will soon “be less good”. When that happens, Dalio adds: “it’ll be difficult for the central banks to be able to balance the economic trade offs with the monetary inflation trade offs at that point in time, and so there’ll be more political conflict too. That’ll be setting itself up for the 2024 [US] elections.”
