We earlier discussed Ray Dalio’s thoughts on Australia. Dalio, CEO of the largest hedge fund, Bridgewater Associates, also had some interesting insights on the US economy and in particular the now political topic of inflation.
Ray Dalio agreed to a rare interview with Barron’s, where he discussed the beautiful deleveraging’ and noted:
Many of the most well-known hedge fund managers in the world engage in philanthropy, and in doing so, they often reveal their favorite hedge funds through a review of their foundation's public filings. Bill Ackman's Pershing Square Foundation invested in several hedge funds during the fiscal years that ended in September 2019 and September 2020.
We’re in a phase now in the U.S. which is very much like the 1933-37 period, in which there is positive growth around a slow-growth trend.
And further noting on the topic of inflation versus deflation:
The printing of money has the effect of negating deflation. It doesn’t produce high inflation, and it makes it difficult for the economy to have a sustained upward move. If you have too much printing of money, then you’ll begin a bear market in bonds.
Ray Dalio did hint in the interview that inflation is a concern down the road.
Our sources revealed further details about the legendary hedge fund manager’s views on the topic.
Dalio seems to take the side of the deflationists and seems unconcerned about inflation in the future. He notes that inflation is subdued, and there is no significant pressure at the moment for high levels of inflation.
This assumption is in stark contrast to Seth Klarman, David Einhorn and others who have expressed concern about high future levels of inflation due to fiscal and monetary policy.
Dalio on the other hand, notes that while businesses are operating close to capacity and employment has improved, all the various components of inflation are stable in large part due to high unemployment.
He likes to use long term averages, and on a 15 year average core inflation is back to normal. On a controversial’ note, he does like to exclude high weighted items of volatile sectors. Many have argued that these items should not be excluded since they represent everyday costs, which consumers face.
Justifying this, he notes that oil prices have largely remained flat from a year ago. Inflation conditions outside the US are slightly moderate and the dollar has remained flat recently, which have helped inflation in that regard remain subdued.
Cyclical pressures have increased from the lows hit three years ago in areas like capacity utilization, and even labor. However, labor is still weak despite signs of increasing wages. Wage growth is now averaging 3%, which itself is an indication of an improving economy.
In terms of housing, there actually are signs of slight inflation, contrary to popular opinion. Many economists look at housing through a rent versus ownership spectrum; however, this is not necessarily accurate. In the short term, there are wide divergences between housing costs and rents. During the financial crisis, rental rates went up despite decreases in housing expenses.