Hedge-fund king Ray Dalio has admitted that he got it wrong.
Dalio is now forecasting a recession within the next two years at the latest. Conceding that he doesn’t know exactly when it will happen, but that we’re in the thick of it, commenting:
‘What we do know is that we are in the part of the cycle in which the central banks’ getting monetary policy right is difficult and that this time around the balancing act will be especially difficult (given all the stimulation into capacity constraints and given the long durations of assets and a number of other factors) so that the risks of a recession in the next 18-24 months are rising.’
The difficulty is due to interest rates. They’ve been so low for so long that any major jump will crash the economy. But fail to raise them enough, and the Fed won’t have any wiggle room to lower them in the future.
Time to panic?
The question is, should Australians be worried? The answer is probably.
Our local market likes to follow the leader most of the time. In this case, the US. Especially as both economies are trending in the same direction. Australia and the US are both facing tough monetary policy decisions when it comes to interest rates.
We may have weathered the 2008 meltdown thanks to a second-wind in our resources sector, but this time around we might not be so lucky. If a US recession kicks off a global downturn, we won’t come out unscathed. Especially with fears about the growing property bubble in Australia.
With that in mind, it might be time to start battening down the hatches. All signs are pointing to a storm, now it’s just a matter of when…
Don’t get caught by the financial storm, get a copy of Vern Gowdie’s Recession Survival Guide right here.
Junior Analyst, Markets & Money