Bridgewater’s Arguments Against Fed Rate Hikes

Bridgewater Associates, the world’s largest hedge fund, told clients that the Federal Reserve is making a mistake by raising interest rates. This according to a recent article in Business Insider. In a recent client note co-written by Bridgewater founder Ray Dalio, the firm outlines five arguments against further rate hikes: “There is not nearly enough inflation and overheating risk to make concerns about inflation and overheating performance of paramount importance.” “It’s tougher to reverse an economic and market decline with an easing than it is to reverse an economic or market acceleration with a tightening,” the note states. “Tightening at […]

Gross on Threats to Economy Going Forward

The quantitative easing that has occurred in the post-Lehman era has led to a situation, writes fund manager Bill Gross in a recent Barron’s article, where central bank balance sheets are replete with equities “in a desperate effort to keep global economies afloat.” Concurrently, he argues, more than $5 trillion of investment grade bonds “trade at negative interest rates in what can only be called an unsuccessful effort to renormalize real and nominal GDP growth rates.” This environment, he warns, presents a degree of economic uncertainty down the road because both central bankers and private economists rely on historical models […]

Inverted Yield Curve as Recession Predictor

Whether or not the yield curve on U.S. Treasuries is inverted can be a useful tool in forecasting the next recession, according to a recent Barron’s article. The inverted yield curve has predicted three of the past three recessions, the article says, which “helps lend confidence to its predictive powers.” Typically, long-term interest rates are higher than short-term rates, which results in an upward-sloping yield curve. But an inverted curve occurs when short-term rates are higher than long-term (that is, the 10-year minus the three-month rate is a negative number). The article cites a 2010 Fed report titled “Monetary Cycles, […]

The Stock Market Still Seems to Believe the Fed

Economic indicators show that a slowdown might be in the offing, even though the Fed has been raising rates and the labor market continues to tighten, according to a New York Times article from earlier this month. Despite the occasional surge in technology stocks and the steady drop in energy shares, the article says the market continued to push forward through the second quarter. But some investment advisers are developing concern that if the economic weakness persists, “it may be time to start believing their own eyes and lighten up on stocks,” that article says. Other indicators that support the […]

Dalio Says Global Economy Entering New Phase

Billionaire hedge fund investor Ray Dalio says the global economy is entering a new phase where “markets won’t get the same level of support from monetary policy makers,” according to a Bloomberg article from earlier this month. The chairman of Bridgewater Associates recently wrote that central bankers are shifting from the nine-year period of holding down interest rates and are giving clear signals that stimulus will be tapered. He notes the following: The Fed is “debating when in coming months to start shrinking its balance sheet” as it continues its “gradual campaign of raising rates”; European Central Bank officials have […]