Ray Dalio on 2013: Increasingly Bearish Outlook

Interesting comments here from Ray Dalio at the Dealbook conference.  This the is first glimpse at the fund manager’s 2013 outlook.  Business Insider has provided a nice summary:

  • Yields can’t go down anymore.
  • Austerity is coming.
  • Economy is running out of steam.
  • QE is losing its efficacy.
  • Rate turn probably finally coming late in 2013.
  • The world is still in deleveraging.
  • Sounding bearish: Risk premiums are likely to expand.
  • It all comes down to interest rates. As an investor, all you’re doing is putting up a lump-sump payment for a future cash flow.
  • In all deleveraging, you get through them by having an interest rate that’s lower than the growth rate.
  • The big question is: When will the term structure of interest rates change? That’s the question to be worried about.
  • Effects of QE diminishing as we do more rounds.. We’re facing austerity. And growth is flagging. This is an unprecedented risk the economy is facing. A slowdown with very little room to maneuver.
  • The yield curve is certainly at the bottom. And so we’re squeezed on where they’ve gotten us in terms of.

Read more here.


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Johnny Evers

    No more ‘beautiful deleveraging?’?

  • Tom

    Nothing a 1 trillion fiscal stimulus can’t fix. Oh wait.

  • Geoff

    When will the term structure of interest rates change? When the Fed gets horny. According to today’s statement, that will be when unemployment breaks below 6.5%, among other things.

  • Stephen

    Dallio sees a rate turn late 2013. Bernanke sees nothing until mid 2015 subject to caveats.Someone is going to be very wrong.
    Also looking at some of the comments;”I like China”.With Europe where it is I would not have thought China was going anywhere IF the US goes bear. I don’t accept decoupling in the sense China can get their domestic growth to offset what would be a growing drop in exports.
    I see contradictions.

  • http://www.conventionalwisdumb.com Conventional Wisdumb

    This sounds like a “when the music stops” kind of forecast. If there is a stampede for the exits it will get ugly very fast.

  • Boston Larry

    5 year and 10 yr rates look ahead and discount changes in the short-term Fed rate. 10 year rates will go up about 12 to 15 months before an anticipated change in the Fed rate. If Bernanke’s successor is forced to raise the Fed rate in Q4 of 2014, then likely 10 yr rates will start going up in Q4 of 2013.

  • Tom

    All this was true a year ago as well other than “austerity is coming” (to the U.S. only) And by austerity of course it is nothing like what other countries are doing, just austerity on a very relative basis, i.e. from ultra loose fiscal policy to very loose. That said Dalio’s firm is the bomb

  • scharfy

    seems like #1) yields cant go down anymore – contradicts the rest of his predictions

  • Alberto

    One possibility is that events will precipitate next year here because of a currency crisis in japan. This could be really a game change event. I will not be surprised if the yen will be devalued 30% to 40% next year. The yuan and the won will follow. The race to the bottom is beginning.

  • Chad M

    From what I have seen, his Returns this year are mixed in his various funds. His timing here is interesting…how are rates going to rise if the economy is going to get worse (in his view) when the FED is dictating the rate? This is the same mistake Morgan Stanley made in 2011.

  • Geoff

    BL, longer term Treasury rates (like the 5 and 10yr) have now become policy variables, just like the Fed Fund’s rate. We’ll see if the bond “market” front runs the Fed this time. I’m not sure you can call Treasuries a market anymore.

  • Boston Larry


    Then why did the Fed let the market cause long-term T-bond rates to go up by about 20 basis points since mid-November, if they are trying to drive long-term rates down as Bernanke said? It may be a policy variable, but it is an imperfect one with a whole lot more fluctuation than short term rates.

  • Boston Larry

    Which currency will be the cream that (reluctantly) rises to the top and loses the race to the bottom?

  • Geoff

    Yeah, it is imperfect the way the Fed currently does it. I believe Cullen has used the dog walking analogy where bonds are the dog and the Fed is the person walking the dog. The person will give the dog a certain amount of leeway, but can pull the leash at any time.

  • Jon

    Shorter Dalio: “We are underinvested. Talk to me in February after I’ve fired a few people and caught up.”

    Yeah, yeah, he’s been a genius for a while now.

    Not anymore.

    Paulson was a genius too once. I wouldn’t let him invest my bottle deposit money today.

    We’re always listening to these guys a year after their sell-by date.

  • GreenAB

    “The biggest opportunity, and I don’t think its an imminent opportunity, will be shorting the bond market,” Dalio said.

    When pressed by moderator James Stewart to forecast when rates would rise, Dalio said that he thinks the chances of rates rising will increase as 2013 progresses. He warned, however, that forecasting the timing of rising rates is probably a fool’s errand.


  • Geoff

    “it is an imperfect one with a whole lot more fluctuation than short term rates”

    Surprisingly, the 2yr Treasury yield is more volatile than the 30yr, at least when measured by standard deviation.

  • Andrea Malagoli

    I cannot hear about the bright prospects for China any longer, only because of it’s expected economic growth. This is as superficial as it gets, and yet I hear this all the time. To me, it sounds more like a sign of desperation by managers who see China as their last hope to make easy profits from a raising market.

  • InvestorX

    Dalio is smarter than that. And even if he is wrong, his risk parity portfolio will carry him through.

  • Octavio Richetta

    Nice comment!

  • Old Dog

    Rising interest rates?! Really.

    Sure, and what will that do to a $16B+ Federal deficit carrying costs?

    The Fed can buy every T security in existence and all future ones if necessary. Any Fed Chairman who allows rates to spike on US Ts will have the word “former” in front of their name within 24 hours.

  • Old Dog

    Sorry…meant $16T!

  • whatisgoingon

    What I heard here is central banks will allow rates to rise but I’m not convinced Dalio will short the US Treasuries but there maybe other global sovereign candidates. And I suspect he would go after risk premiums which I take to be Junk Bonds for example.

    Also no one mentioned he was bullish on emerging market currencies (and equities).

    The other wildcard that is not being discussed is that perhaps indeed employment improves so that less monetary intervention is needed allowing rates to be governed by market forces.

  • Johnny Evers

    Agree with that. So much of that debt is rolling over in the next five years that rising rates on T-bonds would cost us billions.
    My prediction would be for zero percent interest on Treasuries along with cost inflation, which would be very unstable politically.
    Within 10 years we could very well have a president and Fed chairman working directly to flood the economy with money — bond buybacks, direct spending into the economy for health care, education — along with a debt jubilee, in which debts are either wiped out or paid off. Student loan debt for one, distressed muni debt, for another.

  • Andrew P

    The leader (Abe) of the party that will run the next Japanese government has called for measures to sharply devalue the currency, so what you describe could happen. It will not be a “currency crisis”, but instead a deliberate policy move.

  • Andrew P

    There is one way rates could rise. If the debt ceiling is not raised and Obama uses platinum coin seigniorage to fund the government, the Fed will no longer have to keep rates down to fund the deficit. Pure seigniorage will take care of that. Long term rates could become decoupled from Fed policy, especially if the Treasury is just rolling over or retiring existing debt and isn’t issuing any new debt. The Fed might even sell existing holdings to dampen inflation expectations. I really have no idea what would happen in an environment like that, because it is unprecedented. Price movements could be counter-intuitive.