(B) When Mr. Ray Dalio, Chairman and Chief Investment Officer at Bridgewater, talks, I just stop what I am doing, listen to him and try to understand what he is saying (the last action is obviously very often quite challenging to do). Mr. Dalio has just posted an article on Linkedin about “Why We (Bridgewater) Believe That the Next Big Fed Move Will Be to Ease (via QE) Rather Than to Tighten.”

In the article, Mr. Dalio articulates that:

“We think that it should now be apparent that the risks of deflationary contractions are increasing relative to the risks of inflationary expansion…  These long-term debt cycle forces are clearly having big effects on China, oil producers, and emerging countries which are overly indebted in dollars and holding a huge amount of dollar assets—at the same time as the world is holding large leveraged long positions.

While, in our opinion, the Fed has over-emphasized the importance of the “cyclical” (i.e., the short-term debt/business cycle) and underweighted the importance of the “secular” (i.e., the long-term debt/supercycle), they will react to what happens.

Our risk is that they could be so committed to their highly advertised tightening path that it will be difficult for them to change to a significantly easier path if that should be required.

To be clear, we are not saying that we don’t believe that there will be a tightening before there is an easing. We are saying that we believe that there will be a big easing before a big tightening.”

Reference: “The Dangerous Long Bias and the End of the Supercycle”

Note: The picture above is Flusso (Flood Tide) from Toots (Mary Anne) Zynsky from the Stanford Cantor Museum.

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