Ray Dalio, founder of Bridgewater Associates, is feeling OK about markets and the economy right now, but he is getting really worried about the future.
“Big picture, the near term looks good and the longer term looks scary,” Dalio wrote in a LinkedIn blog post Friday.
“We fear that whatever the magnitude of the downturn that eventually comes, whenever it eventually comes, it will likely produce much greater social and political conflict than currently exists,” he said.
Bridgewater manages $150 billion.
Dalio listed four reasons for his pessimism:
1. Economic growth “at or near its best” with no major economic risks in the next two years.
2. “Significant long-term problems” such as high debt levels and limited central bank power “that are likely to create a squeeze.” Required payments for social programs including pensions and health care are also increasing.
3. Social and political conflicts “near their worst for the last number of decades.”
4. “Conflicts get worse when economies worsen.”
Productivity necessary for raising living standards is low, while social tensions over income inequality and politics are increasing, the hedge fund manager said.
“Since such tensions are normally correlated with overall economic conditions, it is unusual for social and political tensions to be so bad when overall economic and market conditions are so good,” he said.
U.S. stocks are at record highs, while political conflict is elevated based on a Federal Reserve Bank of Philadelphia index created by looking at newspaper articles, Dalio noted.
“The idea of conflicts getting even worse in a downturn is scary,” he said.
To be sure, Dalio said asset prices “look about right to us.” He expects low returns from investments, which is slightly better than holding cash.
“There are no debt crises on the horizon,” Dalio said. The overall global economy “is at equilibrium.”