In a conversation with former Treasury Secretary Larry Summers at Harvard’s Kennedy Institute of Politics this week, Ray Dalio, the hedge fund billionaire who founded Bridgewater Associates and predicted the 2008 financial crisis, said that he believes another recession was likely to happen before the 2020 election, bringing the roaring economy to a halt. “The probability of a recession prior to the next presidential election would be relatively high, 70% or something like that,” Dalio said.
Dalio characterized the economy as in a “pre-bubble stage,” but he warned that it could quickly turn into a bubble that bursts. He added that President Trump’s tax cuts and spending could backfire leading to interest rates going up. Dalio has some bona fides in this regard. He famously warned the Bush administration that the financial crisis was going to happen. Dalio further admitted that he was “scared” of a recession happening because of the widening gap between America’s rich and poor:
Dalio said there’s one economy for the country’s top 40%, and another for the bottom 60%. Yet there’s only one federal budget, leading to “conflict” over “how the pie is divided.”
“I’m scared about a recession,” Dalio said, “mostly because there are these two economies that exist.”
Dalio also issued some more standard statements to warn investors against selling stocks when they were scared, and he added that if investors are scared about the market, it’s already too late.