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Davos 2019: the thing that scares hedge fund titan Ray Dalio the most

Tom Belger
Finance and policy reporter
Ray Dalio is attending the World Economic Forum in Davos. Photo: NurPhoto/SIPA USA/PA Images

The founder of the world’s biggest hedge fund has revealed what scares him the most about the future of the global economy.

Ray Dalio, who runs $150bn (£116.7bn) Bridgewater Associates, told an event at the 2019 Davos summit that he feared central banks’ limited ability to cut interest rates in the next downturn.

The hedge fund titan warned of a “substandard growth rate” in the US, Chinese and European economies next year, which would warrant easier monetary policy.

But he agreed with moderator Maria Bartiromo, an anchor and global markets editor at Fox Business, that there was limited “wiggle room” for cutting rates to be effective.

READ MORE: Alarming forecast for the global economy as Davos begins

Speaking at a panel discussion on the first day of the World Economic Forum (WEF), Dalio said: “The US, Europe, China – all of those will experience a greater level of slowing, probably a greater level of disappointment.

“I think there’s a reasonable chance that by end of that, monetary policy and fiscal policy will have to become easier relative to what is now discounted in the markets.

He added: “What scares me the most longer-term is that we have limitations to monetary policy, which is our most valuable tool, at the same time as we have greater political and social antagonism.

“So the next downturn worries me the most. There are a lot of parallels with the late 1930s.

READ MORE: Ray Dalio’s three-step formula for anyone to start investing

“In 1929-1932 we had a debt crisis, and interest rates hit zero. Then there was a lot of printing of money and purchases of financial assets which drives financial assets higher.

“It creates also a polarity, a populism and an antagonism. We also had at that time the phenomenon of a rising power, like China, dealing with conflict with an existing power.

“These types of political issues are now very connected to economic issues in policy.”

Asked at the summit in Switzerland about increasing debt levels and signs of a global slowdown, Dalio said the world economy was in the later stages of a short-term debt cycle.

READ MORE: What is Davos? The 2019 World Economic Forum explained

He said there had been an “inappropriate, mistaken desire to tighten monetary policy at a level that was faster than what the capital markets could handle.”

The renowned 69-year-old investor, who authored a free book called ‘Principles for Navigating Big Debt Crises’, also offered his take on corporate debt levels.

He said: “When we cut corporate taxes and made interest rates low enough that it was attractive enough to buy financial assets, particularly by companies having mergers and acquisitions, that caused a lot of growth in corporate debt. And that growth in corporate debt was used to finance the purchases. That is going to be less.”

He suggested a slowdown could increase the link between politics and economic policy, and predicted increased debate over a 70% income tax rate next year.