In his latest post on Linkedin, Ray Dalio is cautioning against being too optimistic about the economy in 2024. He believes that there are some risks that could lead to a more negative outcome than the market is currently expecting.
Here’s an excerpt from the post:
The way markets work is that their prices paint a picture of the future that is constantly changing, so changes in the picture of the future lead to changes in prices.
For example, one can calculate the expected amount of inflation by comparing inflation-indexed bonds and nominal bonds, and one can bet on it being higher or lower by taking positions in these bonds, knowing that if your estimate is better than others you will make money.
The picture that market prices are now painting is for inflation to fall to central banks’ targets, for real growth to be moderate, and for central banks to lower interest rates fairly quickly—so the markets are now reflecting a Goldilocks economy.
As for the economy in 2024, it appears likely that inflation won’t fall as much, growth won’t be as much, and interest rates won’t be cut as much as is reflected in the prices.
More specifically, growth will slow, as the cash/savings pile that was built up from the big 2020 and 2021 stimulations is being run down and the interest costs on existing debt will rise as debts mature, which will require debtors to refinance their debts at higher interest rates.
As for inflation, if there are no shocks from exogenous forces, I estimate that inflation will probably be about a percent higher than expected. Given that there is a lot of imprecision in my estimates relative to what will actually happen, I don’t have strong bets placed on them.
You can read the entire post here:
Ray Dalio – 2024: A Pivotal Year on the Brink
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