Bridgewater’s Dalio: Expect Austerity, Rising Interest Rates in 2013

Next year will bring austerity and rising interest rates, predicts Ray Dalio, founder of Bridgewater Associates, the largest hedge fund manager.

Plus, the Fed is out of bullets.

Speaking at The New York Times DealBook conference, Dalio said austerity is coming due to Washington's inability to solve the fiscal cliff, Business Insider reported.

The Fed, meanwhile, has fired its “bazooka” and its continuing quantitative easing will have little impact.

Yields, already at rock-bottom levels, can't go down any more and will begin rising next year, probably in late 2013, he said, according to Business Insider.

"We're facing austerity. And growth is flagging. This is an unprecedented risk the economy is facing — a slowdown with very little room to maneuver."

Still, Business Insider reported that Dalio predicts stocks will outperform bonds next year.

Dalio agrees with other top investors who believe interest rates will pop a bond bubble and create a moneymaking opportunity when the finally increase, CNNMoney reported.

Source: MoneyNews

Ray Dalio is an American businessman and founder of Bridgewater Associates. Bridgewater Associates has since attracted many clients including pension funds and is currently (as of January 2012) the largest hedge fund in the world with nearly $120 billion under management.

Ray Dalio talks about countries with good expected economic growth

According to Ray Dalio, economic growth depends monthly on debt and competitiveness. There are many factors that influence the level of competitiveness as well as of debt but according to him the best countries for growth are: India, China, Mexico, Russia while the worst are Japan, France, Italy, Spain and USA is somewhere between with expected 2% growth in the coming years.

In one of his research papers Ray Dalio explains about the cycle of countries and how they develop and reach certain point where growth weakens:

-In the early stages, people know they are poor and thus have limited resources and savings. The economy has reduced debt because they have no insurance.

-In the subsequent stage, the wealth is increasing, but psychology is still the same. They save, work hard, and maneuver cautiously. But investment and exports increase and their assets, like gold and real estate, expand.

-Now comes the part where they realize that they are actually rich. Their per capita income breaks records. The psychology shifts as the generation is replaced by new people who like to spend and enjoy more. Working hours go down, while expenditures on luxuries goes up.

-In the next phase, the economy gets poorer, but the psychology of people and governments does not budge. Debt to earning ratio increases, incomes are high but spending is even higher, payment and government deficit expands. Infrastructure weakens and productive investments lose steam.

-The bubble of being wealthy bursts and deleveraging and austerity measures come in play. They print more money and lower interest rates to help GDP growth. The previously powerful economies now start competing with developing and emerging economies.

Ray Dalio is an American businessman and founder of Bridgewater Associates. Bridgewater Associates has since attracted many clients including pension funds and is currently (as of January 2012) the largest hedge fund in the world with nearly $120 billion under management.