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Saturday, October 1, 2022

Billionaire Investor Ray Dalio Believes We Are In A Stock Bubble Of The Dot-com Proportions

Raymond Thomas Dalio is a legendary American investor. He founded Bridgewater Associates hedge fund company in 1975 in New York where he now serves as a CIO

  • Ray Dalio is warning us of an epic proportions stocks market crash that is coming as stocks hit near record highs.
  • He told Yahoo Finance that we are at about Dot-Com proportions
  • Monetary inflation could hurt stocks if the Fed tried to keep interest rates low, he added

According to Ray Dalio, the legendary investor, the current stock market can be best described by two things: high liquidity and low-interest rates.

Biden’s fiscal and monetary stimulus measures from the Federal Government and the Federal Reserve over the last 12 months in response to the COVID-19 are supporting the valuations and are encouraging investors to drive up share prices. Another factor that is contributing to the forming bubble in stocks right now is investor behavior, according to Ray Dalio.

During an interview with Yahoo Finance on March 25, Dalio said that investors are not paying too much attention to stock prices and are assuming that the trends will continue indefinitely. He believes that we are halfway to the levels of other historical bubbles of epic proportions like the DotCom bubble. He also added that he estimates the returns will greatly reduce from now on before the bubble will pop.

“A lot of new ideas, new technologies, new things come along, and they make fabulous revolutions and they grow things and that’s great. But there’s a tendency of investors to extrapolate the past and not pay too much attention to the price. And when that happens, you start to emerge as somewhat of a bubble,” Dalio said in the interview.

Back in February Dalio shared three charts on his LinkedIn profile showing the extent to which he believes we are in a big stock bubble.

ray dalio bubble

Ray Dalio Chart

Ray Dalio bubble chart

According to Ray Dalio, another contributing factor to the soaring stock prices is the fact that interest rates remain low, confusing investors even more, which could in the end cause the bubble to burst.

The government could raise the interest rates and could send stocks tumbling and would cause the economic growth to slow down. On the other hand, if the government will continue to keep interest rates low by buying government debt could lead to further inflation, he added.

“It’s the second that I’m more concerned with. But the supply/demand of debt will be, I think, the big driving influence,” said.

According to Dalio, another proof that we are in a bubble is the V-shaped price action in stocks, indices, and other financial assets that formed after last year’s crisis in March.

Dalio’s main concerns are certainly not unusual on the spectrum of the current markets and investor’s behavior. Inflation, which is accelerated by the economic activity and by the massive amounts of stimulus money, is the biggest fear on Wall Street.

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