While legendary investor Warren Buffett warned market participants to not bet against America, another major player in the field, billionaire hedge fund manager Ray Dalio suggests that every patriotic aphorism has a price. In the case of the Bridgewater Associates founder, the magic number is an interest rate of approximately 4.5%. Naturally, this bit of Ray Dalio news prompted concern on Wall Street.
According to Reuters, the hedge fund manager’s comments on Tuesday coincided with data demonstrating that U.S. consumer prices unexpectedly rose in August. However, a catch exists. Per CNBC, retail sales (released Thursday) increased by 0.3% but the catalyst stemmed from a “big jump in motor vehicles and parts dealer receipts.” In other words, absent these categories, overall sales incurred sluggish growth as consumers struggled to keep pace with inflation.
Adding to the woes of the aforementioned Ray Dalio news is that the equities sector did not perform well out the gate on Thursday. Up until the early afternoon session, the benchmark S&P 500 finds itself down more than 3%. If the billionaire investor is correct, more pain could be coming.
In a LinkedIn post, Dalio stated in part, “I estimate that a rise in rates from where they are to about 4.5 percent will produce about a 20 percent negative impact on equity prices.” Further, he succinctly described the logical flow of his thesis, noting that “…interest rates will go up … other markets will go down … the economy will be weaker than expected.”
Ray Dalio News Coincides With Hard Data
While Wall Street optimists typically dismiss overtly bearish characters such as
Euro Pacific Capital head Peter Schiff, those same experts find it difficult to ignore the latest Ray Dalio news. That’s because Wall Street firms themselves broadcasted similar concepts.
According to MarketWatch, some analysts predict that the Federal Reserve “could hike interest rates by 100 basis points next week, a move not seen since the likewise inflationary 80s. The central bank’s short-term rate hovers between 2.25% to 2.5%, but Nomura, for one, sees that rate headed to 4.75% by 2023.”
Adding to onlookers’ concerns about the most recent Ray Dalio news is that the predicted 4.5% interest rate represents a relatively modest estimate. He anticipates that the interest rate could ultimately reach the higher end of a forecast from 4.5% to 6%. “This will bring private sector credit growth down, which will bring private sector spending, and hence the economy down with it,” Dalio said.
Likely, the real kicker stems from the actual data, which appears to confirm the Ray Dalio news. For instance, the S&P/Case-Shiller 20-City Composite Home Price Index soared 40% between July 2020 and May 2022. However, from May to June, the expansive trajectory stopped almost cold in its tracks, gaining a mere 0.45%.
Should the wealth effect phenomenon ring true, the loss of asset value on paper could lead to reduced spending. At that point, the Ray Dalio news might turn incredibly prescient.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
