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Are Investors Right To Be On Edge?

Billionaire hedge fund titan Ray Dalio made waves yesterday with another cautionary LinkedIn post that pinned the blame on Central Banks for creating a “mad” world of free money that’s driven a wedge between the wealthy and the poor.

Many have commented that the world’s biggest hedge fund manager is starting to sound like a contributor to ZeroHedge, the finance blog-turned-alt-markets-conspiracy cauldron known for things like referring to the Fed as the “plunge protection team,” and generally making scary macro predictions that’ve fallen flat the past decade.

Crypto crusader Ari Paul of BlockTower Capital tweeted, “Zerohedge is a stopped clock. Dalio is the working clock. Both now point to midnight.” So why is a proven finance wizard now aligning with the conspiracy rag? Well, I’m far from a wizard but I do like to think my head is on straight, and I too was recently republished by ZeroHedge for a piece on the risk of a flash crash in stocks if the bond market sells off hard enough. The bottom line is despite record highs in stocks, investors are probably right to be on edge, because after an experimental decade of monetary policy, certain market assumptions have been flipped on their head. Investors spent the past year running to bonds for big returns, stocks for safety, and the Fed went on a cutting spree despite a robust U.S. economy.

None of this is to say the Fed was wrong, but none of it is to say we should be exhaling in relief yet either. Just as the economic impact of rate hikes takes time to work through the system, so should the cuts we just made, and there could well be new problems tied to them.

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