Recession Is Coming! Not.

The big headline this week for market players was from the chief of the biggest hedge fund in the world, Ray Dalio of Bridgewater, which has AUM (assets under management) north of $150 billion. From Reuters…

Head of world’s largest hedge fund says U.S. in a ‘pre-bubble phase’ with a 70% chance of recession

“I think we are in a pre-bubble stage that could go into a bubble stage,” the hedge-fund manager said during a Harvard Kennedy School’s Institute of Politics on Wednesday.

Okay, that sounds pretty good for stock investors who know how to play the game. As I’ve said for years, we ain’t near “euphoria” nor “irrational exuberance” yet, so buying the dip in strong growth companies is still the game plan.

But then he throws in the “70% chance of recession” analysis in the same breath?

What Dalio actually said was that he is estimating the probability of a recession by the 2020 presidential election at 70%.

He is also quoted as saying recently “the risks of a recession in the next 18-24 months are rising.”

Okay, that also makes more sense. A lot can happen in 2 years. Inflation could spike, sending interest rates higher and inverting the yield curve, one of the classic harbingers of economic recession.

Any reasonable economist or investment asset manager could be modeling a 50% probability of recession in the next 18 months as a “look-out” for unknown unknowns, i.e., “black swans.”

Feeling Stupid, or Savvy?

But Dalio is also the same guy who last month told global investors at Davos that “if you’re holding cash, you’re going to feel pretty stupid” as the stock market was due to rocket to fresh heights.

The next week, the “flash correction” began. I decided I would feel stupid if I didn’t have cash for that dip. So we sold some stuff near the highs and bought the lows aggressively. That story here with lots of stock charts.