2 Wise Men Warn What’s Coming
As we warned yesterday last night lived up to expectations dishing out another volatile night in all markets. The S&P500 sold off again, down 1.5% to its lowest since July (down 1.8% at one point), bonds around the world fell yet again (with yields surging to their highest in 3 months), gold fell $9 and silver down 25c. Off the back of a plunge in the oil price, the USD surged to the extent that the Aussie dollar lost almost a full cent and nicely buffered most of those USD gold and silver losses for us.
So what happened this time? A lot of it could be attributed to two Wall Street heavyweights chiming in with some fairly dire warnings for investors. Firstly, Ray Dalio, head of the world’s largest hedge fund, Bridgewater, said:
"there's only so much you can squeeze out of a debt cycle... we are there... you can't lower interest rates materially, and you are also at the limit on QE (because spreads are limited)."
"Globally, those forces that were behind us are no longer there... we are at the end of a debt cycle... and everybody will have a lower growth rate than we are used to."
“We are to various degrees close to pushing on a string”
We then heard from multi-billionaire hedge fund manager Paul Singer (who gave this warning in June). After his prior warnings on the dangers generated by the US Fed (and similarly other central banks around the world) through near or below zero interest rates and monetary expansion, which he described as unprecedented in the "5,000 years-ish" history of finance, he warned again:
"What they have done is created a tremendous increase in hidden risk, risk that investors don't exactly know or have faced about their holdings……I think it's a very dangerous time in the global economy and global financial markets."
"the ultimate breakdown (or series of breakdowns) from this environment is likely to be surprising, sudden, intense, and large."
As a reminder, on gold, last year Ray Dalio famously had this to say:
“If you don’t own gold there is no sensible reason other than you don’t know history or you don’t know the economics of it”
And Paul Singer had this to say:
“We’re very bullish on gold, which is the anti–paper money,….”