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Hedge fund billionaire: 70% chance of recession before 2020 election

The roaring American economy will probably sink into a recession before President Trump stands for re-election in 202...

Posted: Feb 22, 2018 5:33 PM
Updated: Feb 22, 2018 5:33 PM

The roaring American economy will probably sink into a recession before President Trump stands for re-election in 2020.

At least that's the view of Ray Dalio, the billionaire investor who predicted the 2008 financial crisis.

"The probability of a recession prior to the next presidential election would be relatively high, 70% or something like that," Dalio said on Wednesday evening during an appearance at the Harvard Kennedy School's Institute of Politics.

Dalio, the mercurial chairman of hedge fund behemoth Bridgewater Associates, suggested Trump's efforts to pump up the economy with massive tax cuts and surging spending could backfire.

Even though the economy is booming right now, Dalio noted that "for various reasons, there has been a lot of stimulation hitting the gas." He said that this raises the risk of interest rates going up, hurting all asset prices.

Wall Street was rocked earlier this month by fears that higher inflation will force faster interest-rate hikes. Goldman Sachs CEO Lloyd Blankfein told CNN last week he's concerned about the Trump administration's spending spree overheating the economy.

Dalio believes the U.S. economy is in a "pre-bubble stage," but warned it could quickly morph into a bubble - "followed by a bust."

Related: Sunny days for the economy can't last forever

Of course, no one can predict exactly when the next downturn will occur. And there's no sign a recession is imminent.

Dalio is best known for his peculiar management style of "radical transparency," which among other things calls for recording most meetings. Bridgewater, which manages about $160 billion and used to employ former FBI director James Comey, has been called the world's "strangest hedge fund."

But Dalio knows a thing or two about economic busts. In 2007, he warned the Bush administration that many of the world's largest banks could go insolvent, according to a 2011 article in The New Yorker.

"We anticipated the financial crisis," Dalio said on Wednesday.

A recession by November 2020 isn't a crazy notion. The good times can't last forever, after all.

In May, the recovery from the Great Recession is poised to become the second-longest economic expansion in American history.

S&P Global Ratings wrote in a recent report that the recovery has a "good chance" to stay alive until the summer of 2019. That would make it the longest ever.

Guggenheim Partners, a New York-based investment firm, predicted last month that the next recession "will occur by the end of 2019 or 2020."

Seventy percent of investors polled by Bank of America Merrill Lynch this month believe the global economy is in "late cycle" - the highest percent since January 2008. Dalio agrees with that thinking.

Related: Blankfein: Odds of a 'bad outcome' for economy have gone up

Late cycle doesn't mean the good times are over. But it does mean that employers will struggle to find workers, pushing wages and inflation to levels that make the Federal Reserve nervous.

Inflation has been mysteriously low for years, but new signs of rising prices and wages have led to concerns on Wall Street. If inflation heats up too much, the Fed could raise interest rates so quickly that it tips the economy into recession.

Whenever it hits, the next downturn could be complicated by the widening gap between America's rich and poor.

Dalio said there's one economy for the country's top 40%, and another for the bottom 60%. Yet there's only one federal budget, leading to "conflict" over "how the pie is divided."

"I'm scared about a recession," Dalio said, "mostly because there are these two economies that exist."

Mississippi Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 113876

Reported Deaths: 3238
CountyConfirmedDeaths
Hinds7850176
DeSoto685779
Harrison505083
Jackson445084
Rankin388186
Madison377993
Lee350779
Forrest299578
Jones287784
Washington255199
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Warren153655
Monroe147372
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Marshall139227
Lincoln138557
Pike137756
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Scott124729
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Simpson120449
Union116525
Tate114939
Leake114340
Holmes114160
Pearl River112259
Itawamba112125
Adams106743
Prentiss103719
Wayne99821
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George97718
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Marion93542
Tippah88121
Newton85227
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Tallahatchie83025
Winston82821
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Hancock79827
Attala78926
Clarke73450
Clay68321
Jasper67717
Walthall63627
Calhoun61912
Noxubee59617
Smith58916
Montgomery53523
Claiborne53316
Tunica52817
Yalobusha51914
Lawrence50714
Perry48623
Carroll47612
Greene46918
Stone46214
Humphreys42616
Amite42113
Quitman4196
Jefferson Davis40011
Webster37013
Wilkinson33520
Benton3255
Kemper32015
Sharkey28014
Jefferson27410
Franklin2373
Choctaw2046
Issaquena1074
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Alabama Coronavirus Cases

Confirmed Cases: 155915

Reported Deaths: 2674
CountyConfirmedDeaths
Jefferson22861374
Mobile14468314
Tuscaloosa10148139
Montgomery9875196
Madison915094
Shelby720462
Lee649665
Baldwin647569
Marshall433049
Calhoun418960
Etowah418749
Morgan403635
Houston369232
DeKalb330229
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St. Clair287142
Limestone276530
Walker272293
Talladega261035
Cullman235724
Lauderdale214841
Jackson210015
Autauga202330
Franklin202131
Colbert196731
Russell19233
Blount189325
Dallas186227
Chilton184132
Escambia171929
Coffee171710
Covington169929
Dale165451
Chambers133643
Pike132313
Tallapoosa130587
Clarke130017
Marion106229
Butler100140
Barbour9979
Marengo99222
Winston91313
Geneva8527
Pickens82417
Lawrence82131
Randolph81216
Bibb81114
Hale74930
Clay72912
Cherokee72614
Lowndes70328
Monroe64010
Henry6396
Bullock63717
Washington63412
Crenshaw60230
Perry5836
Wilcox56212
Fayette56113
Conecuh55713
Cleburne5438
Macon52920
Sumter47021
Lamar4665
Choctaw38812
Greene34216
Coosa2023
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