Billionaire Ray Dalio just issued a new warning to traders.
In an interview with CNBC, Dalio says his proprietary indicator for spotting market bubbles is now flashing.
“There’s a lot of bubble stuff going on. I have a bubble indicator which is a composite of things that would take too long to explain. And the bubble indicator is relatively high.
It has to do not only with the pricing, it has to do with who owns it, how the financing is taking place and so on.”
As for when the bubble may break, Dalio says they typically burst under tight monetary policy, but current conditions favor easing rates amid a weakening economy. That means the bubble may continue to inflate, at least for now.
“If you’re looking at a lot of the economy, you see a weakening in that economy at the same time as there’s this bubble going on in or at developing.
So a monetary policy for both is not going to work because of that element of divergence. So I think it’s probably going to produce more of a bubble.”
Dalio draws historical parallels, likening the situation to 1998-99 or 1927-28 before major crashes.
“We certainly must say that whether or not it’s a bubble and when that bubble’s going to burst, maybe we don’t know exactly. But what we can say is there’s a lot of risk.”
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