Billionaire Ray Dalio says there’s no doubt the market is in a bubble – the question is how long it will last.
In a new interview with CNBC, Dalio says parts of the economy are flashing early warning signs.
“We’re not going to have a tightening of monetary policy soon – in fact, an easing. So you start to see these cracks. We’re seeing cracks in the markets in a number of ways: private equity, venture capital, debt that’s being refinanced, and all of those.
So we are in a bubble, I believe, by almost all of those measures.”
However, Dalio says the fact that the stock market is a bubble driven by AI doesn’t mean it’s ready to pop.
“All the bubbles took place in times of great technological change, a lot of money going in. It’s never done precisely. It’s either going to be too much or too little to make the profits, and then there’s just this big up and down…
[This bubble is] quite similar to 2000 – but not at the same level as the 1929 bubble. But we are in that bubble. And then the question is when does the bubble get pricked?”
Dalio says there are usually signals to watch for once a bubble has emerged.
“As a bubble is arising, you don’t want to get out of it just because it’s a bubble. You want to look for the pricking of the bubble, and that usually has to do with the tightening of money, whatever the force is. You have to realize that wealth is different from money.
In a bubble, it’s very easy to create wealth. You know, like nowadays you can raise $50 million for a valuation of a billion dollars. You are now a billionaire, and that’s worth a billion dollars on paper — but it doesn’t mean you can sell that.
And so when you get into a situation where the wealth has to be sold to raise money – typically maybe for debt service payments, but things like wealth taxes, can you imagine if a wealth tax came over – then you would have that kind of dynamic.”
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