The year 2024 is poised to be pivotal, according to billionaire and hedge-fund veteran Ray Dalio.
Dalio’s Take: In a LinkedIn post, Dalio compared 2024 to previous years marked by events of varying significance.
While he doesn’t anticipate “seismic shifts” jeopardizing U.S. democracy or pushing the world into war (with a 20% chance, which he deems uncomfortably high), he emphasized that 2024 will likely be a crucial year.
“To clarify, I don't mean that 2024 will necessarily be a year of seismic shifts that will end democracy in the U.S. and/or take the world over the brink into a war (like 1914, 1929, 1939, 1941, etc.)—I think that there is only a 20% chance of that, which is still too high for comfort,” Dalio wrote.
Dalio identifies the upcoming U.S. elections on Nov. 5 as a significant factor. Despite legal challenges, former President Trump leads in polls, winning the Iowa Republican caucuses.
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Dalio’s macro model identifies five major interconnected influences shaping the changing world order. He explores how these factors will unfold in 2024:
1. Debt-Money-Markets-Economy: Dalio said the riskiness of the force of debt, money markets, and economy is moderately low in the near term but turns moderately higher when considering the effects of the other four forces.
The current market pricing is now roughly in line with the current fundamentals, although a bit expensive for U.S. bonds and stocks, he said.
“I don't see any really big debt/money/economic problems on the horizon (like in 2008) that can't be well-managed,” the billionaire said.
“At the same time, the internal conflict force in conjunction with the 2024 elections, the external conflict force that will determine how international conflicts unfold, and the climate force that will certainly be costly (but how costly is as unpredictable as the weather) all add risks for markets and economies in 2024.”
He also sees technology evolvement producing great and risky investment opportunities ahead, while also providing a big productivity boost.
Inflation will unlikely fall as much and growth won’t be as much and interest rates won’t be cut as much, the founder of Bridgewater Associates said.
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2. Internal Conflict: The biggest single risk for 2024 is internal conflict, Dalio said. The way these conflicts in the U.S. and several other countries are panning out suggests these conflicts were in the “classic Stage 5 part of the Big Cycle,” he said. This is the stage just before a civil war, he added.
To make his case he noted that university presidents didn’t take a side or speak forcefully due to the worry of being attacked by either side. The U.S. Supreme Court is at the risk of weakening in the wake of the efforts to remove Donald Trump’s name from the ballots in several states, he said, adding whichever way the apex court rules, it is bound to face criticism as being corrupt,
“Regardless of what happens in the U.S. elections, the outcomes will have big implications,” Dalio said.
If Trump is elected, the billionaire sees the possibility of the U.S. leaving NATO, imposition of 10% tariffs on all imports, reduction in income and corporate taxes, and great reduction in regulations and green initiatives. Instead, the former president will likely pursue much stronger policies of the right, and become more isolationist and nationalistic, he said.
On the other hand, a win for President Joe Biden or any other Democrat would mean diametrically opposed policies, he added.
“If things continue going as they are, voters might eventually be faced with the question, ‘If forced to choose, would you prefer a fascist or a communist?'” Dalio said.
3. External Conflict: Dalio said he sees external conflict as a moderately high-risk area in 2024. “There will be two notable challenges ahead in the form of US and Chinese reactions to last weekend's Taiwan election and the upcoming US elections this fall,” Dalio said.
“I think that they will probably be handled in a way that won't produce serious damaging wars, though they might produce some dramatic public displays of power.”
Dalio sees about a 70% probability of the Russia-Ukraine and the Israel-Hamas war spreading in 2024 as “all of the large and mid-level power countries, including Israel, Iran, and the GCC countries—like the Americans and the Chinese—don't want to cross the brink into mutually assured destruction.”
4. Climate Change: There will likely be more investment flow into adapting to climate change than into preventing it, Dalio said. “As for the impact of climate change itself in 2024, I can offer you little more than a trendline extrapolation of what is happening with severe weather events, bumped up for the fact that 2024 will be an El Niño year, which means that it should be considered a risky year,” he said.
5. Human Inventiveness: The force of humankind's inventiveness, especially of new technologies, will lead to increased productivity that in turn leads to rising living standards, as reflected in measures of real GDP and life expectancy, Dalio said.
Productivity increases, the hedge fund managers said, is fostered by good education, capital markets, including venture capital, private markets, and public markets, and thinking aids like artificial intelligence that are supplementing and turbocharging human intelligence.
“The effects of artificial intelligence are being reflected in market pricing via improved prospects for profits of those that produce it, and it is certainly the case that 2024 will be a pivotal year for this influence, as there will be much more learning and development during 2024, which will have big productivity-boosting impacts for many years to come,” he said.
The SPDR S&P 500 ETF Trust SPY, an exchange-traded fund that tracks the performance of the S&P 500 Index, ended Tuesday’s session at $474.93, down 0.37%, according to Benzinga Pro data.
Photo via Web Summit on Flickr
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