The world’s largest hedge fund – the founder of the Bridgewater Fund, the “King of Crocodiles” called Dalio recently interviewed by foreign media warned that the current size of the U.S. stock bubble has reached 1929, 2000 “halfway”.
He explained that the important factor supporting the current valuation of U.S. stocks is the high liquidity and low interest rate environment, and investor behavior is also one of the reasons for the formation of the current U.S. stock bubble. The tendency of investors to look at past performance is leading to an overexpansion of the market, especially in the field of technology stocks, and U.S. stocks are close to half the level of certain historical bubbles in the past, investors should beware of the low returns on U.S. stocks in the future. He added that many new things arrive to bring about change, but investors tend to make inferences based on the past without paying much attention to prices, and when that happens, a bubble of sorts begins to emerge.
By measure, the bubble hasn’t reached the size of 2000 or the size of 1929, but it kind of looks like it’s halfway there, according to Dalio. So from a value perspective, what can actually be expected is a shrinking of stock market returns relative to other assets.
Asked what factors threaten to cause the bubble to eventually burst, he said the Federal Reserve’s policy is the biggest driver that needs attention, as the low interest rate environment continues to maintain, the Federal Reserve officials are facing a dilemma. On the one hand, the Federal Reserve can raise interest rates, but this may lead to a plunge in the stock market, causing obstacles to economic growth; on the other hand, the authorities can maintain low interest rates through the purchase of government bonds, but this will lead to further Inflation.
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