Billionaire Ray Dalio Warns Wall Street of a "Bearish Force" Just as This Stock Market Alarm Bell Rings.

As investors cheer the S&P 500's (SNPINDEX: ^GSPC) ascent to historical highs, Ray Dalio, laminitis of the world's largest hedge fund, has immoderate concerns. In a caller interview, the billionaire flagged a increasing "bearish force" that helium believes could person a profound interaction connected the marketplace successful the adjacent future.

This comes conscionable arsenic an important gauge of however richly valued the banal marketplace is hits levels lone seen successful the lead-up to the dotcom crash. Here's what investors request to know.

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At the bosom of Ray Dalio's statement is what helium calls a looming "capital war." Unlike a commercialized warfare fought with tariffs connected goods, a superior warfare weaponizes wealth itself done sanctions, plus freezes, and superior controls. Dalio believes rising geopolitical tensions, particularly betwixt the U.S. and China, are pushing the satellite successful this direction, undermining the escaped travel of superior we've grown accustomed to having.

The U.S. authorities runs ample deficits each twelvemonth and borrows wealth to screen the spread by selling Treasury bonds. Traditionally, overseas buyers purchased a important information of these bonds. But arsenic tensions rise, these buyers are increasing cautious, fearing their assets could 1 time beryllium sanctioned oregon frozen. This reduced request creates a dilemma, and the authorities faces 2 choices:

• Higher yields: The authorities connection higher involvement rates connected bonds to marque them much attractive. This ripples done the full economy, making borrowing much costly for businesses and consumers alike, which slows economical growth.

• Currency "debasement": The authorities tin people much wealth to acquisition its ain debt. This erodes the dollar's existent worth implicit clip via the basal instrumentality of proviso and request -- much dollars for the aforesaid demand.

Governments are forced into a country wherever they indispensable take the lesser of 2 evils -- oregon astir likely, immoderate achy operation of both. While immoderate of this is already present, Dalio sees the imaginable for thing overmuch much stark -- and overmuch much impactful for the banal market.

The cyclically adjusted price-to-earnings (CAPE) ratio is simply a valuation metric that compares banal prices to mean net implicit the past 10 years, adjusted for inflation. Think of it arsenic a smoothed-out, birds-eye-view mentation of a accepted P/E ratio.