Ray Dalio Exposes the Unpredictability of the Markets

Ray Dalio built Bridgewater Associates into a $160 billion hedge-fund behemoth by making money for his investors for 18 consecutive years, including 2008. So the news that the firm’s flagship Pure Alpha fund, which bets on macroeconomic trends, lost 4.9% in the first half of 2019 was a shock — though it shouldn’t have been. That’s not a knock on Dalio, but an acknowledgment of how unpredictable markets have become even for the best and brightest.

Few investors were able to predict how quickly the narrative changed from global synchronized recovery to global synchronized slowdown. Even fewer predicted how swiftly the Federal Reserve would change course, with the markets going from pricing in three interest rate increases this year to three reductions. And even fewer still predicted that this would set off a remarkable rally in nearly every asset class in almost every corner of the world. This is made clear by the SPDR SSgA Global Allocation exchange-traded fund, which aims to track the performance of markets broadly. It was up 12% for the year through Friday, topping the 4.85% gain for Hedge Fund Research’s Global Hedge Fund Index. There are two takeaways. The first is that the globalization of the world economy in recent years means that the performance of assets has also become more globalized, with more markets moving in tandem instead of going their own ways. The second is that central banks are more directly involved in markets than ever before, helping to damp volatility. As of June, the collective balance-sheet assets of the Fed, European Central Bank, Bank of Japan and Bank of England stood at 35.5% of their countries’ total GDP, up from about 10% in 2008, according to data compiled by Bloomberg.