Ray Dalio, the billionaire investor who runs the world’s largest hedge fund, said the euro will “likely” stay together because austerity measures deterring growth will be balanced by European Central Bank intervention.
“Restructuring of debt and austerity are deflationary, and they are negative for growth,” Dalio, founder of Bridgewater Associates LP, said in an interview with CNBC aired today. “The printing of money is inflationary and positive for growth. The policy by Mario Draghi and the ECB is a policy to achieve balance of those things.”
Yields on Spanish and Italian bonds have fallen from their July highs after Draghi, the ECB’s president, said this month he would buy government debt to help make borrowing costs for European countries sustainable. Dalio, whose Westport, Connecticut-based firm manages about $130 billion, said countries in southern Europe will probably suffer through a “managed depression” that lasts as long as 15 years.
Dalio, 63, also said it’s more likely that countries in northern Europe, such as Germany, will leave the euro currency bloc than indebted countries in the south.
The U.S. Federal Reserve’s third round of asset purchases since the 2008 financial crisis, announced this month, is representative of the fact that the central bank can’t lower interest rates to stimulate the economy, Dalio said. He called QE3, known as quantitative easing, the “new interest rate.”
All investors should hold some gold in their portfolio, said Dalio, adding that billionaire Warren Buffett is making a “big mistake” by saying he won’t hold the metal.
Dalio said his biggest fear for financial markets is that an economic meltdown will trigger social unrest.