Bridgewater’s Dalio Sees ‘Game Changer’ as Money Shifts

Ray Dalio, founder of Bridgewater Associates LP, the world’s biggest hedge fund, said 2013 will be a “game changer” for the economy as investors reallocate money after risks such as Europe’s sovereign debt crisis receded.

“There’s a lot of money in a place that’s getting a very bad return and in this particular year there’s going to be, in my opinion, a shift,” Dalio said today at a Bloomberg panel discussion at the World Economic Forum in Davos, Switzerland. “The complexion of the world will change as that money goes from cash into other things. The landscape will change, particularly later in the year and beyond.”

Global stocks have rallied 17 percent in the past six months as the U.S. housing market recovers, European leaders take steps to contain their debt crisis, and reports in China suggest economic growth is accelerating. Investors from David Tepper, who runs the $15 billion hedge fund Appaloosa Management LP, to Carlyle Group LP co-founder David Rubenstein have said they’re bullish on the U.S. economy this year.

U.S. stocks rose today, giving the Standard & Poor’s 500 Index its longest winning streak since 2004. U.S. mutual funds investing in domestic equities received net deposits for a second consecutive week, reversing a trend of redemptions over the past six years, a report showed this week.

‘Massive Amount’

As investors grow more comfortable with the outlook for the economy, money will move into stocks and other assets, as well as into goods and services, Dalio said.

“The shift of that massive amount of cash is what will be a game changer,” said Dalio, whose Westport, Connecticut-based firm oversaw $81.3 billion in hedge-fund assets as of Oct. 31.

Central banks will have to be on guard to reduce the supply of money when spending increases, Dalio said, adding a successful exit from six years of loose monetary policy is manageable. Billionaire investor George Soros said yesterday that the U.S. Federal Reserve will have to raise interest rates quickly to contain inflation once the economy shows signs of a stable recovery.

Fed Chairman Ben S. Bernanke’s unprecedented bond buying pushed the central bank’s balance sheet to a record $3 trillion, a report yesterday showed. The Fed is purchasing $85 billion of securities every month, using the full force of its balance sheet to stoke the economic recovery.

Dollar Worry

The head of China’s sovereign wealth fund, speaking on the same panel, said today those policies make him a “little bit worried” about the dollar.

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, has dropped 4.6 percent in the past six months and about 8 percent since the end of November 2008, the month the Fed began quantitative easing. The gauge is weighted 57.6 percent to movements in the euro.

“The printing machine will have to slow down considerably in order for people to have confidence in the dollar,” Jin Liqun, chairman of China Investment Corp., said on the panel, which was moderated by Bloomberg Television’s Francine Lacqua. “I have confidence in the resilience of the U.S. economy,” he said, adding the U.S. can probably achieve 2 percent growth.

Beijing-based CIC was set up to improve returns on the world’s largest foreign-currency reserves by investing overseas. China has $3.3 trillion of reserves, according to data compiled by Bloomberg.

Productivity Key

China’s manufacturing is expanding at the fastest rate in two years, a report showed yesterday, bolstering prospects that economic growth will accelerate for a second straight quarter. The data suggest that China’s expansion at the start of 2013 will equal or exceed its 7.9 percent clip in the fourth quarter.

Dalio said China is in a different part of the economic cycle than the U.S., and Europe will have to contend with social and political pressures this year. Debate about what drives economic growth should focus on how countries can raise productivity, he said.

“The fundamental law is we can’t raise debt faster than income from now on,” he said. “The discussion now is going to be about competition and there are clear benchmarks for competition. Productivity is going to be the question.”

(Updates with CIC comment in ninth paragraph.)
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