"The Fed's real dilemma is that its policy is creating a financial market bubble that is large relative to the pickup in the economy that it is producing," Bridgewater notes as the relationship between US equity markets and the Fed's balance sheet (here and here for example) and "disconcerting disconnects" (here and here) indicate how the Fed is "trapped." However, as the incoming Yellen faces up to her 'tough' decisions to taper or not, Ray Dalio's team is concerned about something else - "we're not worried about whether the Fed is going to hit or release the gas pedal, we're worried about whether there's much gas left in the tank and what will happen if there isn't."

David Fuller's view

I commend these comments to subscribers. Ray Dalio was last quoted in Fullermoney by Eoin on 29th January 2013. Ten and a half months later, circumstances have changed.


I agree with Ray Dalio and the Fed is now largely 'pushing on a piece of string' in terms of the economy and unemployment, while the S&P 500's gain of 26% so far this year is bubbly. However, the real problem is the distributive White House, which makes poor people dependent rather than successful. If the President understood how to help poor people by strengthening the economy, he would propose an immediate and significant corporate tax cut. That would bring more American companies and their capital home, boosting the economy and significantly reducing unemployment. Sadly, I cannot see that happening under this Administration.