Investor Gary Stone has one advice for fellow investors: listen to warnings from Ray Dalio. “This man (Dalio) can predict the future: In January 2020, he warned us the global economy would collapse. Everyone ignored him. But by March, COVID-19 had wiped out $30 trillion in global markets. Here’s why Ray Dalio’s latest warning has Wall Street listening:”

Stone noted Dalio’s impressive credentials — founder of Bridgewater Associates, the world’s largest hedge fund (managing $112 billion wealth, as per Forbes); adding that the investment guru’s “obsession with economic patterns” and decades-long studying of “what makes economies collapse” lend weight to his warnings.

In a series of posts on X (formerly known as Twitter), Stone listed out what Dalio has to say about the status of world economy and where its headed, and what he advises individual investors can do to mitigate their positions.

‘Diversified Portfolio Is Important’

Stone noted that Dalio “saw fundamental cracks in the global economy: Global debt had reached $253 trillion (322% of global GDP), the wealth gap was creating dangerous social tensions, traditional money policy tools were losing impact. Think of the economy like a machine:”

In the attached video Dalio is speaking to CNN in 2019, Dalio was of the opinion that a “great sag” is coming and advised individuals to have a “very, very diversified portfolio… across countries and across asset classes is an important thing”.

Pattern of Debt Crisis Cycles

In June 2023, Dalio speaking to Bloomberg TV warned about entering a “dangerous phase” over the next 5-10 years of debt cycle.

When asked if we’re in or headed towards a debt crisis, Dalio replied, “In my opinion we are at the beginning of a very classic late cycle of debt crisis. When the(re) is a supply demand gap, when you’re producing too much debt and you have also a shortage of buyers. Do we have enough buyers?”

“There are changes now in terms of the quantities in the world that are being held by large investors that have lost money in these treasury bonds and there are geopolitical changes which are having an effect. Some countries are worried about sanctions. When I look at the supply-demand issue for that debt — it has to be bought, it has to have a high enough interest rate. So, if we continue down this path then over the next 5-10 years we would reach a point where that balancing act becomes very difficult,” he added.

On ‘Paradigm Shift’

In an interview with Bridgewater Associates in 2020, Dalio outlined what he called “the paradigm shift” and how markets respond to it. He defined paradigm shift as environments that have certain charachteristics and end.

“Every decade or not necessarily a decade, people get so used to these periods (1950s non-inflationary growth, 60s breakdown of systems, 70s inflation, 80s disinflation, 90s leading to bubble) and the markets are discounting those periods to continue even though at the beginning of them they don’t. So the markets go from not expecting it to then at the end of the period discounting it, and then you have the big adjustment in the markets, to whatever that new paradigm is,” he explained.

To weather the uncertain markets, Dalio proposes “all weather portfolio” which balances and diversifies a portfolio across risk profiles.