Central banks’ reversals signal the end of one era and the beginning of another

Ray Dalio, Chairman & Chief Investment Officer at Bridgewater Associate, wrote in its latest article that the era of ‘beautiful deleveragings’ on central banks’ easy money policy is coming to an end now.

Key Quotes:

“Central bankers have clearly and understandably told us that henceforth those flows from their punch bowls will be tapered rather than increased—i.e., that the directions of policy are reversing so we are at a) the end of that nine-year era of continuous pressings down on interest rates and pushing out of money that created the liquidity-fueled moves in the economies and markets, and b) the beginning of the late-cycle phase of the business/short-term debt cycle, in which central bankers try to tighten at paces that are exactly right in order to keep growth and inflation neither too hot nor too cold, until they don’t get it right and we have our next downturn.”

“In my opinion, at this point of transition, we should savor this accomplishment and thank the policy makers who fought to bring about these policies. They had to fight hard to do it and have been more maligned than appreciated. Let’s thank them.”

“As you know, looking ahead, we don’t project a big debt bubble bursting any time soon (because of the balance sheet repairs that have taken place), though we do see an increasingly intensifying “Big Squeeze”