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Ray Dalio Advocates for Gold in the Face of Looming Debt and Inflation Threats

Ray Dalio, a prominent billionaire investor and hedge fund founder, recommends owning gold as a safeguard against potential debt and inflation crises. Highlighting the escalating global debt levels, Dalio has repeatedly voiced concerns about a possible U.S. debt crisis, which he believes could thrust the economy into a balance sheet recession — a situation where deleveraging and declining asset prices could impede economic growth.

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Fed's Outdated Forecasting Challenged as Economy Defies Predictions

The Federal Reserve's traditional forecasting approach is facing criticism for its inadequacy in reflecting the dynamic economic environment, particularly in the post-pandemic period. While the forecasts have often been inaccurate, the real concern lies in the method's focus on specific projections—like the anticipated three interest rate cuts in 2024—which now seem outdated due to unexpected inflationary pressures. This issue underscores the need for a more flexible and comprehensive forecasting model that can better accommodate the range of potential economic scenarios.

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Ray Dalio's Risk-Parity Strategy Falters, Prompting Massive Investor Pullback

Ray Dalio's renowned risk-parity investment strategy, which gained prominence during the Great Financial Crisis, is experiencing a significant downturn, leading to substantial withdrawals by institutional investors. Over the past five years, risk-parity funds managed by Bridgewater Associates and others have underperformed, prompting public pensions in New Mexico, Oregon, and Ohio to retract substantial investments, reducing the fund sizes by an estimated $70 billion from their peak. Despite calls from these firms for more time to recover, given predictions of a divergent market landscape in the coming decade, investors' patience has worn thin. The strategy's struggle to deliver during the volatile post-pandemic market phases has notably shaken confidence in an approach that emphasizes diversification and often leverages to balance returns against risks.

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S&P 500 Nears Worst Month in Over a Year as Rising Yields Signal Inflation Concerns

The S&P 500 is facing its most significant monthly decline since December 2022, with a 5.5% drop in April, effectively halving the gains made earlier in the year. This downturn is attributed to rising bond yields, spurred by ongoing inflation fears that a strong economy might be sustaining. Despite nearing its March 28 record peak, the recent rise in Treasury yields, which accelerated this April, has unsettled the U.S. stock market. Bob Elliott of Unlimited Funds suggests that Treasury rates may need to increase further to temper economic demand sufficiently for the Federal Reserve to be assured that inflation is moving consistently towards its 2% goal.

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Opinion: Do Interest Rates Matter Anymore?

Despite the Federal Reserve's aggressive interest rate hikes—increasing rates 11 times from zero to 5.5% between March 2022 and January 2024—the U.S. economy has shown resilience with growth near 3%, stable unemployment, and strong performances in commodities and stock markets. However, the outlook for interest rates remains uncertain; while initial predictions favored six rate cuts in 2024, recent inflation trends have adjusted expectations to possibly only two cuts, as noted by Goldman Sachs. Federal Reserve Chair Jerome Powell has suggested that it may take longer than anticipated to curb inflation sufficiently to lower rates, with former Treasury Secretary Lawrence Summers even hinting at the possibility of another rate hike.

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