'Godfather of Hedge Funds' Dalio "There are bubbles in the market but no immediate signs they'll burst"

"Don't sell just because there's a bubble… Expected returns over the next 10 years will be low"

Ray Dalio, the founder of Bridgewater Associates (hereafter Bridgewater), the world's largest hedge fund, said on the 20th (local time) that bubbles exist in the current financial markets but there are no factors that would immediately cause them to burst. He emphasized that while the existence of bubbles would lower expected future returns, it does not mean assets should be sold.

In an interview with CNBC, Dalio said regarding bubble concerns in the artificial intelligence (AI) sector, "There is clearly a bubble in the market." He explained that if the bubble-measuring indicator he monitors pointed to 100% just before the Great Depression in 1929 and just before the 2000 IT bubble burst, it currently points to about 80%.

Dalio reiterated, "There can be sharp price increases before a bubble bursts," and said, "A bubble means a series of situations that cannot be sustained." He emphasized, "Don't sell (risk assets) just because there is a bubble," but warned, "However, when in a bubble area, expected returns over the next 10 years will be very low."

Earlier, JPMorgan Chase released a report saying that historically, when the Standard & Poor's (S&P) 500 was bought at a price-earnings ratio (PER) of about 22, the annualized expected return over ten years was between -2∼2%. According to market research firm FactSet, the S&P 500's 12-month forward price-earnings ratio was 22.4 in a report on the 14th.

Dalio said, "What typically bursts bubbles is (tightening) monetary policy, and we do not have such a policy situation now," adding, "We are in a bubble area but there are not yet factors to burst it." He also pointed out that "the need for cash always bursts bubbles," and said that cases such as a wealth tax imposed at the federal or state government level could be factors that burst bubbles.

Dalio founded the hedge fund Bridgewater in 1975 and grew it into the world's largest fund, earning him the nicknames 'godfather of hedge funds' and 'Wall Street guru (meaning mentor)'.

Bridgewater warned the market in 2007 about the possibility of a crisis due to excessive debt, and during the 2008 financial crisis it maintained its fund assets intact amid market turmoil, gaining renown. Dalio has stepped back from the front lines of Bridgewater management.

Reporter Park Su-rim, Hankyung.com paksr365@hankyung.com