Market Watch: Founder of world's biggest hedge fund warns of 'big squeeze' with investors 'buying dreams rather than earnings'

Article by Mark DeCambre in The Wall Street Journal Market Watch

Ray Dalio, the founder of hedge-fund behemoth Bridgewater Associates, believes investors haven’t necessarily been investing on a firm footing and that’s a condition that will eventually have to be rectified.

The prominent investor, during a particularly downbeat CNBC interview on Tuesday, suggested investors are flush with cash because of monetary policy but haven’t been discerning about selecting investment strategies. They are “buying dreams rather than earnings and stocks,” he said.

Dalio, whose fund counts some $150 billion in assets under management, painted a particularly gloomy picture of financial markets that have managed to register all-time highs after a fitful past several months.

The hedge-fund investor also said he believed that monetary policy is “stuck... you can’t raise rates because as a result of the stimulation companies and various entities have a lot more debt,” he said.

Hence, he warned that financial markets could be facing a “big squeeze.”

Dalio told CNBC at the Greenwich Economic Forum that he felt that companies will struggle to increase profit margins, which have been near records and with a greater likelihood of producing lower margins as companies struggle to cut costs further than they already have.

The 70-year-old investor also lamented the U.S. government’s budget deficit, which is just under $1 trillion in the just-closed fiscal year, according to the latest, almost official estimate by the Congressional Budget Office.

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