Ray Dalio says there’s a bubble that’s ‘halfway’ to the magnitude of 1929 or 2000

Billionaire investor Ray Dalio — who founded the world’s largest hedge fund, Bridgewater Associates — in a new interview warned that the stock market is a bubble “halfway” to the magnitude of those that triggered historic market crashes like the dot-com bust and the Great Depression.

Speaking with Yahoo Finance, he cautioned that some high-performing stocks have benefited from single-minded speculative trading focused on price, and he attributed recent market volatility to a rotation toward “meat and potatoes” companies that didn’t benefit from pandemic trades as much as some tech firms.

“What’s happened is that — like a lot of cycles go — a lot of new ideas, new technologies, new things come along, and they make fabulous revolutions,” he says. “And they grow things — and that’s great.”

“But there’s a tendency of investors to extrapolate the past and not pay too much attention to price, and when that happens you start to emerge as somewhat of a bubble,” adds Dalio, the co-chairman and co-chief investment officer of Bridgewater Associates, which holds about $150 billion assets under management.

“By our measures, the bubble is not what it was in 2000 and not what it was in 1929,” he says. “But it’s kind of like halfway there.”

Growing fears of a bubble
The warning from Dalio echoes growing concerns among some investors. But a recent note from Goldman Sachs tamped down such anxieties, arguing that the risk of an imminent bubble is “relatively low.”

Despite the onset of the pandemic last year, the S&P 500 (^GSPC) ended 2020 with a total return of about 18%, buoyed by tech giants that benefited from the increased popularity of services like e-commerce and streaming entertainment as COVID-19 shutdowns forced people into their homes.

Plus, money poured into the markets due to low-interest rates, stimulus checks, and expectations that the good times would continue when the economy eventually reopens and the recovery begins.