Are We Heading for a Recession?, with Bob Elliott, former Head of Ray Dalio’s Investment Team at World's Largest Hedge Fund

#597: A recession is coming, and it might be worse than most people expect. That's the sobering assessment from Bob Elliott, former Head of Ray Dalio's Investment Team at Bridgewater Associates, when he joins us on the podcast.

Bob explains that several economic factors are converging to create challenging conditions. The combination of current trade policies, persistent inflation issues, and a Federal Reserve that's constrained in its response is creating significant economic headwinds.

Tariffs play a central role in this economic outlook. While their inflationary impact remains debatable, their growth-negative effects are more certain. When imported goods become more expensive, consumers have less money to spend on other things. This reduces demand across the entire economy.

Manufacturing and reshoring aren't simple solutions either. Bob points out that building new factories takes about five years, with payback periods stretching 30 years. This timeline explains why CEOs hesitate to make such investments, especially in an environment where policies change unpredictably.

This uncertainty has driven CEO confidence to its lowest levels since the 2008 financial crisis, further complicating economic prospects.

For individual investors, Bob offers surprisingly straightforward advice. Despite his sophisticated background managing billions, he follows a simple personal investment strategy: dollar-cost averaging and diversification. He even limits himself to reviewing his investments just once annually — typically the Wednesday before Thanksgiving.

This disciplined approach prevents overtrading and removes emotion from investment decisions — principles that apply whether you're investing regular income or handling a windfall.

Throughout our conversation, Bob emphasizes that the US economy fundamentally runs on consumer spending. When policies redirect money from discretionary spending toward necessities, the effects ripple throughout the entire system.

Want to hear more of Bob's insights on recession probability, investment strategy, and economic policy? Listen to the full episode now.

Timestamps:

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(0:00) Introducing Bob Elliott, former head of Ray Dalio's investment team at Bridgewater

(2:56) Bob discusses high probability of recession due to growth-negative policies

(7:00) Tariffs likely growth negative in short-term despite long-term manufacturing goals

(14:20) Transition from global supply chains to parallel and redundant manufacturing systems

(19:50) Four economic levers: tariffs, tax policy, monetary policy, and government spending

(26:15) Stock market reacts to short-term expectations despite positive long-term outlook

(34:15) Bond markets performing well as growth slows; potential recession duration of 1-1.5 years

(45:40) Long-term productivity growth creates wealth despite short-term volatility

(53:15) Dollar-cost averaging and diversification recommended for individual investors

(59:15) Bob discusses founding GiveWell to identify highest-impact charitable giving

(1:11:10) Bob explains Unlimited Funds, making hedge fund strategies accessible to everyday investors

For more information, visit the show notes at https://affordanything.com/episode597

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