Investment master and billionaire Ray Dalio published a think piece titled It Starts With Inflation this week, which gives his current views on the economic situation and the financial markets. In it he projects a 20% decline in the financial markets from here. What is important though is not to simply to take a prediction like that and grasp on to it, but to understand how he got to it. The details in his piece explain what is happening with the economy, interest rates, and can provide a guide to understanding what is happening this year and where things are headed next year. 

A few months ago, many gurus were claiming that the Federal Reserve would “pivot” and untold numbers of people got fooled by these predictions – which were based on nothing. At no time did the Fed Fund futures suggest that the Fed would lower rates this year and now they are looking at this rate hike cycle taking the Fed Funds over 4% and likely over 4.5% before it comes to an end.

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