NEW YORK Hedge fund titan Ray Dalio said the economy had come out of the "intensive care unit," but he warned against any quick move to "austerity" budget measures.
"We were in the intensive care unit," Dalio, who runs the $120 billion hedge fund Bridgewater Associates, told more than 200 guests at the Council of Foreign Relations in New York on Wednesday. "We are largely healed and largely operating in a manner that is sustainable if we don't hit an air pocket."
Dalio said a major challenge for U.S. politicians will be dealing with the so-called "fiscal cliff," the year-end expiration of the Bush-era tax cuts and previously agreed-upon cuts in defense spending and social programs, a combination which some economists say could lead to a recession.
Dalio sided with economists who worry that a sharp reduction in government spending could lead the United States back into recession.
"We can't just worry about too much debt," Dalio said. "We have to worry about too much austerity."
Dalio, who founded his firm in 1975 when he was in his 20s, is one of the most successful money managers in the $2 trillion hedge fund industry. His speech drew other Wall Street luminaries, including famed hedge fund manager John Paulson, who sat in the front row. Also in attendance was former Federal Reserve Chairman Paul Volcker.
Dalio, said he was monitoring the long-simmering financial crisis in the Euro Zone, and estimated losses on European debt could reach at least $2 trillion. Southern Europe is facing a "classic lost decade" of essentially zero-economic growth, he said.
Asked by an audience member about how much he worries about China, where growth has slowed and a leadership change is on the horizon, Dalio said volatility there would affect the United States, but he did not "think they are going to go into a tailspin."
For much of his time on stage, Dalio spoke of his approach to investing, past economic crises and his view on the global deleveraging process in a professorial way, even as host Maria Bartiromo tried to coax more precise answers from her guest about exposure to certain asset classes, or where Europe will be in one year's time.
On more specific investments, Dalio did say "there is no sensible reason not to own gold" and that he would not "buy oil right now."
The 63-year-old manager saw losses in his flagship fund in the first half of 2012, after double-digit gains in 2011.
(Reporting by Katya Wachtel; Editing by Lisa Von Ahn and Tim Dobbyn)