Not worried about whether the Fed will taper or not, Ray Dalio's concern is whether the Fed even has any bullets left to use. Asset purchases work decently when asset prices are low, but with valuations high, QE is far less effective, he argues, meaning the central bank has far less power to affect the economy now.
Put another way, at this point Fed policy is generating a large financial asset bubble in order to get just a small pickup in the economy.
"The dilemma the Fed faces now is that the tools currently at its disposal are pretty much used up" - interest rates are zero and asset prices so high that low relative levels of return are nearly assured. "The Fed will either need to accept that outcome, or come up with new ideas to stimulate conditions. ... the degree and pace of tapering will for the most part be a reflection and not a driver of conditions, and won't matter that much. What will matter much more is the efficacy of Fed stimulation going forward."
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