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Next big opportunity: Bond bubble bursting

December 12, 2012: 4:31 PM ET
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The Carlyle Group's David Rubenstein, Blackstone Group's Stephen Schwarzman and Bridgewater Associates' Ray Dalio all agree that the burst of the interest rate bubble presents the next big investing opportunity.

It's going to be tough to call, but three of the world's biggest investors agree that the next big money-making opportunity will be when interest rates rise from their historic lows and the bond bubble bursts.

"The greatest fortune made in the next five years is probably going to be made by some group or individual who figures out when the interest rate market will turn," said billionaire David Rubenstein, co-founder of private equity firm Carlyle Group.

But the hard part is timing that turn. "I don't know what will burst the interest rate bubble," he said during a conference Wednesday hosted by The New York Times' Dealbook.

Related: Carlyle's Rubenstein: Where we're not investing

While Rubenstein didn't dare forecast when interest rate will begin to rise, fellow panelist Ray Dalio, founder of Bridgewater Associates, gave it a shot.

Warning that "he who lives by the crystal ball is destined to eat ground glass," Dalio predicted that interest rates could begin to turn toward the end of 2013.

The Federal Reserve, which has had policies in place to keep interest rates low since late 2008, said Wednesday that it will begin to reverse its easing policies when the job market improves substantially, with the unemployment rate falling to 6.5%, or when inflation exceeds 2.5% a year.

While it's not imminent, Dalio said that biggest opportunity next year will come from shorting bond markets around the world.

Dalio also said there's a place for gold in the portfolio, and predicted that stocks and emerging market currencies will deliver stronger performances than bonds.

Meanwhile, Stephen Schwarzman, the founder and chief executive of private equity firm Blackstone Group, said he would move out of junk bonds, which come with fixed interest rates, into debt that offers floating rates, interest rates that would rise along with the market, including debt from highly leveraged banks.

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