Ray Dalio warns about holding cash, bonds

Market


The billionaire founder of Bridgewater Associates Ray Dalio renewed his warning about holding cash and bonds on Tuesday amid the ongoing, pandemic-fueled increase in debt creation and monetization in the U.S.

“This printing of money and buying of debt assets has driven interest rates so low that cash and bonds are stupid to own,” he wrote in a post on LinkedIn. “I think one should consider minimizing one’s ownership of cash and bonds in dollars, euros, and yen.”

Dalio, said it would be a good time to borrow in those currencies. Investments should be saved for stocks and inflation-hedge assets in socially and financially healthy countries, he added.

While Dalio has long been known for his interest in China and its rise as a global power, he said the current economic paradigm is being driven just as much by internal conflicts over wealth and values in the U.S. that have not been seen since the 1930s.

“There is great internal conflict going on in the United States now, which makes it a risky place,” he wrote. “For example, it is entirely possible that neither side will accept losing the 2024 election.”

Key Quotes:

– “In the US (and a number of other countries), wealth and income gaps are the largest since the 1930s.”

-“I think one should consider minimizing one’s ownership of cash and bonds in dollars, euros, and yen (and/or borrow in these) and putting funds into a highly diversified portfolio of assets, including stocks and inflation-hedge assets, especially in countries with healthy finances and well-educated and civil populations that have internal order.”

-“I don’t see any sustained period in which the government will likely allow cash returns to be better than the returns of a well-diversified, non-cash portfolio (e.g., All Weather) geared to the level of risk you’re comfortable with because that would cause terrible problems.”

-“The three major reserve currency empires—the United States, Europe, and to a lesser extent Japan—are in poor financial shape.”

-“The amount of financial assets relative to real assets is dangerously high, which could lead to a ‘bank run’-type move from financial assets to real assets.”

– “After revolutions and wars a new order—i.e., a new system run by new leaders—is created. For example, the last world order to be created came after WWII, in 1945. At that point in the cycle there is a dominant power, and nobody wants to fight the dominant power, so this part of the cycle is typically peaceful and, if managed well, prosperous. It is economically rewarding, which leads people to borrow and bet on it continuing, leading to over-indebtedness. Because economic opportunities are naturally distributed unevenly, large wealth gaps develop.”

-“As the dominant power weakens and other powers get strong enough to challenge it, there are greater internal and external conflicts that lead to revolutionary changes in who has what wealth and power. That ends the old order and leads to the next new order. That is now happening.”

 

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