- “We are in an era of the most massive MP3/helicopter money monetary stimulation since WWII” said Billionaire investor
- Cash is trash and US dollar is on short squeeze, he said
Ray Dalio, founder of the world's largest hedge fund, Bridgewater Associates thinks cash is not the best asset to hold in a world where central banks are printing money and keeping interest rates low in response to the coronavirus pandemic.
Cash, non-interest-bearing money, “will not be the safest asset to hold,” said the billionaire investor during a Reddit Ask Me Anything event on Tuesday as “We are now in an era of the most massive MP3/helicopter money monetary stimulation since WWII.” And this money and credit creation cannot produce goods and services or employ people.
Cash is trash or king?
Clarifying his stance of “Cash is trash” while it is currently being seen as the king, Dalio said he believes central banks will print a lot of money and keep cash interest rates at such low levels that they will have negative real returns.
When the coronavirus hit and had a negative impact on earnings and balance sheets, asset value plummeted making cash look comparatively attractive. But central banks only created a ton more cash to buy debt and push interest rates lower.
“When you think about what assets are safe to own, and you think of cash, please remember that while it doesn't move around in value as much as other assets, there is a costly negative return to it in relation to goods and services and other financial assets that amounts to about a couple of percent a year, which adds up.”
As such he still thinks cash is trash in relation to gold and some stocks that will retain or increase their value during reflationary periods.
What's happening with the US Dollar?
When it comes to the US dollar in the backdrop of the rolling of the money printing press, the world’s currency is currently having a “short squeeze.” Dalio explained that,
“the world desperately needs dollars and, as a result, there is a global shortage of them, which supports the dollar.”
But with the “world's printing press” producing more dollars, it is having a short squeeze which will eventually end because enough creation of USD will satisfy the shortage of dollars or it won’t in which case, there will be debt defaults and restructurings reducing the need for dollars. And at that stage, the dollar will weaken.
Are debt assets good storeholds of wealth?
In response to the global crisis, Dalio said he’s been surprised and inspired by healthcare workers, teachers and small merchants, and those on the front lines. He said,
“I think that pursuing peace and savoring life, rather than fighting over wealth and power, is much wiser.”
In one of his quotes, the bitcoin critic said,
“increasingly there will be questions by bondholders who are receiving negative real and nominal interest rates while there is a lot of printing of money about whether the debt assets they are holding are good storeholds of wealth.”