Ray Dalio: Investing in Bonds is “Stupid,” Rather Borrow Cash to Buy Higher-Returning Assets
Because holding cash “is and will continue to be trash.” The billionaire hedge fund manager says there’s so much money injected into the markets that they have become casinos with “people playing with funny money.”
Ray Dalio, the founder and Chairman of Bridgewater Associates, is calling bonds a bad bet amidst the money printing and inflation, putting them in line with his disdain for holding cash which, according to him, “is and will continue to be trash.” For him, no US dollar-denominated asset, for that matter, is a good bet right now.
“The economics of investing in bonds (and most financial assets) has become stupid,” he said Monday in a post on LinkedIn.
“Rather than get paid less than inflation, why not instead buy stuff — any stuff — that will equal inflation or better?”
Dalio advises watching central bankers’ action, increasing their bond-buying when rates are rising led by long-term interest rates when both the markets and economy are strong, “because that action would signal that they are experiencing supply/demand problems.”
The rate of change in the injections of the stimulants also needs to be watched in relation to their effect on economies’ vigor because “the more stimulants that are being applied per unit of growth, the less effective they are and the more serious the situation is.”
In the past few weeks, we saw a ferocious sell-off in US government debt markets which is also spilling into corporate bonds while the economy is still recovering from the pandemic shock amidst a vaccine rollout and the passing of President Joe Biden’s $1.9 trillion stimulus package.
The New Paradigm
As a matter of fact, the billionaire investor says it may even be a good time to borrow cash to buy higher-returning non-debt investment assets.
Although Dalio hasn’t really mentioned Bitcoin, except for government intervention on the movement of capital in assets like Bitcoin and gold, given that the leading digital asset is the best-performing asset of the last decade and currently up over 15.3x from its March lows, it is the best option for investment.
Meanwhile, this new paradigm of “more shocking than expected” tax increases and prohibitions against capital movements to other assets could make the US “become perceived as a place that is inhospitable to capitalism and capitalists.”
Combined with the rising amounts of government debt and “classic bubble dynamics” among different asset classes, the hedge fund manager recommends a “well-diversified” portfolio.
“A well-diversified portfolio of non-debt and non-dollar assets along with a short cash position is preferable to a traditional stock/bond mix that is heavily skewed to US dollars.”
Regarding the bubble in many assets, he pointed out that “There’s just so much money injected into the markets and the economy that the markets are like a casino with people playing with funny money.”