Ray Dalio, Chairman and Chief Investment Officer at Bridgewater Associates (the world’s largest hedge fund with $122 billion of assets currently under management), also known as the hedge fund king has taken to LinkedIn to shed some light on the biggest economic and social-political issues of our time.
Here is Ray Dalio’s LinkedIn post published on October 23, 2017, entitled Our Biggest Economic, Social, And Political Issue. The crux of Dalio’s piece is that a widening wealth gap and income inequality have contributed to a two-tier economy which is also causing social and political challenges. But is Dalio shedding light on anything new, after all just 8 men own the same wealth as half the world?
“The wealth of the top one-tenth of 1% of the population is about equal to that of the bottom 90% of the population, which is the same sort of wealth gap that existed during the 1935-40 period”
Cash is trash said Ray Dalio, particularly in an era of relentless central bank liquidity
In 2019 the S&P 500 stock Index achieved a whopping 30.43% return that year. But that was eclipsed by the NASDAQ, the benchmark index for US technology stocks which returned an eye-popping 39.39% In 2019. investment-grade corporate bonds gaining 14% in 2019. Treasuries returned 7.6%, high-yield bonds gained 12% and the broad commodity market, managed a 17.6% gain last year, even cryptocurrency, Bitcoin returned 92% in 2019.
Cash is trash said Ray Dalio because the hedge fund investor believes that stocks will continue to outperform in 2020
But past performance is no guarantee of future performance. For example, in 2018 cash was king.
Cash is trash said Ray Dalio, but given cash being king in 2018 should this view be ignored?
Ray Dalio’s statement about cash (fiat currency) is too general, it doesn’t distinguish between relatively stable G7 currencies and emerging currencies.
“Cash is trash said Ray Dalio, but given cash being king in 2018 should this view be ignored?”
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If you were holding the Turkish Lira, Sri Lankan rupee, Argentina’s peso, Nigeria’s naira, and the Venezuelan Bolivar you would agree with Ray Dalio’s cash is trash view
But in a crisis, stable currencies are hot and there is a thriving black market for them. In the last Greek sovereign debt crisis, there was a black market premium for US dollars. Nigeria’s recent currency crisis also triggered a US dollar black market. Moreover, Argentina’s sovereign debt crisis has resulted in the return of the US dollar black market. In short, stable currencies along with precious metals are in hot demand in a crisis.
“The polarity in economics and living standards is contributing to greater political polarity. It is also leading to reduced trust and confidence in government, financial institutions, and the media, which is at or near 35-year lows” – Ray Dalio
Cash is trash said Ray Dalio, so why did his fund perform so poorly in 2019
Ray Dalio’s flagship fund Pure Alpha funds returned no money for investors in 2019. The average stock mutual fund, by contrast, was up more than 31% last year. So what was the Pure Alpha fund invested in, if cash is trash?
Cash is trash said Ray Dalio, meanwhile his fund bets 1$ billion dollars that stock will fall but that is like telling everyone to Zig while he Zags. Ray Dalio is keeping the dumb money in while he stealthy lowers the life raft. Ray Dalio’s Principles? Perhaps the next title of his book should read the art of deception.
Cash is trash said Ray Dalio, but I have yet to spot a trash can stuffed with dollars outside his office.