Ray Dalio recommends investors should be prepared for low returns in a backdrop of more central bank money printing, in his latest podcast.
March’s bank bailouts resulted in billions of dollars being created to buy toxic assets, in other words, they are doing QE again. Faced with a systemic crisis, global bank runs becoming contagions central banks have reverted to the path of least resistance, QE by default.
“March’s bank bailouts resulted in billions of dollars being created to buy toxic assets”
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Inflation is a stealth tax, Ray Dalio recommends investors should act accordingly
Ray Dalo noted that creating and monetizing currency widens the wealth gap, as it did from 1930 to 1945.
He noted that China’s challenge to US dominance has many implications and believes both countries are competing in technology, trade, geopolitics, and global capital flows.
Ray Dalio notes that in a unipolar world, one superpower with a reserve currency, there is a period of peace and prosperity. Peace for whom?
Iraq was destroyed to keep the petrodollar alive, and the dollar on the throne. The millennium has seen decades of wars in Iraq, Libya, Syria, Afghanistan, and in Europe.
Prosperity for whom? For the first time in generations, the next generation lives worse off than their parents. Living in a pod, eating bugs, and being saddled with student debt is no definition of prosperity.
“Ray Dalo noted that creating and monetizing currency widens the wealth gap, as it did from 1930 to 1945”
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Ray Dalio recommends investors should plan for further currency debasement
“Because the US has a reserve currency and the opportunity of borrowing cheaply, and that gets everyone deeper into debt. So you have debt increases, bubbles, and prosperity,” he said.
“But you get to a point when there are limitations to that,” he added.
This is when central banks cannot easily monetize the debt.
In other words, when investors perceive the sovereign debt to be no longer a store of value that protects wealth against inflation.
Argentine sovereign bonds yield nearly 50%, but inflation is currently 100%. So no surprise there are no takers.
“You’re going to see favorable capital flows to China with 45% IPOs done in China’s markets” – Ray Dalio
Ray Dalio recommends monetary policy 3 is needed
“MP 3 means that the free market will play a much less role in determining those capital flows. So it will be a much more political decision, and the central bank will monetize those political decisions,” he said.
“MP 3 means more debt monetized and has implications for financial assets and the currency,” he added.
But business is more efficient in employing capital than government, where the latter leans towards multi-billion dollar white elephants, bridges that lead to nowhere, airports that have never seen a plane land, and abandoned stadiums.
More mal investments mean investors are unwilling to buy the debt.
He noted that printing money doesn’t increase living standards, as it shifts wealth away from cash and bonds into financial assets; it always sends stocks and gold higher.
Ray Dalio recommends diversification
He sees further internationalization of the Chinese renminbi and the rise in its importance.
“You’re going to see favorable capital flows to China with 45% IPOs done in China’s markets,” he said.
Ray Dalio thinks cash is risky and recommends diversifying in countries, currencies, and markets.
