Ray Dalio sees reflation portfolios outperforming in an era of unprecedented monetary and fiscal stimulus where the central banks are creating endless currencies to support a policy of unparalleled government spending.
A reflation portfolio seeks alpha by investing in assets that are more likely to benefit from the expansion in the level of output of an economy by government stimulus, using either fiscal or monetary policy.
“Ray Dalio sees reflation portfolios outperforming in an era of unprecedented monetary and fiscal stimulus”
THE WEALTH TRAINING COMPANY
Ray Dalio sees reflation portfolios outperforming and the billionaire investor could be bang on the money, bearing in mind that signs of global reflation are definitely in the air
The response of central banks and governments to the previous economic and financial crisis supports the view of why Ray Dalio sees reflation portfolios outperforming.
“What you find when you study history is that depression is mostly debt and liquidity crisis dealt with one way or another through an easing of monetary policy which changes over some time” said Ray Dalio in his latest interview.
“I describe monetary policy 1, interest rates; monetary policy 2, the printing of currency and buying financial assets (quantitative easing QE) and monetary policy (MP) 3, which we are in the printing of a lot of currency by the central banks then buying government bonds to finance the deficit,” said Ray Dalio.
MP3 also entails helicopter money, “getting money in the hands of those who wouldn’t have had it through the normal financial system” he said.
“What you find when you study history is that depression is mostly debt and liquidity crisis dealt with one way or another through an easing of monetary policy which changes over some time”
Ray Dalio sees reflation portfolios outperforming and he cites history to support his view when interest rates are near zero
Ray Dalio noted that in Mach 5, 1933 Roosevelt announced about severing the dollar from gold. “Depreciating it and reflating it to give the banks the money that they have to pay to their depositors” said Ray Dalio.
Furthermore, on August 15, 1971, Nixon announced in a televised broadcast that he is severing the relationship with gold and printing currency freely.
Equally, the European Central Bank President, Mario Draghi in 2012 created euros to cushion the impact of the peripheral sovereign debt crisis. Moreover, in 2008 the US administration and Congress put together the TARP program and the Fed embarked on trillions of dollars of QE, currency creation to buy assets, QE.
Ray Dalio sees reflation portfolios outperforming particularly when interest rates are at or near zero and in some cases, like the ECB and BoJ even negative
“Hitting of zero interest rates is not the hitting on the floor of the capacity of central banks to ease” he said.
So, when interest rates are stuck at historic lows and it looks like we are staring down the barrel of a Great Depression central banks rise to the challenge with endless currency creation.
“Central banks will not let implosion happen without printing a lot of money” said Ray Dalio.
But QE has been implemented repeatedly over a decade, the law of diminishing returns apply
When QE stimulates a rally in precious metals, cryptos then you know the monetary system is nearing breakpoint.
Ray Dalio sees reflation portfolios outperforming and he recommends diversification
“When I invest, I want a multi-country investment. I want a multi-country asset investment and a multi-currency investment” he said, “Concentration of any one asset class in any one country history has shown is dangerous” added Ray Dalio in his latest interview.