Ray Dalio shares his insight into where we are in the cycles and how best to structure a portfolio in these challenging times.
Ray Dalio, probably the greatest macro investor of our age sees three events playing today similar to the 30s Great Depression.
Today, similar to the 1930s there is political polarity, a rising great power challenging the hegemon and a massive printing of currency to finance ballooning public debt.
“We are in a part of the cycle where you have tightening and the dominoes are beginning to fall,” said Ray Dalio.
“The next three years are going to be risky,” he added.
“Ray Dalio, probably the greatest macro investor of our age sees three events playing today similar to the 30s Great Depression”
RAY DALIO
Using supply and demand dynamics Ray Dalio gives his insight into USD reserve currency status
Ray Dalio notes that USD is held by countries in the form of debt, a debt instrument. “World has a lot of dollar-denominated debt. Investors of debt instruments look for yields high enough to compensate for inflation,” he said.
Ray Dalio notes that sanctions, the rise of trade amongst BRICS where transactions are taking place outside the dollar and people saving in currencies they transact is causing global demand for USD to fall.
“But the supply of USD keeps growing because of the large deficits,” he said.
“This supply-demand issue also exists in EURO, they have too much debt similar to the Japanese Yen,” he added
“All that weight in money and debt causes prices to go up, inflation. Supply chain issues also due to conflict, added to higher prices” said Ray Dalio
Ray Dalio noted the shift away from globalism to self-sufficiency, as countries prepare for war adds to inflation.
“But the supply of USD keeps growing because of the large deficits”
RAY DALIO
How to structure a portfolio in tumultuous times, Ray Dalio shares his insight
Ray Dalio notes two big influences on the market; growth and inflation.
“There are four quadrants; rising growth, falling growth, rising inflation, falling inflation. I want to have 25% of my portfolio in each quadrant so there is no bias. I pick assets that are doing well in each quadrant, and I hold them in a balanced way,” he said.
“If growth and inflation are less than expected, you want to own bonds.
If inflation is higher than expected than its commodities, gold and inflation-indexed bonds.
If growth and inflation are faster than expected, you want to own stocks,” he added.
“Robots and AI could solve the problem, but then you need to discuss how to redistribute wealth” – Ray Dalio
Ray Dalio shares his insight on a demographic time bomb, AI and robotics
He believes an ageing population will worsen the public deficit but hopes that productivity increases through automation and AI will reduce the burden.
“Robots and AI could solve the problem, but then you need to discuss how to redistribute wealth,” he said.
The big issue; Ray Dalio shares his insight
Excessive debt was created, and he believes the regional bank crisis in the US is a global problem. “Banks bought a lot of government bonds that had higher yields than what they were paying on deposits. Monetary policy tightened, yields increased, and the bonds portfolio fell in value. So, what they had to pay went up, so then went broke,” he said.
“They don’t want more of those bonds, but we will need to sell more bonds because of the ballooning deficit.
Interest rates could go higher, or the Fed will have to print.
The Knock-on effects; it will produce less credit and less spending,” he said.
