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RayDalio: “Cash Is Trash ” & "Bridgewater Is Long Equity Markets" Two Videos
FYI: Billionaire Ray Dalio, the founder, co-chairman, and co-CIO of Bridgewater Associates, discusses the investment environment with Bloomberg’s Tom Keene and David Gura on Bloomberg Radio and Television Regards, Ted http://ritholtz.com/2017/10/dalio-cash-worst-asset-can/
This has to be disheartening to Billionaires (or even Millionaires) when the very thing (their financial valuation) is trash. What are future Trillion-aires to do?
I still think many Hundred-aires and Thousand-aires find cash a necessary part of their everyday life and are impacted greatly by its "trashiness".
Here is an interesting read on today's financial alchemy which, in part, explains why "Cash is Trash" and other assets aren't much better.
I wouldn’t tell that to my 88-year old widow neighbor. And while something surely will outperform cash over the next decade, it’s a fool’s errand to pretend to know which asset. Bonds are overpriced. Equities probably so. That leaves real estate, industrial metals, agriculture/timber resources, precious metals and energy. My guess is it’s one of the last group - but only a guess. That’s a pretty short interview. Dalio didn’t say, but I’d have to think a hedge fund would use cash at times while waiting for better opportunities to come along. Another approach is to sell markets short - but it’s expensive and can be deadly if you get caught leaning the wrong way. -
Added 10/29 The comment by Dalio prompted me to look back in time. Had he said “Cash is trash today” he’d be nearer the mark. Those with short memories may not recall that we got into this situation because Dalio’s “superior“ asset classes mostly crashed and burned beginning in late ‘07 and continuing until March ‘09 when they began turning up. Today’s 1% cash rates are mostly the result of intense efforts by central banks around the world (and here at home) to reflate those assets.
Here’s a link to a longer term interest rate chart. Note that cash wasn’t always so trashy. For many years, especially in the ‘80s bank CDs of relatively short duration yielded in the vicinity of 7-12%. The chart doesn’t show money market fund yields. But my memory is that money market fund yields of 15% or higher were common for several of those same years. http://www.bankrate.com/banking/cds/historical-cd-interest-rates-1984-2016/
Is cash a good inflation hedge? No. Do yields on cash roughly track inflation? Yes. Looking to diversify further, a few months ago I added a limited term bond fund (OUSGX) to the small segment of my portfolio earmarked as an inflation hedge (areas expected to outperform during times of higher inflation). It joins a global bond fund, real estate, a real asset fund and an infrastructure fund in that category. Yield isn’t great right now (around 2%) but it would likely increase if severe inflation were to return.
As a daily reader of one European newspaper, I can tell you parts of the continent, notably the UK, have been dealing with meaningfully rising inflation. I’ve seen anecdotal signs it may be stirring in the U.S. In specific: lumber and construction supplies and fresh produce. The later may be linked to the reduced number of temporary immigrant farm workers coming into the U.S. for harvest and other ag functions.
Dalio believes that while America is currently leading the world in a tightening phase, the next central bank short term debt cycle will be one of easing in response to a new market correction or recession. He further believes that the central bank easing will not be terribly effective. "Pushing on a string" is the phrase he used. Finally, he's outlined that one potential outcome of ineffective central bank easing is rising inflation.
It's in this context that I read his "cash is trash" comment and recent comments in favor of gold.
Comments
I still think many Hundred-aires and Thousand-aires find cash a necessary part of their everyday life and are impacted greatly by its "trashiness".
Here is an interesting read on today's financial alchemy which, in part, explains why "Cash is Trash" and other assets aren't much better.
Volatility and the Alchemy of Risk:
Artemis_Volatility+and+the+Alchemy+of+Risk_2017
Ray on Volatility:
I wouldn’t tell that to my 88-year old widow neighbor. And while something surely will outperform cash over the next decade, it’s a fool’s errand to pretend to know which asset. Bonds are overpriced. Equities probably so. That leaves real estate, industrial metals, agriculture/timber resources, precious metals and energy. My guess is it’s one of the last group - but only a guess. That’s a pretty short interview. Dalio didn’t say, but I’d have to think a hedge fund would use cash at times while waiting for better opportunities to come along. Another approach is to sell markets short - but it’s expensive and can be deadly if you get caught leaning the wrong way.
-
Added 10/29 The comment by Dalio prompted me to look back in time. Had he said “Cash is trash today” he’d be nearer the mark. Those with short memories may not recall that we got into this situation because Dalio’s “superior“ asset classes mostly crashed and burned beginning in late ‘07 and continuing until March ‘09 when they began turning up. Today’s 1% cash rates are mostly the result of intense efforts by central banks around the world (and here at home) to reflate those assets.
Here’s a link to a longer term interest rate chart. Note that cash wasn’t always so trashy. For many years, especially in the ‘80s bank CDs of relatively short duration yielded in the vicinity of 7-12%. The chart doesn’t show money market fund yields. But my memory is that money market fund yields of 15% or higher were common for several of those same years. http://www.bankrate.com/banking/cds/historical-cd-interest-rates-1984-2016/
Is cash a good inflation hedge? No. Do yields on cash roughly track inflation? Yes. Looking to diversify further, a few months ago I added a limited term bond fund (OUSGX) to the small segment of my portfolio earmarked as an inflation hedge (areas expected to outperform during times of higher inflation). It joins a global bond fund, real estate, a real asset fund and an infrastructure fund in that category. Yield isn’t great right now (around 2%) but it would likely increase if severe inflation were to return.
As a daily reader of one European newspaper, I can tell you parts of the continent, notably the UK, have been dealing with meaningfully rising inflation. I’ve seen anecdotal signs it may be stirring in the U.S. In specific: lumber and construction supplies and fresh produce. The later may be linked to the reduced number of temporary immigrant farm workers coming into the U.S. for harvest and other ag functions.
Sorry so long winded.
Dalio believes that while America is currently leading the world in a tightening phase, the next central bank short term debt cycle will be one of easing in response to a new market correction or recession. He further believes that the central bank easing will not be terribly effective. "Pushing on a string" is the phrase he used. Finally, he's outlined that one potential outcome of ineffective central bank easing is rising inflation.
It's in this context that I read his "cash is trash" comment and recent comments in favor of gold.