Ray Dalio Says ‘Money Is Still Trash’…But Stocks Are Even Trashier
It wouldn’t be Davos week without an exclusive CNBC interview with Ray Dalio of Bridgewater Associates, the founder of the world’s largest hedge fund by assets under management and one of the most followed market commentators – from less in the United States.
Dalio has become well known in recent years for explaining his long-term thesis on the US economy and assets in a series of lengthy LinkedIn articles that he also compiled into book form. And luckily for those trying to decode his thoughts, his outlook hasn’t changed all that much since the pandemic began.
Toward the start of Tuesday’s interview, CNBC’s Andrew Ross Sorkin cut to the chase and asked Dalio directly: Is money still “trash”? Dalio criticizes investors who have chosen to keep their powder dry for years, repeating his mantra even as markets crashed in the spring of 2020.
“Of course, money is always trash,” Dalio replied. “Do you know how fast you lose purchasing power in cash? »
Unfortunately, that doesn’t mean investors are better off keeping their money in stocks or bonds, because “stocks are trashier.”
At a time when inflation is weighing heavily on real returns, Dalio said investors would be better off with “real” assets like real estate – a position that was reflected yesterday in a piece by Guggenheim’s Scott Minerd, who said he expects real estate and art to outperform stocks over the next five years.
After a decade of successful stock returns, Dalio explained that the problem is that too many investors are crammed into stocks. And although the last few months have been characterized by relentless selling, there is still a lot of moss to be removed from the market before a balance can be reached.
“Here’s the dynamic that I think is a problem: everyone is long on stocks and everyone wants everything to go up.”
“The more they advertise it, the more it becomes someone else’s financial asset that they hold. You can’t have that, so you’re going to have an environment of negative real returns. Everything can’t go up all the time, this system won’t work that way,” Dalio explained.
With the US economy overheating and Americans battling the worst inflation in forty years and inflation becoming a global phenomenon, is it possible for the Federal Reserve to achieve its hoped-for “soft landing” for the economy ?
Dalio doesn’t think so.
Can the Fed reduce demand without breaking the back of the economy? asked Sorkin. “The answer is no,” Dalio replied.