Reiterating his initial "cash is trash" call from January 2020, Ray Dalio, Bridgewater Associates Founder, Co-Chief Investment Officer and Member of the Board told Andrew Ross Sorkin on CNBC this morning that:
“Of course cash is still trash... Do you know how fast you’re losing buying power in cash?”
"So when I say cash is trash, what I mean is all currencies in relationship to the euro, in relationship to the yen, all of those currencies like in the 1930’s will be currencies that will go down in relationship to goods and services."
Unfortunately, he added, this doesn't mean that investors will be much better off keeping their money in stocks or bonds, because "equities are trashier".
Dalio warned that after more than a decade of unprecedented equity market gains, the problem has become the fact that too many investors are crowded into stocks, and while the last few weeks have been a relative bloodbath for some, Dalio says there is room for more pain to come...
"Here's the dynamic that I think is a problem: everybody is long equities, and everybody wants everything to go up.
“The more they hype it the more it becomes somebody else’s financial asset they’re holding.
"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, that system won’t work that way,” Dalio explained.
And bonds are no better...
"The federal reserve is going to sell, individuals are selling, foreigners are selling, and the U.S. government is selling because it has to fund its deficit. So there’s going to be a supply/demand problem, that means that it produces a squeeze."
With inflation crushing real returns, Dalio suggested investors would be better off with "real" assets like real estate (echoing Guggenheim’s Scott Minerd, who said he expects real estate and art to outperform stocks over the next five years).
"...the question is... what's going to get you a real return?"
And finally, Sorkin asked what are the chances of a 'soft-landing':
"Can the Fed reduce demand without breaking the back of the economy?" Sorkin asked.
“The answer is no,” Dalio replied.
His solution includes cryptocurrencies (a tiny amount) and gold.
"I think blockchain’s great. But let’s call it a digital gold. I think a digital gold, which would be a bitcoin kind of thing, is something that – probably in the interest of diversification of finding an alternative to gold – has a little spot relative to gold and then relative to other assets."
Dalio ends by nothing that "we are in an environment that we are now going to ask 'what is the new money?"
Watch the full interview below, where he discusses the clash of great powers and much more: