Ray Dalio has done it again.
Back during the 2018 Davos boondoggle, the Bridgewater founder mocked the "stupidity of holding cash", and predicted that "if you're holding cash, you're going to feel pretty stupid." One week later, the market suffered a 10% correction, and on Dec 31 of that year, cash would end up being the best-performing asset of the year.
Fast forward to Davos 2020, when speaking to CNBC last week, the billionaire investor doubled down saying "Cash is trash," and adding "Get out of cash. There's still a lot of money in cash."
"You can't jump into cash. Cash is trash," says @RayDalio. "You have to have a well-diversified portfolio, you have to be global, and you have to have balance...and you have to have a certain amount of gold in your portfolio." pic.twitter.com/lZqCnvsqBh— Squawk Box (@SquawkCNBC) January 21, 2020
Just a few days later, the market suffered its biggest drop in months as traders finally realized that the Chinese global coronavirus pandemic is, as the name implies, a global viral pandemic, one which could have a devastating toll not only in terms of human capital but also crippling the Chinese, and thus global economy, and as a result a global liquidation wave reallocation capital out of risk assets and into gold, bonds and, yes, cash.
In other words, maybe cash isn't trash after all, because as Bloomberg reports, when evaluating market impact of the coronavirus outbreak, Dalio - who admits he knows nothing about pandemics - wrote in his daily note on clients that it is time to play safe and hedge his bets.
"When you don’t know, the best investment strategy is to be smartly diversified across geographic locations, across asset classes, and across currencies," he wrote, stopping just shy of endorsing trash, pardon cash.
The global coronavirus pandemic has triggered what Dalio describes as "flight-to-quality market action," with equities selling off globally, while bonds, gold and - yes - cash have rallied.
Forever dazzling with his mastery of the obvious, Dalio - who once upon a time endorsed the hilarious concept known a "beautiful deleveraging", which a few years later led the CBO to predict the following not so beautiful trajectory for US debt/GDP...
... then notes that "being able to understand how investors are reacting will be key." Which, for those wondering, is not somehow more profound than it sounds.
"We want to pay attention to what’s actually happening, what people believe is happening that is reflected in pricing (relative to what’s likely), and what indicators that will indicate the reversal", he said, staking yet another claim on the "less than profound statement" scale.
In a note documenting major pandemics dating back a century, Dalio said that no one has any clue on where and to what extent the coronavirus will spread and how will it impact economies and markets. He went on to discuss the economic impact of the Spanish flu that rocked the world in the early 19th century and killed more people than World War I.
In short, Dalio has no idea what happens next and so cash may not be trash after all.