Ray Dalio is not a fan of bands.
The founder of Bridgewater Associates, the world’s largest hedge fund company, denounced the “low volatility yields” of bonds in a LinkedIn blog post Monday, urging a mixed portfolio.
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“The economy of bond investment (and most financial assets) has become silly. . . Instead of being paid less than inflation why not buy something – any material – that is equal to or better than inflation? ”
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(Yield on 10-year US Finance note TMUBMUSD10Y,
withdrawn from one-year highs Monday, ahead of a meeting with the Federal Reserve.)
Dalio has never been keen on keeping money either – and still isn’t.
“I believe that money is and will be a waste (ie, they have yields that are very negative compared to inflation) so it pays to a) borrow money rather than keep it as assets and b) higher yielding purchases, non-return of debt investment funds, ”he wrote.
“History and logic show that central banks, when faced with a supply / demand imbalance situation that would cause interest rates to rise to greater levels than are due to economic conditions, will print the money to buy bonds and create ‘yield curve controls’ to prevent bond yields and reduce cash, ”Dalio said. “That makes a lot of money to have and get a good loan. ”
Read: Comment: Why inflation makes bonds for a long time more risky than holding stocks
Dalio also warned that a wealth tax in the U.S., like the one proposed by Sen. Elizabeth Warren, would only lead to capital outflows and efforts to avoid the taxes. “The United States could be seen as an unsustainable place for capitalism and capitalists,” he wrote.
So what does Dalio offer in today’s market?
“I believe that a fully diversified portfolio of non-debt and non-dollar assets combined with a short cash position would be preferable to a traditional stock / bond combination that is heavily denominated in US dollars. I also believe that assets in the mature developed currency countries will outperform the markets of Asian countries (including Chinese). I also believe that you should be mindful of tax changes and the ability to control capital. ”