Interest Rates are So Low that Cash and Bonds are “Stupid to Own”

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If you aren’t getting an interest rate, then why would you keep your money there? You are guaranteed to get lousy rates, particularly on cash“– Ray Dailo,Founder, Co-CEO and Co-Chief Investment Officer, Bridgewater Associates

The central banks printing of money and buying of debt assets have driven interest rates so low that cash and bonds are stupid to own.

Cautioning investors against hoarding cash or bonds, Ray Dalio reiterated that investors should consider building a diversified portfolio of assets.

This paradigm is leading to a big shift in wealth and power. Naturally, as a global macroeconomic investor, the economic and market behaviours in this paradigm are top of mind. I think one should consider minimising one’s ownership of cash and bonds in dollars, euros, and yens (and/or borrow in these) and putting funds into a highly diversified portfolio of assets, including stocks and inflation-hedge assets, especially in countries with healthy finances and well-educated and civil populations that have internal order,” the billionaire investor said in a LinkedIn post on 4 January.

Explaining the concept of paradigm, Mr. Dalio said that “paradigms typically last about 10 years, with occasional big corrections” within them.

They are driven by a persistent set of conditions that takes those conditions in a swing from one extreme to an opposite extreme. Because of this, each in paradigm is more likely to be opposite than similar to the one before it,” he wrote.

“For example, in the Roaring ’20s, you’d want to own stocks and avoid bonds, while in the depressionary 1930s, it would be the opposite; in the inflationary 1970s, you’d want to own hard assets like gold and avoid bonds, while in the disinflationary 1980s, you’d want to own financial assets and avoid hard assets.

One person’s debts are another person’s assets, and imagine what would happen if the asset holder sells because the debts are unattractive, which they are. That would lead to either a big increase in interest rates or a huge increase in the printing of money to buy the debt to artificially hold interest rates down.

The amount of financial assets relative to real assets is dangerously high, which could lead to a ‘bank run’-type move from financial assets to real assets.

In the face of this inflationary inferno, consumers and institutions holding devaluing fiat currency have sought out alternatives to hedge against.

Bitcoin and many other cryptocurrencies are the current weapons of choice, driving the US SEC to embrace crypto as an investable asset class.

Have a prosperous week, Keep the Faith!