Ray Dalio is the founder and Chief Investment Officer of Bridgewater Associates, the world’s largest macro hedge fund with $150 billion in assets under management. His investment letters are treasures that are passed around the investment community and read with avid interest. The latest one (https://www.bridgewater.com/research-and-insights/why-in-the-world-would-you-own-bonds-when) came out on Monday, March 15, and it’s a zinger. I’m no mean grouch myself, but compared to Ray Dalio, I’m Little Miss Sunshine.
“Why in the world would you own bonds?” is the opening sentence, and it goes downhill from there. “The economics of investing in bonds has become stupid,” he points out, yet bonds are the biggest asset class in the world, with $75 trillion of US debt assets outstanding. Owners of those assets will, at best, earn pretty much nothing after inflation and face a risk of substantial capital loss if inflation and interest rates rise. This debt has become too large, “like nuclear waste that can’t be disposed of.”
Central banks are likely to print money, put a cap on bond yields, and devalue cash. That will not be enough to shore up government finances, and policymakers will raise taxes: “these tax changes could be more shocking than expected. The United States could become perceived as a place that is inhospitable to capitalism and capitalists.”
Ray Dalio advises investors to raise the proportion of non-debt and non-dollar assets in their portfolio, keep only a small amount of cash, and reduce the traditional US stock/bond mix to a minimum. Emerging markets exposure (especially to Asia, including China) should be higher than developed markets exposure.
There is no mention of commodities in the letter. One can see why: with $150 billion in assets, Bridgewater is too big to allocate any meaningful position to commodities. That is a luxury reserved for smaller, nimbler investors.
Last week’s continuing trends:
- Palm Oil
- Taiwanese Equities
- Soybean Oil
- Lean hogs
- Russell 1000 Value Index
Last week’s reversing trends:
- Brazilian Real
- Iron Ore
- Oats
- Indian Equities
- European Wheat