Ray Dalio: Hold Cash, don't buy bonds

[erjkism]

Thoughts?

https://www.cnbc.com/2023/09/15/bridgewaters-ray-dalio-hold-cash-for-now-dont-buy-debt-and-bonds.html


As concerns mount over rising interest rates and inflation levels, billionaire investor Ray Dalio says he prefers to hold cash for now, not bonds.

“I don’t want to own debt, you know, bonds and those kinds of things,” the founder of Bridgewater Associates said when asked how he would deploy capital in today’s investment environment.

“Temporarily, right now, cash I think is good … and the interest rates are fine. I don’t think [it] will be sustained that way,” Dalio told an audience at the Milken Institute Asia Summit in Singapore on Thursday.

Dalio’s comments come as the yield on the 30-day U.S. Treasury bill climbs above 5% while investors can get 4% on certificates of deposit and high-yield savings accounts.

Dalio says the biggest mistake that most investors make is “believing that markets that performed well are good investments, rather than more expensive.”

When asked how a new industry watcher should deploy capital, Dalio’s advice was: Be in the right geographies, diversify, pay attention to the implications of disruptions and pick asset classes that are creating new technologies and using them “in the best possible way.”

Rising debt
Touching on how to address the rising global debt, the hedge fund manager pointed out that when debt accounts for a substantial share of a country’s economy, the situation “tends to compound and accelerate … because you have to have interest rates that are high enough for the creditor and not so high that they are harming the debtor.”

“We’re at that turning point of acceleration. But the real problem comes when individuals or investors don’t hold the bonds, because it comes as a supply-demand, one man’s debts or another man’s assets,” he explained.

Dalio cautioned that investors will sell their bonds if they are not receiving real interest rates that are high enough.

“The supply-demand [imbalance] isn’t just the amount of new bonds. It’s the issue of ‘do you choose to sell the bonds?’” he explained.

When there’s a sell-off in bonds, prices fall and yields rise, as they have an inverse relationship. As a result, borrowing costs will increase and drive up inflationary pressure, thereby posing an uphill task for central banks.

“When the interest rates go up, the central bank then has to make a choice: Do they let them go up and have the consequences of that, or do they then print money and buy those bonds? And that has inflationary consequences,” Dalio explained.

“We’re seeing that dynamic happen now. I personally believe that the bonds longer term are not a good investment,” he stressed.

[Heckler]

https://investor.vanguard.com/investor-resources-education/understanding-investment-types/what-is-a-bond

Bonds (and most recommend Bond Funds), then, give you 2 potential benefits when you hold them as part of your portfolio: They give you a stream of income, and they offset some of the volatility you might see from owning stocks.

Our Canadian bond index VAB has already lost a few bucks per unit due to increases in income they will produce (~$25 for ~10 years before 2020, ~$27 in peak covid and now down to $22 per unit).  Now's a great time to rebalance to my 30% allocation of fixed income, sell equity high, buy fixed income low.

Granted, as we get closer to the FU date, I did increase cash holding to 5%, as part of the 30% fixed income.

To Ray, I say "diversify and https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_philosophy#Never_bear_too_much_or_too_little_risk"

[mistymoney]

seems 3 years too late on that tip....

[ChpBstrd]

There must be some context missing from the reporting because Dalio's theory involves governments increasingly relying on money-printing to cover rising debts until their currencies are devalued and lose reserve status. I do not see how buying a CD instead of a bond would protect an investor against currency devaluation.

Possibilities:

1) What Dalio really meant was to not take on too much duration, or that term spreads are too low to compensate investors for taking on duration risk and the risk of rates rising from here. This explanation makes sense in the context of Dalio's comments about a possible wave of selling in bonds. The fact this explanation is over the heads of most financial journalists also checks out.

2) Dalio was not talking about USD or domestic bond assets, but was instead talking in a European or Asian context. He was, after all, speaking in Singapore per the article.

3) What went unreported was a connection Dalio was making between the risk of interest rates rising further and credit risk.

[Dicey]

In retrospect,  I wish I'd counted my HCOLA mortgage as a bond and put the rest in equities.

Now that CD's are in the 5% range, holding them seems much more attractive than bonds. No risk + liquidity seems a better path.

[Must_ache]

Yeah I steered clear of bond funds because of the duration problem associated with higher interest rates. 
Owning bond funds could be a good thing again when the yield curve uninverts and/or it seems like interest rates could decline again (prob not anytime too soon)

[ChpBstrd]

Yeah I steered clear of bond funds because of the duration problem associated with higher interest rates. 
Owning bond funds could be a good thing again when the yield curve uninverts and/or it seems like interest rates could decline again (prob not anytime too soon)

Bond funds could be a good deal today for the same reason they were a bad deal in 2021. And you get paid to wait. To think otherwise, Dalio would need to believe more rate hikes were on the way.