Ray Dalio argues that money printing and debt should be of concern for investors. He also recommends diversifying portfolios and being very cautious about cash.
Ray Dalio is the founder of Bridgewater Associates, the largest hedge fund in the world. He believes that capitalism “does not divide the economic pie well” and that it does not work “efficiently and effectively enough for everyone.” The executive says that the United States must make appropriate decisions to provide better opportunities for its citizens.
Dalio states that capitalism is better than socialism at increasing productivity to increase the size of the economy. However, he believes that “capitalism and capitalists are not good at distributing the cake of economic opportunity.”
The investor anticipates that within the next five years foreigners who have given loans to the United States will no longer want to do so. “Then people worldwide would not accept the US dollar as easily as they do now,” said Dalio.
The hedge fund manager thinks that there will be a drastic change in the world within five years if no one solves these three issues. First, he raises the relationship between money and debt, the retention of the value of the US dollar, the maintenance of the increasing spiral of expenses, and debt in the face of declining production. “If there is no demand for the US dollar due to the loss of its hegemonic position in the rest of the world, its price will fall and the entire US economy will collapse.”
Concerning wealth, he is not clear about how to solve the existing gaps. He does not know if there will be confrontations or negotiation avenues that will emerge to close these gaps. Finally, he wonders about the way to handle the rise of a great power in China that is challenging the United States.
The economic system must undergo entire reengineering to face these contingencies, Dalio argues. Otherwise, it would be necessary to face the expenses that will grow in an excessively, and the creation of debt that “will be unpayable.” He affirms that the country is very close to that happening since people are “living with money that they owe.”
Dalio Recommends Caution with Cash
To help investors protect their portfolio and take advantage of market opportunities, Dalio recommends a proactive strategy. He tells them that they should worry about the value of money and investments.
Two worrying factors must be money printing and debt rising, according to Dalio. That is precise “what has raised the price of assets such as stocks and gold.”
According to the founder of Bridgewater Associates, knowing how to diversify is also advisable, since “wealth is not destroyed when it moves.” The solution is good diversification, while the investor must be vigilant about the value of cash.
Last April, Ray Dalio predicted that the upcoming economic crisis would have worse consequences than the 2008 US recession. On that occasion, the Gross Domestic Product (GDP) of the country fell by 4.3% due to the collapse of the real estate market. This situation gave rise to Bitcoin as the first cryptocurrency.
The Federal Reserve (FED) is artificially inflating the markets, so the conventional metrics to analyze them are no longer in effect. That could lead to the displacement of the US dollar as the reserve currency of the world, Dalio warned.
By Alexander Salazar