Ray Dalio still thinks that cash is trash and that it is not the best asset to hold in a world where central banks are firing up their money printers and keeping interest rates low, to zero and even in negative territory, in response to the coronavirus pandemic.
The non-interest-bearing money, Cash “will not be the safest asset to hold,” said the founder of the world’s largest hedge fund, Bridgewater Associates during a recent Reddit Ask Me Anything event on Tuesday.
Cash is not really valuable because “we are now in an era of the most massive MP3/helicopter money monetary stimulation since WWII.”
Dalio also pointed out that the government creating money and credit cannot produce goods and services or employ people.
Dalio has previously said that “cash is trash” but recently in the violent sell-off in the markets, cash emerged as the king when everyone ran for flight to safety in it.
The billionaire investor explained that he believes central banks will print a lot of money and keep cash interest rates at low levels resulting in them having negative real returns.
When the coronavirus pandemic hit first, it had a negative impact on earnings and balance sheets. This resulted in the asset value to plunge making cash look comparatively attractive. However, what central banks did was they just created a ton more cash to buy debt and push interest rates further lower.
“When you think about what assets are safe to own, and you think of cash, please remember that while it doesn’t move around in value as much as other assets, there is a costly negative return to it in relation to goods and services and other financial assets that amount to about a couple of percent a year, which adds up,” he said.
In relation to gold and some stocks that will either retain or increase in value during reflationary periods, cash is not a good option to go with.
As for the US dollar in the backdrop of the Federal Reserve printing a lot of dollars, the world’s currency is now having a “short squeeze.”
“The world desperately needs dollars and, as a result, there is a global shortage of them, which supports the dollar.”
But now that the “world’s printing press” is generating more dollars, it is having a short squeeze. This squeeze, however, will eventually end because there has been enough printing of USD to satisfy the shortage of USD. Or it won’t be enough which means there will be debt defaults and restructurings that will reduce the need for dollars and weaken the USD.
The bitcoin critic also said that in the light of negative real and nominal interest rates while the central bank is printing huge amounts of money, bondholders will be increasingly asking questions, “whether the debt assets they are holding are good storeholds of wealth.”