Cash Is Trash
Bridgewater founder and co-chairman, Ray Dalio, made comments on diversifying out of the markets and out of cash. Bridgewater is one the of world’s largest hedge funds.
Speaking with Andrew Sorkin on CNBC at the World Economic Forum in Davos, Switzerland today (Jan 21st 2020), he said,
“You can't jump into cash. Cash is trash. Because they’re going to print money. […] You have to have a well-diversified portfolio, you have to be global, and you have to have balance...and you have to have a certain amount of gold in your portfolio."[1]
The World Economic Forum, commonly referred to as simply “Davos,” is an annual event attracting some of the richest and most politically well connected people on the planet- particularly in the Western World.
Speaking with CNBC about how to make Americans wealthier* after Dalio, Larry Kudlow, Trump’s chief economic advisor as Director of the National Economic Council and former CNBC talking-head, said,
“There’s nothing wrong with a balance sheet rising but where are the tax cuts?”[2]
That quote followed a speech by President Donald Trump at Davos earlier in the day where he said,
“We’re forced to compete with nations that are getting negative rates, something very new. […] Meaning, they get paid to borrow money, something I could get used to very quickly. Love that.”[3]
The reason that the governments of Europe pay negative interest rates- meaning that they pay back less money than they were loaned- is because the European Central Bank is printing money to loan at negative rates to the governments to bail them out from raising taxes or cutting spending. Many of their citizens depend on taxes- and thus adding debt to tax payers- for their income as government employees or welfare recipients.
The reason that the debt balance sheet of the USA can rise while taxes are cut and interest rates remain low is because the Federal Reserve prints money to make up for the difference.
Higher rates mean more taxes or less spending by governments. Low rates mean that the central banks print money.
Cash is Trash.
“The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” -Ludwig von Mises, Human Action, pg. 570.
And also,
“I think we are actually at a point of encouraging risk-taking, and that should give us pause. Investors really do understand now that we will be there to prevent serious losses. It is not that it is easy for them to make money but that they have every incentive to take more risk, and they are doing so. Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy.” -Jerome Powell, Chairman of the Federal Reserve, then member of the Board of Governors, Oct 2012 Federal Open Market Committee
[3] Ibidem