Billionaire hedge fund manager Ray Dalio dominated financial media headlines when he said “cash is trash.” On Wednesday he was given an opportunity to clarify what he meant in a Fox Business interview.
Dalio, the founder of Bridgewater Associates, said on the Fox Business interview that investors holding cash as an investment will see “zero” return. In addition, growing deficits at the federal government level will need to be addressed by printing more money which is a negative for cash.
The only time investors should be holding cash is in a tight monetary policy, according to Dalio. But this type of environment won’t be seen in 2020 as a tightening monetary policy by default would drive assets lower and this wouldn’t bode well for U.S. President Donald Trump ahead of the election.
Catalysts A Thing Of The Past
Many of the catalysts which supported attractive returns over the past years is dissolving or have already come to an end, Dalio said. For example, interest rates can’t move much lower, corporate taxes were already cut and can’t be lowered again. Also, companies have maxed out their cash available to finance either stock buybacks to support earnings per share growth or count on mergers to grow inorganically.
These catalysts were mostly U.S.-centric and investors can find opportunities in stock markets worldwide. Also, exposure to gold bodes well at a time when government debt worldwide offers a negative yield.
Investors can scratch off Europe from their checklist as the continent isn’t showing any promising technological revolutions that offer attractive returns. Meanwhile, the central bank isn’t showing a compelling monetary policy to attract global investors.
China Knows How To Attract Investors
On the other hand, the quality of entrepreneurship and technological innovation from China will attract global investors. In return, this would further convince the Chinese government to further pivot away from its existing economic system and embrace American-style capitalism.
China deserves some credit for transitioning away from a pure communist regime, according to Dalio. In fact, the current environment is far from “your grandfather’s communism.” Instead, China is investing heavily in information technology and leveraging all data to generate more billionaires.
“They understand that you have to win technology,” he said.
However, part of China’s economic development over the years can be attributed to the government’s theft of intellectual property. Dalio said the world is a very competitive place and he is merely a “simple investor.” What really goes on behind the scenes in China is “really beyond my understanding.”