Ray Dalio: Don't Own Bonds, Don't Own Cash

could you give us a little more on that idea how does bridgewater adapt to the new world order that you've been thinking about for a long time i should add anybody who is familiar with your writing and your speaking knows that so i presume that some of the things that you're doing have been in the works for a little while but nevertheless here we are uh you know in november 2020 um and it it it's a different it's a different place than we were 11 months ago answer your question there's there's a business answer to the question how do we do operate business-wise and also portfolio i'd like to emphasize the portfolio because i think that's probably most relevant to other people um i um there there's a period of uh i think great uncertainty and great risk um and so um i think there are three words um diversification um liquidity and then differentiation um we uh we want to get we want to make sure that our investors are not uh just concentrated in some of the traditional markets so diversification of how to do that well can reduce risk without reducing uh opportunity and that means currency diversification including the reserve currencies how much exposure is to the reserve currencies but it means currency diversification has asset class diversification country diversification and that should be the starting point of portfolios in terms of liquidity it allows you the flexibility to change as circumstances change and differentiation is the most important consideration now there are two different worlds there are worlds that will be orderly and will prosper in this kind of an environment and you could see it when that differentiation versus other worlds and markets related to that that will uh be bankrupt and disorderly that kind of differentiation's important as far as the business goes um we have um you know the different location considerations and long relationships that we're building on uh ray i'm gonna ask you to continue because you just said something that that at the very least interested me this idea of bankruptcy and disorderliness where do you see that well you could see it um it's reflected in the income statements in balance sheet every individual every company every country um is they're good how well they are depends on how much their income is relative to their expenses and how much their assets are relative to their liabilities so you can see radical differences in the financial consequences of that second the ability the the proximity to those who are printing and distributing money are you a recipient of that for example a lot of the third world is not a recipient of that and is not in good financial situations and then there's order uh political and also social order so it when you could see it differentiated in the countries that are controlling the virus and behaving orderly and well together so you could see those differentiations reflected in the markets behavior and you can also see it reflected in the political and social conditions well we know that markets are discounting mechanisms ray i don't need to tell you interest rates at zero but i'll remind everybody that stocks keep rising to new records and not just here in the united states but globally p e ratios haven't been this high since the dot-com era the dollar to your point about currencies ray has slumped to a two and a half year low do asset prices and valuations make sense given the economic fundamentals some of which we've talked about here in this panel discussion and for that matter the policy outlook and what we can expect from a biden administration ray what do you think um you know when we look at interest rate uh markets we we look at the earnings yield when we look at stocks and we look at pes they're they're basically yields and um the capacity of central banks to pro to print money and buy financial assets has essentially let the bond market to go to multiples that are somewhere between 100 times you know you put a dot you put a dollar out and you'll get your money back in a hundred years it's because of the nature of so it's as a hundred time multiple you have to compare stock multiples to bond multiples and so the capacity of central banks to put liquidity into the system and to have that liquidity go to um produce high multiples is very real it also changes the economics of borrowing in other words if you can find something that makes anything more than a zero or they're going to make money so that encourages the leveraging and the changes so the financial flows that we're seeing the market behavior is reflective of that i in my opinion don't own bonds and don't own cash because they're producing a lot of debt and producing a lot of money to fund it and so that's changing the nature of capital flows it's also changing how those flows go to china in terms of the comparison of that market particularly as it opens up so i think it's behaving sensibly but don't use old multiples as reflections of the limitations of what's expensive

Channel: Bloomberg New Economy

Views: 411,422

Keywords: Bloomberg

Id: A-noFNHcrlM

Length: 6min 9sec (369 seconds)

Published: Wed Nov 18 2020