Speaking at Davos, the head of world’s largest hedge fund says ‘If You’re Holding Cash, You’re Going to Feel Pretty Stupid’.
“We are in this Goldilocks period right now. Inflation isn’t a problem. Growth is good, everything is pretty good with a big jolt of stimulation coming from changes in tax laws,” Dalio said, referring to the health of the U.S. market as well as what he sees as an improving global economic climate.
The prominent investor, who runs the largest hedge fund in the world with about $150 billion in assets, says a “blowoff rally”, or melt-up as some refer to it, in which investors begin to rush into equities for fear of missing out on gains, will take the Dow Jones Industrial Average DJIA, the S&P 500 index SPX, and the Nasdaq Composite Index to ever-new heights.
Apparently, the blow-off top has not even started.
Worried about rising interest rates? The Fed will need to figure it out, says Dalio.
Trigger Not Needed
Meanwhile, economist Robert Shiller says Stock Markets Don’t Need a ‘Trigger’ to Correct.
A pullback for this Teflon stock market could come like a thief in the night.
That’s the view of Nobel Prize-winning Yale University economics professor, Robert Shiller, who was interviewed in snowy Davos, Switzerland, on Tuesday as the World Economic Forum got underway. He was asked by CNBC if he thought any specific trigger could finally break the winning run for stocks.
Shiller vs. Dalio
It’s possible that Dalio is correct. It is certain that Shiller is correct. No trigger is needed. Sentiment can change at any time without there being a trigger you can put your finger on.
Think back to the summer of 2006. People were standing in line, overnight, for the right to buy a Florida condo. A month later, the lines were gone. The trigger? There was none that anyone can point.
Sentiment changed. If you prefer to think of it this way, the trigger was a change in sentiment. But there was no trigger for the sentiment change.
Dalio Arrogance
Unlike Shiller, Dalio comes across as a pompous know-it-all.
Shiller does not pretend to know the unknowable. Dalio does.
“You are going to feel stupid,” is quite the arrogant thing to say.
Cash on the Sidelines
In the CNBC interview, Dalio spoke of sideline cash.
“There is a lot of cash on the sidelines. I don’t mean just investor cash. I think banks have a lot of cash. Corporations have a lot of cash. So we are going to be inundated with cash.”
Sideline Cash Rebuttal
- St. Louis Fed Promotes the Mathematically Impossible
- Sideline Cash Nonsense From Bloomberg and Merrill Lynch
- $50 Trillion Sideline Cash Conundrum?
Sideline Cash Reality
- For every equity buyer, there is a seller.
- Someone must hold every dollar printed 100% of the time.
- It is impossible for everyone to deploy their cash or for cash to flow into the market as a result of statements one and two above.
By the way ….
Dalio is clueless about how markets even work, and he is lecturing people about feeling stupid.
Mike “Mish” Shedlock
Isn’t it obvious Ray’s just trying to goad the last of the dumber-than-a-box-of-rocks contingent to take the other side of his trade ? He’s ready to cash in and he NEEDS people to whom he can SELL ! Remember ‘ole B’rer Rabbit: ” Oh please, B’rer Fox, please don’t fling me in ‘dat Briar Patch!” ( all the way to the “Laughing Place” )
Idiot
Someone should gently remind Ray Dalio that the Great Wall Street Casino is NOT “the Economy’.
I can’t really make much sense of what Ray Dalio is saying. If his “bond bear market” thesis is correct, it will feel good to hold cash in the sense that you’ll be able to get high fixed income returns using that cash in the near future.
Listening to the entire Ray Dalio interview, he’s not really saying it’s stupid to hold cash, but we’re in an environment of rising asset prices in which it feels stupid to hold cash and people will continue to feel stupid to hold cash for as long as this late-stage last, which he believes is around 1-2 years. I thought the most surprising thing he said in the interview is that we’ve had a beautiful deleveraging.
Ray Dalio is much smarter than all the bloggers that year after year are advising people to stay out or go short in an ongoing raging bull market.
How about a faked presidential assassination?
Let’s see.. , what would cause things to take a dramatic head spin? Hmmm
One way to remove a lot of liquidity from the markets is to inflate them dramatically, and then crash them when all the suckers are in.
its never good to put your funds 100% into fiat currency, id say saving money in gold in the long term will always be the best bet along with getting into crypto currency. there is a really good gold savings plan with this company https://tinyurl.com/y73vxad7
Sometimes you have to hit “load 10 of 14 previous comments”, or such, to go back to earlier comments. I don’t like this discussion format at all, but it is what we have to work with.
Is Maven finally allowing direct replies to certain messages? I hope so!
I recall Ray Dalio saying not long ago that low equity returns are baked in the cake. I believe he said 4% returns annually should be expected over a 10 year period (his estimate was higher than that of Hussman). Since then I believe equities have rallied at least another 20-30%, so by now he should be recommending cash.
Miss, when you say someone like Dalio is clueless, you’re using the same sort of arrogant wording.
I’d rather be able to retire comfortably than lose it all or retire rich just so the government can steal it to pay for social security.
Dalio is paid to gamble with other peoples’ money. He will retire well no matter what happens with his AUM.
“We view market valuations as obscene” — John Hussman October 1, 2013
“Apparently, the blow-off top has not even started.” Martin Armstrong had a chart of the gold blow off into 2011, the other day. There was a resemblance to the movement of the DOW, since before the election.
QE Unwind + Rising interest Rates + Trade War + Everything priced to perfection (bubbles everywhere) + the DJT New Tax Laws = ???
What about cash created out of thin air by fractional reserve lending? For example, I take out a home equity loan for $25k and buy NFLX, that’s $25k of new cash going into the market since the original owner of the $25k still has it too.
I’ve had about 25% of my portfolio in cash for years. I couldn’t find anything worth buying. In hindsight, I should have paid too much for pretty much anything, Stupid me.
I was attempting to convey money flowing into stocks. And I did not do that correctly. Easiest thing was to change the line rather than convey the thought correctly.
Cash level does not change. But when new securities are created out of thin air. Money that was not in stocks is now in stocks.
You are incorrect about IPO’s and secondary offerings. The company or insiders are sellers, the public and institution are buyers. There is still a buyer for every seller. Cash just changes hands.
Higher interest rates are going to burst the bubble. Figuring out how high they need to go is the question.