Ray Dalio is traveling around, “principles” in tow, and naturally, he’s in Davos this week.
On Tuesday, Dalio told CNBC that anyone holding cash was going to “feel pretty stupid” going forward, as everyone piles into the rally in order to ride the late cycle dynamic that Ray says will ultimately lead to a “blow-off” top.
“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,” he said, speaking to CNBC against a backdrop of snow-laden conifers.”There is a lot of cash on the sidelines. … We’re going to be inundated with cash,” he added.
Ok, well on Wednesday, Dalio was kind enough to speak to Bloomberg whose correspondents are also in Switzerland and now, he’s calling for “the largest bear market in bonds that we have seen since 1980 to 1981.”
The problem, Dalio says, is that as the cycle progresses, the “operating rate” (a highly technical term) is going to get too high to be palatable for central banks, who will then put the brakes on.
Think of demand and capacity and various other factors as “like, driving behind a truck”, Ray advises, before continuing that “if you’re driving at 70mph, that’s fine” until you “get close” to the back of a slow-moving tractor-trailer at which point obviously you need to slam on the fucking brakes otherwise you’ll end up lodged in the ass-end of a semi truck.
About four minutes later (so, at the ~5:00 time stamp) he gets to the bond bear market bit. Here’s Ray (and more snow-laden conifers):
As you can see, Ray thinks “we’re in it” in terms of the bond bear market. Asked when we entered it, Dalio says he can’t say because it depends on “how you define a bear market”.
Got that? If not, watch it a second time so you can not get it again.
Anyway, 10Y yields are up after those comments and also after a $400k/DV01 block trade that pushed yields up to session highs above 2.64%:
I see an intelligent man with access to huge amounts of data and information who simply can’t get it out of his mouth hole in any comprehensible way. Also, why would he try to answer the Bloomberg question about whether or not it would be ‘better’ to have money (capital) or not have money? One must read between the lines here and …. buy, buy, buy. r.
So talking his book I guess he is short US Treasuries and holds no cash. I get it’s dumb to own Treasuries.
But holding cash is okay – if it’s the right cash. The US dollar is down a full 1% again today, but crappy-performing US stocks (among the worst-performing stock markets in the world for a year on an FX-adjusted basis) are up only 0.1% (nasdaq) or 0.2% (s&p)… So US stock investors are *losing* almost 1% today on an FX-adjusted basis. And Americans are getting poorer every month but that narrative is obscured by nominal “gains” which in fact are real LOSSES after the effect of dollar devaluation and inflation. Tweet that, trump!
…. and then of course US residents must pay TAX on their phony, so-called stock “gains” which in fact are actually *losses*, net of dollar devaluation & inflation, lol….. how crappy is that?!!!
Yes but that’s secondary to trend. Just means when the trend breaks, it’ll snap hard. Likewise long EURUSD has been crowded by specs for six months while trend has prevailed. But I see a major retracement ahead soon for it and dxy as a confluence of Fibonacci and key levels beckon.
what is Ray Dalio talking about now?
bond crises now and yes this could/would be negative for markets i get that.
what is he trying to say Mr. H?
he has me confused in just 2 days–pick a side Mr. Dalio–please.
sb
I take issue with this “wages are going up” statement by the Bloomberg host above: What was once stock option compensation is now being converted into straight paychecks due to the tax bill.
Also, this talk echoes A LOT of what Mohaamed El-erian has been saying almost word for word: Dalio “two economies” El-Erian “bi-modal distribution”; Dalio: “sweet spot” right now, El-Erian “Beautiful normalization”. Funny. This Dalio interview is well explained.
Mr Dalio is telling you you’d be stupid to be in cash right now because he wants people to be buying while he’s selling. This is one smart operator, which is why he’s so darn rich. He’s seen the shit storm that’s coming this year in the markets and wants to be sure he’s out before you are.
Really? Same thing about his gold call then too? I suspect maybe he’s so high up on Maslow’s hierarchy that he’s more into ego & making correct calls in public than making a few more bucks?
Thanks Bunny, I like your reasoning, and it will be interesting to see if Trump keeps talking about how the weak dollar is good for the country, while his base goes broke on the crumbs that they get on the “Tax Cut” that they will use to buy beer and chips for the Super Bowl party…yeah for Walmart and “defense contractors” not to mention Medicare fraudsters and “white collar criminals” …Gold? lots of that available to Oilagarchs who own the biggest mines with the most “off the books byproduct” Rio & BHP being the prime examples…real hedges for the Davos set.
Dollar should soon begin to recover at last half its losses, with the risk of another big drop thereafter similar to this last year’s drop. It’s how markets work, technically. Trump or the president doesn’t much affect the dollar, beyond temporary impacts. The dollar was going down a year ago no matter who was elected, and the stock indexes were going up. Nothing really new with this; for example reference 1985-1987 in US. Stocks are at risk of making a January high and then a March low before rising to new nominal highs later when the dollar begins falling again, with a chance of a crash afterward eventually despite Yellen saying there’d never be another crisis in our lifetime. A quote destined to live in infamy.
You see, a combination of rising US stocks and falling dollar is a recipe for a crash. That’s the lesson of 1985-87. Why? Because foreign investors, which is at least half the US market, pull out of stocks eventually realizing their “gains” are really losses, repatriating their funds, which quickly snowballs and crashes the market.
That’s a long way out but we can already see it potentially brewing both fundamentally and technically (I said “potentially”).