Listen, let me just go ahead and admit, upfront, that I have a hard time listening to Ray Dalio talk because, frankly, he doesn’t talk so good sometimes.
I’m something of a stickler when it comes to people being able to express themselves clearly, and more often than not, Dalio fails in that regard.
It’s not that he doesn’t know what he’s talking about (one certainly hopes he does, because Bridgewater is more systemically important than anybody is willing to admit). Rather, it’s that he seems to have so much going on in that brain of his that when it (his brain) tries to communicate with the outside world, his mouth ends up being an insufficient conduit.
Since we can’t speak directly with Dalio’s brain, we’re left to try and decipher what comes out of his mouth hole and more often than not, that ends up being wholly indecipherable.
Sometimes, though, he’s unequivocal. For instance, back in January, while chatting with the CNBC crew against a backdrop of snow-laden conifers in Davos, Dalio said this:
If you’re holding cash, you’re going to feel pretty stupid.
About two weeks later, stocks careened into correction territory and investment grade credit started down a long and arduous road that now finds the Bloomberg Barclays U.S. Corporate bond index on track for its third-worst year since 1975.
Meanwhile, “cash” has done pretty well. In fact, 3M LIBOR has risen above the yield on the Barclays Global Agg for the first time since the crisis.
“Not only has the former risen above the latter for the first time in the post Lehman period but the gap between the two has widened to 40bp”, JPMorgan wrote late last week. “There is no benefit for a USD based investor to invest in global fixed income on a currency unhedged basis”, the bank went on to say, in case you needed things spelled out for you.
Just to drive the point home, here’s one of our favorite charts which is about as simple as simple gets:
As Citi’s Matt King put it back in August, “rising vol and meagre YTD returns are suddenly being complemented by renewed awareness of how single-name blow-ups can at a stroke wipe out months of carry”. That “sucking sound” you’re hearing “is the irresistible lure of $ cash – risk-free – pulling money from your asset class”, he continued.
That “sucking sound” has only become louder since then.
So I don’t know, maybe Ray’s “stupid” cash holders didn’t turn out to be so “stupid” after all.
If you’re wondering why I bring all of this up (again), the answer is that Dalio sat down on Monday for an interview opposite what was either a stack of skin-colored Legos dressed in a suit or else was Barry Ritholtz – I’m not sure which.
In the interview, Dalio explains to a fawning audience how “we will have low returns going forward for a long time” and also how yields on cash (and this would be the same cash you were “stupid” for holding earlier this year) are now rising, with all manner of cross-asset implications. Below is the relevant clip and do note how serious Barry tries to look while watching Ray’s arms attempt to help Ray’s mouth communicate whatever Ray’s brain is trying to say.
So there’s that. And then here, for good measure, is Ray explaining how he invented chicken nuggets.