Two years ago Thursday, at Davos 2018, Ray Dalio sat with CNBC’s Joe Kernen, Becky Quick and Andrew Ross Sorkin, to chat about the macro outlook against a backdrop of snow-laden conifers.
Everyone donned the traditional goose down. As usual, nobody bothered to explain why every Davos interview seems to be conducted outdoors, in the freezing cold.
“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 offered.
Then, he said this: “[You’re] going to feel pretty stupid” if you’re holding cash.
It was, frankly, one of the worst market calls in recent memory – particularly coming from someone of Dalio’s stature.
Within weeks, stocks careened into correction territory. By the end of 2018, USD “cash” had outperformed some 90% of global assets.
“Was Ray ultimately correct? You betcha! Financial assets have screamed since that call”, our good friend Kevin Muir wrote earlier this month, in a kind of retrospective. “Was Ray right in the short run? Not a bloody chance”, Kevin went on to say.
Well, in something right out of Phil Connors’s Punxsutawney nightmare, Dalio made almost the exact same call on Tuesday, speaking to the exact same CNBC anchors in front of what looked like the exact same snow-laden conifers.
“What do you jump into when you jump off the [equities] train?”, Dalio asked, in response to Sorkin’s question about whether it’s a good idea to jump aboard along with the rest of humanity amid what is quite clearly a 2018-esque melt-up.
“You can’t jump into cash”, Dalio exclaimed. “Cash is trash”.
So, that’s it then. Correction ahoy!
We jest. Sort of.
As usual, Dalio’s comments need to be taken in context, and you should watch the entire clip for yourself. But this is just too delicious of a déjà vu moment to let slide.
Dalio also extolled the virtues of a modest position in gold. “You have to have balance … and I think you have to have certain amount of gold in your portfolio”, he said, on the way to reiterating a cautious tone on the state of society amid cantankerous politics. “If you get a downturn – and there’s a good probability in the next [presidential] term you’ll get a downturn – and you don’t have effective monetary policy and you have people at each others throats, I’m worried about that”, he remarked.
We’d be remiss not to note that in November, the Wall Street Journal ran a story that suggested Bridgewater was bearish on equities headed into the new year. Specifically, the Journal said the firm had bought puts as part of a $100 billion bet or hedge on the S&P, the Euro Stoxx 50 or both, falling by March. Some suggested that might be a hedge against Super Tuesday.
Dalio was aghast at the reporting, calling it misleading in an irritated LinkedIn post.
In 2019, Bridgewater’s most prominent fund, the Pure Alpha II, logged its first annual loss since 2000.
It was only the fourth time since inception in 1991 that the fund lost money.