Bridgewater Associates’ Ray Dalio maintained his belief that cash is not the place to go, despite the volatility in the markets sparked by the new variant of Covid-Omicron.
“Cash is not a safe investment, not a safe place because it is taxed by inflation,” said the founder of the world’s largest hedge fund on Tuesday in the “Squawk Box” of CNBC.
In turbulent times, it is also important to be in a safe, balanced portfolio, said the billionaire.
“You can reduce your risk without reducing your returns. You will not bring this to market time. Even if you were a great market timer, the things that happen can change the world, so what might be priced in the market changes, ”said Dalio.
The Omicron strain of the coronavirus, first identified in South Africa, rocked the stock market on Black Friday after the World Health Organization labeled it a “worrying variant.” The Dow Jones Industrial Average fell 900 points on Friday and had its worst day since October 2020. Stock futures showed another big bearish day after rallying on Wall Street Monday as investors watched the ongoing health crisis.
The stock market quickly rebounded from the pandemic low in March 2020 thanks to massive fiscal and monetary stimulus measures put in place by the government and the US Federal Reserve to prop up the economy. However, the excess money supply in the system could lead to certain economic and political problems, Dalio said.
“You cannot increase the standard of living by increasing the amount of credit in the system because that’s just more money chasing the same amount of goods,” he said. “It will affect the financial markets in the way we know, and it will affect the rate of inflation. It will not increase the standard of living much. If inflation then increases, it will have political ramifications.”
A key inflation indicator soared in October and accelerated as fast as it has since the early 1990s. The consumer spending price index excluding food and energy, a metric closely monitored by Federal Reserve policymakers, rose 4.1%.
The central bank struggled with inflation that was more aggressive and persistent than it had expected. Officials said they believe inflation is at the point where they can start gradually reducing the amount of monthly incentives they are providing through bond purchases.
“What we see has happened many, many times in history; it’s like watching the movie all over again,” said Dalio.