Guest Post by Simon Black
Ray Dalio is the founder of one of the largest investment firms in the world and has amassed a personal fortune nearing $20 billion from his business and investment acumen.
In short, he understands money and finance in way that most people never will. And it’s for this reason that his latest insights are so noteworthy.
In a recent, self-published article entitled “Why in the World Would You Own Bonds When. . .”, Dalio makes some blunt assertions about the alarming US national debt, the decline of the dollar, and other negative trends in the Land of the Free.
Here’s a summary of the major points:
1) Interest rates are now so low that “investing in bonds (and most financial assets) has become stupid.”
Dalio points out that bond yields are so low today that investors would essentially have to wait more than 500 years to break even on their bond investments after adjusting for inflation.
That’s why sensible people are already ditching the bond market.
JP Morgan’s CEO Jamie Dimon recently said he wouldn’t touch a US government 10-year Treasury Note “with a ten foot pole.” Neither would Dalio, as he told Bloomberg this month.
2) This is a big problem for Uncle Sam. Investors are ditching US government bonds at a time when the US is “overspending and overborrowing”.
They just passed a $1.9 trillion stimulus, and they have another $3 trillion spending package ready to go, plus plenty of momentum for Universal Basic Income, health care, Green New Deal, and just about everything else.
In short, the government is going to have to sell a LOT of bonds (i.e. increase the debt) at a time when investing in bonds has become stupid.
3) This creates a huge problem for the US dollar.
“The frightening thing about this,” Dalio says, is that many investors have already come to the conclusion that bonds are terrible investments.
So these investors could decide to dump the bonds they already own “at the same time as the [US] government has to sell a lot bonds.”
Just imagine– the US government could easily have to sell another $4 trillion worth of bonds over the next 12-months to cover its massive budget deficit, plus all these wild spending programs.
But then on top of that, investors who currently own US government bonds may decide to dump another $3 trillion of worth of the bonds in their portfolios.
This would mean that $7 trillion worth of bonds flood the market at a time when few people want to buy them.
4) As Dalio explains, this would cause one of two things to happen:
“Either interest rates will rise,” in order to entice investors to buy bonds, or the Federal Reserve “will have to print substantial amounts of money to buy [the bonds] that the free-market buyer won’t buy.”
And it’s pretty clear they’re going with option B.
Last year, the Fed was by far the single largest buyer of all the newly issued US government bonds. Yet as Dalio writes, “when they print money and buy those bonds. . . that lowers real rates and it accelerates a depreciation in the value of the dollar, and it also raises inflation pressures.”
5) So what are the potential consequences?
“The real risk, the big risk,” Dalio told Bloomberg, “is of a monetary inflation . . . and that monetary inflation means that even when the economy weakens, inflation rates rise.”
This is essentially stagflation, i.e. rising inflation coupled with a sluggish economy.
6) When does Dalio see these consequences starting to arise? “Late this year.”
7) There are plenty of bigger picture issues too. Dalio acknowledges that the US government is going to need a LOT of money to finance all this spending, so taxes will likely rise. A lot.
As Dalio writes, tax increases “could be more shocking than expected.”
He also believes that “the chances of a sizable wealth tax bill passing over the next few years are significant.”
8) Dalio writes that, as a result of such tax policy and other destructive rules, “the United States could be perceived as a place that is inhospitable to capitalism and capitalists.”
And the combination of high taxes, high inflation, and hostility towards capitalism may compel many investors and businesses to shift their capital and operations overseas and “run from less hospitable places to more hospitable places.”
9) But don’t expect the US government to sit idly by while capital leaves the country. Dalio believes there is “the possibility of capital controls” to prevent money from exiting the United States, as well as “prohibitions against capital movements to other assets” outside of the US dollar like “gold, Bitcoin, etc.”
So, in short: too much debt and money printing leads to a declining value of the US dollar, and potentially stagflation.
As a result, the government is likely to drastically raise taxes and chase business and capital away from the United States, leading to capital controls and prohibitions on alternative investments.
This is not some wild conspiracy theory or crazy conjecture. This is one of the wealthiest, most successful fund managers in human history bluntly calling the end of the US-dollar debt supercycle.
We’ve been writing about this theme for more than a decade, so our readers will not be surprised by either Dalio’s comments, or the solutions he proposes.
His top recommendation, for example, is “a well-diversified portfolio of non-debt and non-dollar assets.”
And in Dalio’s view, diversification means “currency diversification, country diversification, as well as asset class diversification.”
In other words, don’t keep all of your eggs in one basket, one country, or one currency.
You can read the entirety of this article here, or watch his interview with Bloomberg.
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The investment advice at the end of the article is unclear to me. I’m getting ready to shift retirement accounts.
On hand: Raw honey, sea salt, a freezer full of beef (generator bu), silver coins, gold, guns, ammo, propane, cash, lanterns, passport, supplements, etc.
Investments: bitcoin, gold, silver and gold miners , royalty companies (copper, nickel, silver, gold), commodities (e.g. USCI), other cryptos (e.g. litecoin, ethereum, theta, atom), maybe COST, SU, WMT
Other: rabbit foot
The globe realizes the dollar is toast. Those $trillions of dollars held overseas from foreign trade will make their way back to the US as the dumping accelerates.
It will be raining dollars as they return from overseas and as the FED pumps in even more in its final act for the dollar.
The window for precious metals is closing quickly. Silver is all but gone. Get some PMs and an umbrella because rain is in the forecast.
Having worked around some multi millionaires I’ve noticed some trends.
They do not know anything of the average person on the street. To them, their biggest concerns are whether to take the ‘pet jet’ for golfing in spain, or the wifes jet. Whether to send your plane back to where ever because they don’t want it dented in the parking lot of the place they are visiting. Call the electritian to come plug the TV back in or the cable remote reprogrammed. Yes, these are actual events I was privy to.
So when a billionaire hedge fund manager, parasite, says to divercify your holdings you KNOW he’s not talking to the average joe. He’s telling the less sharp parasites that they’d best get their stolen goods outta dodge before the crunch comes down. Us peons won’t light up one brain cell in their heads.
As with all information, take out the nuggets of truth and reject the rest. The crunch is coming, that we can be assured of. The debt is unsustainable and will cause a crash, just the trigger is unknown. So to keep your wealth, don’t buy stock and bonds, buy PM’s and long term food, trade items. Buy real estate if you don’t own any, you can always grow food. When the crunch comes real estate prices will drop like a stone as people and banks off load to cover debt ad/or buy food. You’ll see these millionaire/billionaire parasites buying everything they can then.
So unless you are wealthy and have millions to invest in other asset retentions, go overseas and wait out the crash in opulent ease on an epstein island, then prepare the best where you are. If possible the best would be moving to a freindly part of the country with like minded people. Build a real community, where you can be confident that you won’t be standing alone when the zombies come.