Ray Dalio: Paradigm Shifts

Ray Dalio thinks the current era of low interest rates and quantitative easing might be coming to an end, and his answer to a new market paradigm that could see escalating conflict between capitalists and socialists is simple -- gold.

"I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one's portfolio," the billionaire founder of investment management firm Bridgewater Associates said in a 6000-word essay posted on LinkedIn.

| Bloomberg

For Dalio, monetary policy swings between helping debtors or creditors at each other's expense, and the next move of the pendulum could lead to a new era of debt monetisation and currency depreciation.

"The big question worth pondering at this time is which investments will perform well in a reflationary environment accompanied by large liabilities coming due and with significant internal conflict between capitalists and socialists, as well as external conflicts," Dalio said.

Other key quotes:

  • "I think that the paradigm that we are in will most likely end when a) real interest rate returns are pushed so low that investors holding the debt won't want to hold it and will start to move to something they think is better and b) simultaneously, the large need for money to fund liabilities will contribute to the 'big squeeze"'
  • "There will have to be some combination of large deficits that are monetised, currency depreciations, and large tax increases, and these circumstances will likely increase the conflicts between the capitalist haves and the socialist have-nots"
  • "In such a world, storing one's money in cash and bonds will no longer be safe"
  • "It is also a good time to ask what will be the next-best currency or storehold of wealth to have when most reserve currency central bankers want to devalue their currencies in a fiat currency system"


Ray Dalio will be speaking at this year's Sohn Hearts & Minds Investment Leaders Conference. 


This article was written by Nathan Crooks and published in the AFR on July 18.
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