April 14 2020
“Cash is trash.” These are the words of Ray Dalio, billionaire investor and founder of the world’s largest hedge fund Bridgewater Associates.
In late January 2020, Ray Dalio made this proclamation in a CNBC interview, arguing that a weakening U.S. dollar and a mushrooming U.S. money supply would erode the value of cash over time. True to his word, Bridgewater’s flagship investment fund deliberately avoided holding cash in favor of stocks, commodities, and other assets. Following this strategy meant the fund suffered a 20% loss in the first quarter of 2020, amid the global COVID-19 economic crisis. Even so, Dalio doubled down on his proclamation that “cash is trash” during a Reddit “ask me anything” online session on Wednesday, April 8, 2020. His concrete statement was:
“I believe that cash, which is non-interest-bearing money,
will not be the safest asset to hold” – Ray Dalio
Let’s review Ray Dalio’s key arguments during the Reddit online session.
» Short Squeeze: The value of the U.S. dollar is currently being supported and stabilized by immense demand amid the global COVID-19 crisis. However, once the Federal Reserve creates enough supply to satisfy the demand, or the shortfall of available U.S. dollar liquidity leads to mass defaults and bankruptcies, demand will drop and the value of the U.S. dollar will weaken leading to inflation.
» Awakening of Bondholders: Many investors from around the world have invested their money into U.S. Treasury bonds, because the U.S. has been one of the few “risk-free” countries left offering bonds with a positive interest rate. In March 2020, the interest rate dropped down to 0.25%, from the previous 1.75% at the beginning of the year. Once these bondholders become tired of the surging money supply and the rock-bottom interest rate, they will begin withdrawing their invested funds from U.S. dollar denominated debt – decreasing demand – which in turn weakens the value of the U.S. dollar, leading to inflation.
» Opportunity Costs: Cash itself is not volatile on a day-to-day basis. This means, in the short-term, it will neither gain nor lose much value. However, there is a real cost associated with holding cash – the risk of missing out on gains once the global economy starts to recover. If the value of the U.S. dollar drops, it’s safer to hold other assets, because they will generally appreciate at the inflationary level.
Ray Dalio makes a sound argument against holding cash, but we would offer you a safe and stable alternative to investing in stocks, bonds or mutual funds. A form of investing that focuses on the protection of your principal as well as constant cash flows at a high rate of return. We encourage you to take a look at our First Deed Lending options, which provides you with the financial advantages of owning rental property, without the hassle of being a landlord. This is your opportunity to earn a stable stream of income during unstable times.
