Ray Dalio, founder, CIO Mentor and member of the Bridgewater Board believes cash is pretty attractive now, both in relation to stocks and bonds. What Happened: The billionaire’s statement is a reversal from his earlier stance when he believed cash was trash. “We are now in a classic spot where we have got a relatively high real interest rate. Real interest rates went from -175 bps to +175 bps. You have got a cash rate that is relatively high. Cash used to be trashy. Cash is pretty attractive now. It is attractive in relation to bonds. It is actually attractive in relation to stocks,” he told CNBC.
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Dalio’s comments come at a time when stocks and bonds are just coming out of a long rout that commenced last year when central banks started hiking policy rates to tackle decades-high inflation. As policy rates increased, cash regained some of its attractiveness as high volatility continues to cast doubts on traditional assets.
Prior Stance: In May 2022, Dalio had indicated he did not believe in cash. "Of course, cash is still trash," he said. "[Do] you know how fast you're losing buying power?" the investor had said.
However, he pointed out that as policy rates edge higher, some of the bubble in the economy loses its shine.
“You have the classic movement, of course, as rates go up and money becomes tight, you lose the parts of the economy, the parts of the market that are the bubble parts that needed the cash flow. So, you are seeing it reflected in not only long duration stocks, those that didn't have cash. So you see the tech stocks come down. You see private equity, you see venture capital because they needed cash. All of that comes down,” Dalio said.
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