Ray Dalio Warns A “New Paradigm” Is Coming: “Buy Gold, Sell Stocks”
Ray Dalio Warns A “New Paradigm” Is Coming: “Buy Gold, Sell Stocks” from Gold Core
Ray Dalio the American billionaire investor, hedge fund manager, and founder of investment firm Bridgewater Associates, one of the world’s largest hedge funds believes that it is “both risk-reducing and return-enhancing to consider adding gold to one’s portfolio.”
In an article written in LinkedIn today, Dalio highlights the following 4 key developments that are likely to cause a massive financial paradigm shift with implications for all savers and investors
1. Central banks have been lowering interest rates and doing quantitative easing (i.e., printing money and buying financial assets) in ways that are unsustainable. At the same time, central banks doing more of this printing and buying of assets will produce more negative real and nominal returns that will lead investors to increasingly prefer alternative forms of money (e.g., gold) or other storeholds of wealth.
2. There has been a wave of stock buybacks, mergers, acquisitions, and private equity and venture capital investing that has been funded by both cheap money and credit and the enormous amount of cash that was pushed into the system. That pushed up equities and other asset prices and drove down future returns. It has also made cash nearly worthless. (I will explain more about why that is and why it is unsustainable in a moment.) The gains in investment asset prices benefited those who have investment assets much more than those who don’t, which increased the wealth gap, which is creating political anti-capitalist sentiment and increasing pressure to shift more of the money printing into the hands of those who are not investors/capitalists.
3. Profit margins grew rapidly due to advances in automation and globalization that reduced the costs of labor It is unlikely that this rate of profit margin growth will be sustained, and there is a good possibility that margins will shrink in the environment ahead. Because this increased share of the pie going to capitalists was accomplished by a decreased share of the pie going to workers, it widened the wealth gap and is leading to increased talk of anti-corporate, pro-worker actions.
4. Corporate tax cuts made stocks worth more because they give more returns. The most recent cut was a one-off boost to stock prices. Such cuts won’t be sustained and there is a good chance they will be reversed, especially if the Democrats gain more power.
These were big tailwinds that have supported stock prices. The chart below shows our estimates of what would have happened to the S&P 500 if each of these unsustainable things didn’t happen.