Business Insider: Ray Dalio Says the Fed is Boosting Asset Prices, Valuation Metrics Don't Apply, and the US Dollar is at Risk

July 06, 2020

Article by Theron Mohamed in Business Insider

Billionaire investor Ray Dalio warned that the Federal Reserve is artificially inflating markets, normal valuation metrics no longer apply, and the US dollar risks being displaced as the world's reserve currency in a Bloomberg interview on Thursday.

"The capital markets are not free markets allocating resources in the traditional ways," said the co-chief of Bridgewater Associates, the world's largest hedge fund with $138 billion in assets at last count.

"The economy and the markets are driven by the central banks in coordination with the central government," Dalio continued.

The Fed has spent trillions of dollars on bonds and other assets to boost liquidity in financial markets and prevent companies from collapsing during the coronavirus pandemic.

Dalio cautioned that actions on that scale have consequences. "You are going to see central banks' balance sheets explode," he said.

Moreover, the flood of cash into markets has detached them from the real economy, meaning valuations no longer reflect fundamentals, Dalio said.

Investors might feel "sticker shock" when they see price-to-earnings ratios north of 40, but those are "no less implausible than zero interest rates," he continued.

Dollars could lose their appeal

Dalio, who famously said "cash is trash" in January, doubled down on that stance during the Bloomberg interview.

He argued that investors should avoid cash and bonds because rock-bottom interest rates mean they offer no returns, or even negative real returns after taxes are paid.

There's been a shift towards "storeholds of wealth" such as gold and ....

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