Ray Dalio Nikkei interview “ more inflation and higher gold prices”

[Deep Blue]

If you are worried about inflation going up, buy equities. They have pricing power.

If you are worried about inflation going down, buy bonds.

If you don’t have a view on inflation, hold a mixture of equities and bonds.

Gold doesn’t add anything IMHO. It’s just a non income generating way to lock up your capital. No different to Bitcoin, iron ore or lumber.

[ToushiTime]

If you are worried about inflation going up, buy equities. They have pricing power.

If you are worried about inflation going down, buy bonds.

If you don’t have a view on inflation, hold a mixture of equities and bonds.

Gold doesn’t add anything IMHO. It’s just a non income generating way to lock up your capital. No different to Bitcoin, iron ore or lumber.

1. Some companies cannot raise prices easily, and will therefore be hurt by inflated input costs, so not all equities handle inflation well, but on average they can, and so equities usually outpace inflation. However, bouts of very high inflation prevent them from doing so for a while and consumers cut back on spending, which also hurts equities. A small amount of gold is useful to iron out fluctuations (see links below). Yes, 100% equities offers the highest returns, but asset diversification reduces volatility (gold bond and stocks all have slightly different correlations).


2. Higher rates to control inflation hurt equities more than gold:
 a) Impact on equities: higher interest on debt, higher discount on future earnings, market shift to bonds offering better yields by long-hold investors.
b ) Impact on gold: same shift to bonds, but no debt interest issues, and also high US rates vs low Japanese rates helps gold in yen terms as gold is priced in dollars.


3. Inflation that leads to stagnation has historically hurt equities more than gold.

This is good on asset diversification:
https://youtu.be/D3KdiT3iFwo (from about 9:30mins)

This is a useful article
"Because real interest rates are affected by inflation, gold does indirectly protect against very sharp inflation that craters real rates. But it also can respond strongly even in times of low inflation as rates fall to particularly low levels like we’re experiencing today."
https://portfoliocharts.com/2020/08/21/ ... e-of-gold/

[Deep Blue]

1. Some companies cannot raise prices easily, and will therefore be hurt by inflated input costs, so not all equities handle inflation well, but on average they can, and so equities usually outpace inflation. However, bouts of very high inflation prevent them from doing so for a while and consumers cut back on spending, which also hurts equities.

We've just had a period of some of the highest inflation rates in decades, over the last 2-3 years. Consumers have cut back on spending - has this held equities back from making record profits and delivering stellar returns for investors?

2. Higher rates to control inflation hurt equities more than gold:
 a) Impact on equities: higher interest on debt, higher discount on future earnings, market shift to bonds offering better yields by long-hold investors.
b ) Impact on gold: same shift to bonds, but no debt interest issues, and also high US rates vs low Japanese rates helps gold in yen terms as gold is priced in dollars.


We've just seen the highest interest rates in most of the developed world for twenty years. Has this hurt equities? No.

If you are worried about deflation, buy bonds. If you are worried about inflation, buy equities. Gold offers nothing - it just sits there, earning no returns and hoping for a Greater Fool to come along and pay more than someone else did yesterday. That's not my sort of investing.

[ChapInTokyo]

If you are worried about inflation going up, buy equities. They have pricing power.

If you are worried about inflation going down, buy bonds.

If you don’t have a view on inflation, hold a mixture of equities and bonds.

Gold doesn’t add anything IMHO. It’s just a non income generating way to lock up your capital. No different to Bitcoin, iron ore or lumber.

1. Some companies cannot raise prices easily, and will therefore be hurt by inflated input costs, so not all equities handle inflation well, but on average they can, and so equities usually outpace inflation. However, bouts of very high inflation prevent them from doing so for a while and consumers cut back on spending, which also hurts equities. A small amount of gold is useful to iron out fluctuations (see links below). Yes, 100% equities offers the highest returns, but asset diversification reduces volatility (gold bond and stocks all have slightly different correlations).


2. Higher rates to control inflation hurt equities more than gold:
 a) Impact on equities: higher interest on debt, higher discount on future earnings, market shift to bonds offering better yields by long-hold investors.
b ) Impact on gold: same shift to bonds, but no debt interest issues, and also high US rates vs low Japanese rates helps gold in yen terms as gold is priced in dollars.


3. Inflation that leads to stagnation has historically hurt equities more than gold.

This is good on asset diversification:
https://youtu.be/D3KdiT3iFwo (from about 9:30mins)

This is a useful article
"Because real interest rates are affected by inflation, gold does indirectly protect against very sharp inflation that craters real rates. But it also can respond strongly even in times of low inflation as rates fall to particularly low levels like we’re experiencing today."
https://portfoliocharts.com/2020/08/21/ ... e-of-gold/

I got cold feet with regard to gold, and decided to stash away a bit of yen in a JGBi tracker fund (Tokio Marine Asset Management Co's うんよう博士) as my rainy day inflation protection.

With the globalized supply chains starting to unravel, not to mention the possible disruption of agricultural production around the world due to climate change, I feel like having some inflation protection other than equities is something I'm willing to give up some upside for...

[captainspoke]

...
I got cold feet with regard to gold, and decided to stash away a bit of yen in a JGBi tracker fund (Tokio Marine Asset Management Co's うんよう博士) as my rainy day inflation protection.

With the globalized supply chains starting to unravel, not to mention the possible disruption of agricultural production around the world due to climate change, I feel like having some inflation protection other than equities is something I'm willing to give up some upside for...

Whew--it's good that you've decided (figured it out). And by page two at that.

Good luck. (esp. if you're listening at all to dalio)

[ChapInTokyo]

...
I got cold feet with regard to gold, and decided to stash away a bit of yen in a JGBi tracker fund (Tokio Marine Asset Management Co's うんよう博士) as my rainy day inflation protection.

With the globalized supply chains starting to unravel, not to mention the possible disruption of agricultural production around the world due to climate change, I feel like having some inflation protection other than equities is something I'm willing to give up some upside for...

Whew--it's good that you've decided (figured it out). And by page two at that.

Good luck. (esp. if you're listening at all to dalio)

I feel pretty good about having that stash of inflation protected JGB funds in there. Gold, I guess makes sense for real financial melt down of a country, like after losing a major war when even soverign bonds become worthless....

I'm not a Ray Dalio follower by any means, but I do find his main premise that we seem to be reaching the end of the American era and entering the era of Chinese resurgence quite good to have at the back of my mind when thinking about how the future might unfold. Interesting times.

[Deep Blue]

I feel pretty good about having that stash of inflation protected JGB funds in there. Gold, I guess makes sense for real financial melt down of a country, like after losing a major war when even soverign bonds become worthless....

I'd rather have a garden and a good stock of unperishable food in that scenario.

[ToushiTime]

1. Some companies cannot raise prices easily, and will therefore be hurt by inflated input costs, so not all equities handle inflation well, but on average they can, and so equities usually outpace inflation. However, bouts of very high inflation prevent them from doing so for a while and consumers cut back on spending, which also hurts equities.

We've just had a period of some of the highest inflation rates in decades, over the last 2-3 years. Consumers have cut back on spending - has this held equities back from making record profits and delivering stellar returns for investors?

2. Higher rates to control inflation hurt equities more than gold:
 a) Impact on equities: higher interest on debt, higher discount on future earnings, market shift to bonds offering better yields by long-hold investors.
b ) Impact on gold: same shift to bonds, but no debt interest issues, and also high US rates vs low Japanese rates helps gold in yen terms as gold is priced in dollars.


We've just seen the highest interest rates in most of the developed world for twenty years. Has this hurt equities? No.

If you are worried about deflation, buy bonds. If you are worried about inflation, buy equities. Gold offers nothing - it just sits there, earning no returns and hoping for a Greater Fool to come along and pay more than someone else did yesterday. That's not my sort of investing.

Inflation has been relatively muted and short-lived compared to previous decades. As you know equities have mainly been driven by the big Tech stocks due to AI expectations over the past 2-3 years, which has disguised weaker performance by the other companies. Likewise interest rates have been super low for the past 20 years. They are still low by historical levels, and yet debt and spending is a major concern for many economists and investors. Check those links I posted by Ray Dalio, or recent articles by Bill Gross, or many other commentators that believe bonds are not the hedge they once were due to massive debt levels.

[ToushiTime]

...
I got cold feet with regard to gold, and decided to stash away a bit of yen in a JGBi tracker fund (Tokio Marine Asset Management Co's うんよう博士) as my rainy day inflation protection.

With the globalized supply chains starting to unravel, not to mention the possible disruption of agricultural production around the world due to climate change, I feel like having some inflation protection other than equities is something I'm willing to give up some upside for...

Whew--it's good that you've decided (figured it out). And by page two at that.

Good luck. (esp. if you're listening at all to dalio)

I feel pretty good about having that stash of inflation protected JGB funds in there. Gold, I guess makes sense for real financial melt down of a country, like after losing a major war when even soverign bonds become worthless....

I'm not a Ray Dalio follower by any means, but I do find his main premise that we seem to be reaching the end of the American era and entering the era of Chinese resurgence quite good to have at the back of my mind when thinking about how the future might unfold. Interesting times.

Those JGBi may not be hurt by inflation but they are by interest rate increases. Also, I know only 15% or so of JGBs are owned by foreigners but aren't you worried that the Japanese banks, pension funds, insurers etc etc might reduce their holdings substantially, as the debt-to-GDP ratio goes even higher than 260%, while Japan's capacity to pay it back shrinks due to aging? That is not rhetorical question. I am still considering JGBi but this worries me.

[Deep Blue]

1. Some companies cannot raise prices easily, and will therefore be hurt by inflated input costs, so not all equities handle inflation well, but on average they can, and so equities usually outpace inflation. However, bouts of very high inflation prevent them from doing so for a while and consumers cut back on spending, which also hurts equities.

We've just had a period of some of the highest inflation rates in decades, over the last 2-3 years. Consumers have cut back on spending - has this held equities back from making record profits and delivering stellar returns for investors?

2. Higher rates to control inflation hurt equities more than gold:
 a) Impact on equities: higher interest on debt, higher discount on future earnings, market shift to bonds offering better yields by long-hold investors.
b ) Impact on gold: same shift to bonds, but no debt interest issues, and also high US rates vs low Japanese rates helps gold in yen terms as gold is priced in dollars.


We've just seen the highest interest rates in most of the developed world for twenty years. Has this hurt equities? No.

If you are worried about deflation, buy bonds. If you are worried about inflation, buy equities. Gold offers nothing - it just sits there, earning no returns and hoping for a Greater Fool to come along and pay more than someone else did yesterday. That's not my sort of investing.

Inflation has been relatively muted and short-lived compared to previous decades. As you know equities have mainly been driven by the big Tech stocks due to AI expectations over the past 2-3 years, which has disguised weaker performance by the other companies. Likewise interest rates have been super low for the past 20 years. They are still low by historical levels, and yet debt and spending is a major concern for many economists and investors. Check those links I posted by Ray Dalio, or recent articles by Bill Gross, or many other commentators that believe bonds are not the hedge they once were due to massive debt levels.

If you’re worried about the US government defaulting on its debt then you want farmland, guns and a stable water supply rather than gold. Get prepping!

By the way, people have been fretting about developed countries debt loads for decades now. If one had sat out investing in equities during that time then the result would be suboptimal for one’s personal wealth. What makes you think the next few decades will be different?

Much more likely is the debt is inflated away, as we’ve seen countless times in history. In this environment, equities for the win.