RetireJapan

Interesting Nikkei interview with Ray Dalio (the founder of hedge fund Bridgewater Associates, known for having applied lessons from history to predict the 2008 Great Financial collapse).

WOW if he’s right this time we could be in for a rough ride indeed… maybe I really ought to have a pretty large allocation to gold in my portfolio!

Q: How would turmoil in the U.S. affect the dollar?

A: There is too much debt that will be monetized, as is happening in Japan as well as the U.S. and the eurozone -- so in all three of the world's major reserve currencies -- which will devalue their monies and the debt assets, which are the promises to receive this devalued money. The devaluations will show up in more inflation and higher gold prices, rather than in one currency falling a lot relative to the others. In other words, the debt will be monetized, and the value of all monies will decline. I believe that will be the trend for several years. https://asia.nikkei.com/Editor-s-Picks/ ... ion-looms2

100% agree.

Global central banks are all targeting inflation of 2% or thereabouts each year. That’s an ongoing devaluation of those monies, whichever one you pick.

Ray Dalio also had this to say about bonds continuing to be bad investments. I guess I really should read up a bit more about gold and perhaps other commodities as inflation hedges.

It is likely that the huge debt pile will be devalued by keeping interest rates very low relative to inflation and nominal growth, so debt assets like bonds will continue to be terrible investments.

Why do you need gold as an inflation hedge when you invest in equities? You know, the very companies creating inflation by raising prices?

Deep Blue wrote: ↑Sun May 26, 2024 4:30 am Why do you need gold as an inflation hedge when you invest in equities? You know, the very companies creating inflation by raising prices?

The inflation hedge could be commodities or REITS or utilities stocks I suppose. I mentioned gold because it has been mentioned recently on another thread as being a useful component of a retirement account and was also mentioned by Ray Dalio in the Nikkei interview.

I don’t think that equities will necessarily keep pace with inflation. I mean, for some companies with price setting power, yes their profits will not drop but when supply chains are disrupted or there is a weather anomaly or if the price of oil goes up not all companies are able to hike their prices. Add to that the effect of central banks raising interest rates to dampen down inflation, it’s not a given that equities will keep pace with inflation.

Of course there are no guarantees with investing, it involves risk. I’m unsure why utilities or REITs would be any better inflation hedges than an equity index though. Both can push through price rises far slower than most companies - REITs due to the long contracts their tenants hold and utilities due to being regulated assets.

As for gold, well anything like gold or Bitcoin that has no income the value can be any number anyone can make up. Not for me!

News alert: hedge fund founder predicts financial risk - recommends people protect their wealth via, you guessed it, investing in hedge funds. Since nobody actually knows the future (or if they do, they ain't talking about it) I think the best course of action is to choose a reasonable asset allocation of low expense, globally diversified funds with an overweighting to stocks and just keep buying.

eyeswideshut wrote: ↑Mon May 27, 2024 12:18 pmSince nobody actually knows the future (or if they do, they ain't talking about it) I think the best course of action is to choose a reasonable asset allocation of low expense, globally diversified funds with an overweighting to stocks and just keep buying.

This.

If you follow Ray Dalio on LinkedIn he posts frequent essays with his thoughts and predictions. I find them interesting but not particularly actionable

ChapInTokyo wrote: ↑Sat May 25, 2024 11:47 pm Interesting Nikkei interview with Ray Dalio (the founder of hedge fund Bridgewater Associates, known for having applied lessons from history to predict the 2008 Great Financial collapse).

WOW if he’s right this time we could be in for a rough ride indeed… maybe I really ought to have a pretty large allocation to gold in my portfolio!

Q: How would turmoil in the U.S. affect the dollar?

A: There is too much debt that will be monetized, as is happening in Japan as well as the U.S. and the eurozone -- so in all three of the world's major reserve currencies -- which will devalue their monies and the debt assets, which are the promises to receive this devalued money. The devaluations will show up in more inflation and higher gold prices, rather than in one currency falling a lot relative to the others. In other words, the debt will be monetized, and the value of all monies will decline. I believe that will be the trend for several years. https://asia.nikkei.com/Editor-s-Picks/ ... ion-looms2

You and I seem to be following the same trails, ha ha!
I listened to this podcast recently featuring Ray Dalio.
His comments on national debt (and labor shortages in the developed world) leading to inflation and higher rates, which lower bond prices if they keep rising after your purchase, made me rethink my bond allocation.
https://podcasts.apple.com/jp/podcast/p ... 0659610574

This is one of the best articles I have read on gold. The guy is pro-gold but does not push it hard. This quote stood out:
"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/
Apart from protecting against this particular type of inflation (not all inflation), adding some gold - not too much as it doesn't generate income, unlike bonds and stocks - can help diversify a portfolio and reduce volatility thanks to its reduced correlations with stocks and bonds.
https://youtu.be/D3KdiT3iFwo?si=ejDWA4EAO74uqw9G (the bit about diversification of asset types starts from about 9:30mins in)