Billionaire investor Ray Dalio no longer thinks 'cash is trash' - and says the Fed has hiked interest rates enough for now
- Ray Dalio no longer believes "cash is trash" in light of tighter monetary policy.
- He's warmed to the greenback due to higher interest rates and the Fed shrinking its balance sheet.
Ray Dalio, after repeatedly proclaiming "cash is trash" in recent years, has warmed to the US dollar and now views it as a passable investment.
"The facts have changed and I've changed my mind about cash as an asset: I no longer think cash is trash," Dalio tweeted on Monday.
"At existing interest rates and with the Fed shrinking the balance sheet, it is now about neutral — neither a very good or very bad deal," he continued. "In other words, the short-term interest rate is now about right."
The billionaire cofounder and co-chief investor of Bridgewater Associates dismissed cash as virtually worthless in April 2020, as he expected near-zero rates and a ballooning money supply to erode the value of dollars over time.
However, the Federal Reserve has hiked rates to upwards of 3% this year, and shifted from pumping dollars into the economy to reducing its bond holdings. As a result, interest rates on bank deposits are set to rise, rival assets are poised to perform relatively less well, and there's less pressure on the dollar from supply growth.
Therefore, Dalio is now less concerned about the dollar's value evaporating over time. The US dollar index, which tracks the greenback against a basket of other major world currencies, has surged 17% this year to a 20-year high.
The second part of Dalio's tweet suggests that he's content with the current fed funds range of 3% to 3.25%, and would grow more bullish on the dollar if rates climbed higher. He recently predicted long-term rates of more than 4.5%, indicating he sees further rate hikes in the years to come.
Still, the Bridgewater chief's tweet shows he has lingering doubts about the dollar. He's previously highlighted inflation — which hit a 40-year high of 9.1% in June and remains elevated — as a key threat, given that rising prices reduce the purchasing power of dollars.
"Of course cash is still trash," he said in May. "Do you know how fast you're losing buying power?"
Dalio also suggested in April 2020 that the Fed wouldn't be able to raise rates high enough to compensate for inflation and generate a real return for investors. Given there's widespread worry about the central bank hiking further and inadvertently plunging the US economy into a recession next year, that remains a relevant concern.
It appears that Dalio is less bearish on cash in light of tighter monetary policy, but hasn't turned bullish given inflation remains high and there may be a limit on how high rates can go.
It's worth noting that Dalio's tweet hints at his views on other assets. If he's warmed to the dollar, that suggests he's less optimistic about non-cash assets than before, and sees the greenback holding onto its gains against rival currencies this year.