Billionaire investor Ray Dalio says 'cash is still trash' but stocks are even worse as the Fed struggles with inflation

• Ray Dalio continued to urge investors to stay away from cash amid high inflation and warned stocks look even worse.
• Instead of stocks or cash, "real-return assets" are the best investments, he told CNBC.

Billionaire investor Ray Dalio continued to urge investors to stay away from cash amid high inflation and warned stocks look even worse.

The founder and co-chief investor of Bridgewater Associates, the world's largest hedge fund, has been saying for years that cash is trash. In an interview with CNBC Tuesday at the Davos World Economic Forum, he doubled down.

"Of course cash is still trash," he said. "[Do] you know how fast you're losing buying power?"

He added, "equities are trashier." Instead of stocks or cash, "real-return assets" are the best investments, he explained.

"You're going to have an environment of negative real returns," Dalio maintained. "Everything can't go up all the time. That system won't work that way."

When asked whether the Fed can effectively reduce demand without breaking the back of the economy, he answered "no," and said Fed rate hikes won't keep up with inflation, which is still at 40-year highs above 8%.

"[The Fed] will not be able to raise interest rates to a high enough level to adequately provide a real return to investors," Dalio said. "So if you think about the rising rates, if we say 3% interest rate or 4%, that is not going to be an amount of money that is adequate to compensate for the inflation rate."

Meanwhile, Bridgewater co-CIO Bob Prince told Bloomberg TV that the US economy is on the cusp of stagflation and investors are yet to fully price it in, warning that markets are being too optimistic about inflation coming down.