As markets plunge on fears of a more hawkish Federal Reserve and Omicron, Ray Dalio of Bridgewater Associates reminds investors to stay away from cash, saying it will be eaten by inflation. The famous billionaire, who advised to transfer wealth, says “Know how to balance a portfolio” and states that when stocks fall, the bond market and gold prices will rise.
“Balance the portfolio with instruments such as gold and bonds”
Ray Dalio, founder of the world’s largest hedge fund, told CNBC on Tuesday:
Cash is not a safe investment because it will be taxed by inflation.
Ray Dalio says the key is to have a well-balanced portfolio during times of market volatility, noting that wealth is transferred:
It’s an idiot’s journey to time the way in and out of the market. Even if you are a great market timer, what goes on can change the world, thus changing what can be priced in the market.
Billionaire recommends transferring your wealth and says “Know how to balance a portfolio”. Ray Dalio underlines that when stocks fall, the bond market will not disappear as much as wealth is transferred, noting that gold prices rise:
This is the most important thing if you know how to balance these investments. Be in a safe, balanced portfolio. You can reduce your risk without reducing your return.
Fed Chairman Jerome Powell looked pretty hawk
Ray Dalio’s comments came as the US stock market turned red after Federal Reserve Chairman Jerome Powell spoke of accelerating a reduction in asset purchases in light of troubled inflation. Cryptocoin. com
As we report , Jerome Powell on Tuesday told the US Senate that the US Federal Reserve would consider completing tapering a few months ago:
At our next meeting, it would be appropriate to discuss whether to complete our asset purchases a few months ago. We saw high inflation pressures, strong labor market data, strong spending data. Every dollar of asset purchases increases the settling of inflation. The US economy is strong and inflationary pressures are high.
Jerome Powell also stated that it is best to leave the phrase “inflation temporary”, adding that the risk of more permanent inflation is higher:
The threat of consistently higher inflation has grown. We will use our tools to make sure higher inflation doesn’t settle in. We can now see that higher inflation continues until the middle of next year.
The Fed Chairman also stated that what the Fed cannot predict when it comes to inflation is supply problems:
We could not anticipate supply-side problems. That’s what we missed.
Gold fell hard with Jerome Powell’s statements
In response to Jerome Powell’s hawkish comments, the Dow Jones Industrial Average fell 625 points, the S&P 500 fell 1.7% and the Nasdaq fell 1.3%. In an immediate reaction, gold also gave up on previous gains, dropping by $40 from its daily high of $1,811.40 to $1,771.20. Today, however, gold prices rebounded a bit and were trading at $1,778.14 at the time of writing, up 0.24% on a daily basis.
Analysts, December markets are pricing in more market volatility. Charlie Ripley, senior investment strategist at Allianz Investment Management, says the Fed may end its bond-buying program in the first quarter of next year if higher inflation and a strong economic backdrop occur. The strategist continues his assessment as follows:
Ultimately, the tentative view on inflation officially ended, as Jerome Powell’s comments reinforced the notion that high prices would continue into next year. With potential changes in policy on the horizon, market participants should expect additional market volatility in this unknown territory.