Taunts From Bulls Come In: "Stupid to Hold Cash"

Mish

Bridgewater’s Ray Dalio says investors in cash are going to feel pretty stupid.

Speaking at Davos, the head of world’s largest hedge fund says ‘If You’re Holding Cash, You’re Going to Feel Pretty Stupid’.

“We are in this Goldilocks period right now. Inflation isn’t a problem. Growth is good, everything is pretty good with a big jolt of stimulation coming from changes in tax laws,” Dalio said, referring to the health of the U.S. market as well as what he sees as an improving global economic climate.

The prominent investor, who runs the largest hedge fund in the world with about $150 billion in assets, says a “blowoff rally”, or melt-up as some refer to it, in which investors begin to rush into equities for fear of missing out on gains, will take the Dow Jones Industrial Average DJIA, the S&P 500 index SPX, and the Nasdaq Composite Index to ever-new heights.

Apparently, the blow-off top has not even started.

Worried about rising interest rates? The Fed will need to figure it out, says Dalio.

Trigger Not Needed

Meanwhile, economist Robert Shiller says Stock Markets Don’t Need a ‘Trigger’ to Correct.

A pullback for this Teflon stock market could come like a thief in the night.

That’s the view of Nobel Prize-winning Yale University economics professor, Robert Shiller, who was interviewed in snowy Davos, Switzerland, on Tuesday as the World Economic Forum got underway. He was asked by CNBC if he thought any specific trigger could finally break the winning run for stocks.

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Shiller vs. Dalio

It's possible that Dalio is correct. It is certain that Shiller is correct. No trigger is needed. Sentiment can change at any time without there being a trigger you can put your finger on.

Think back to the summer of 2006. People were standing in line, overnight, for the right to buy a Florida condo. A month later, the lines were gone. The trigger? There was none that anyone can point.

Sentiment changed. If you prefer to think of it this way, the trigger was a change in sentiment. But there was no trigger for the sentiment change.

Dalio Arrogance

Unlike Shiller, Dalio comes across as a pompous know-it-all.

Shiller does not pretend to know the unknowable. Dalio does.

"You are going to feel stupid," is quite the arrogant thing to say.

Cash on the Sidelines

In the CNBC interview, Dalio spoke of sideline cash.

"There is a lot of cash on the sidelines. I don't mean just investor cash. I think banks have a lot of cash. Corporations have a lot of cash. So we are going to be inundated with cash."

Sideline Cash Rebuttal

Sideline Cash Reality

  1. For every equity buyer, there is a seller.
  2. Someone must hold every dollar printed 100% of the time.
  3. It is impossible for everyone to deploy their cash or for cash to flow into the market as a result of statements one and two above.

By the way ....

Dalio is clueless about how markets even work, and he is lecturing people about feeling stupid.

Mike "Mish" Shedlock

Comments (33)
No. 1-33
joemanc
joemanc

Higher interest rates are going to burst the bubble. Figuring out how high they need to go is the question.

farnsworth
farnsworth

You are incorrect about IPO's and secondary offerings. The company or insiders are sellers, the public and institution are buyers. There is still a buyer for every seller. Cash just changes hands.

Mike Mish Shedlock
Mike Mish Shedlock

Editor

Cash level does not change. But when new securities are created out of thin air. Money that was not in stocks is now in stocks.

Mike Mish Shedlock
Mike Mish Shedlock

Editor

I was attempting to convey money flowing into stocks. And I did not do that correctly. Easiest thing was to change the line rather than convey the thought correctly.

KidHorn
KidHorn

I've had about 25% of my portfolio in cash for years. I couldn't find anything worth buying. In hindsight, I should have paid too much for pretty much anything, Stupid me.

truthseeker
truthseeker

Well there are 2 new bearish things we know about that will soon begin to change the extreme bullish sentiment imo. Interest rates have begun to move up and the Fed is draining liquidity from its 4 trillion hoard of treasury securities and mortgage backed securities. Yet on the other hand there are at least 2 new bullish things helping stocks shoot up making new highs almost every day. I have read that the reduction of regulations has been more dramatic than anticipated, as has corporate tax relief. With the 10 year treasury note yield moving above 260, at some point these higher interest rates are going to really hurt our ability to service an absolutely huge amount of leveraged debt everywhere you look. As we watch all this play out in America and the rest of the world, we are going experience financial chaos never seen before, or maybe I’m wrong as the Fed will surely lower rates again and begin to pump the credit markets with liquidity causing stocks to shoot up again and we’ll all live happily ever after!

shamrock
shamrock

What about cash created out of thin air by fractional reserve lending? For example, I take out a home equity loan for $25k and buy NFLX, that's $25k of new cash going into the market since the original owner of the $25k still has it too.

2banana
2banana

QE Unwind + Rising interest Rates + Trade War + Everything priced to perfection (bubbles everywhere) + the DJT New Tax Laws = ???

truthseeker
truthseeker

Mish did we all set a record today with Reply’s?

RonJ
RonJ

"Apparently, the blow-off top has not even started." Martin Armstrong had a chart of the gold blow off into 2011, the other day. There was a resemblance to the movement of the DOW, since before the election.

JohnnyJingo
JohnnyJingo

"We view market valuations as obscene" -- John Hussman October 1, 2013

aqualech
aqualech

Dalio is paid to gamble with other peoples' money. He will retire well no matter what happens with his AUM.

TCW
TCW

I'd rather be able to retire comfortably than lose it all or retire rich just so the government can steal it to pay for social security.

VPKK
VPKK

Miss, when you say someone like Dalio is clueless, you’re using the same sort of arrogant wording.

truthseeker
truthseeker

Mish why did you remove my two most important new bullish events from my remarks? So once again I’ll say it seems to me that the bears have vastly underestimated the potential pick up in growth due to Trump’s extremely aggressive assault on regulations in our economy, while also cutting corporate tax rates maybe more than expected and providing incentives in such a way that might improve productivity in our economy .

purelogic
purelogic

I recall Ray Dalio saying not long ago that low equity returns are baked in the cake. I believe he said 4% returns annually should be expected over a 10 year period (his estimate was higher than that of Hussman). Since then I believe equities have rallied at least another 20-30%, so by now he should be recommending cash.

truthseeker
truthseeker

For the time being Mish it’s ok if someone else has taken over your blog for you. I think you are working way too hard putting up way too many subjects will cause stress to take hold at some point. I know you are doing better financially, but I miss the old format and it was probably more fun for you and allowed us to see a bunch more comments. If what I’m saying here is offensive please delete it!

truthseeker
truthseeker

I apologize for that remark. It’s been a strange day from my perspective.
Well I apologize again as my initial remarks word for word have been posted once again.

Carl_R
Carl_R

Sometimes you have to hit "load 10 of 14 previous comments", or such, to go back to earlier comments. I don't like this discussion format at all, but it is what we have to work with.

smoner0
smoner0

its never good to put your funds 100% into fiat currency, id say saving money in gold in the long term will always be the best bet along with getting into crypto currency. there is a really good gold savings plan with this company https://tinyurl.com/y73vxad7

MishMash
MishMash

One way to remove a lot of liquidity from the markets is to inflate them dramatically, and then crash them when all the suckers are in.

MishMash
MishMash

Let's see.. , what would cause things to take a dramatic head spin? Hmmm

MishMash
MishMash

How about a faked presidential assassination?

Oyvind
Oyvind

Ray Dalio is much smarter than all the bloggers that year after year are advising people to stay out or go short in an ongoing raging bull market.

purelogic
purelogic

Listening to the entire Ray Dalio interview, he's not really saying it's stupid to hold cash, but we're in an environment of rising asset prices in which it feels stupid to hold cash and people will continue to feel stupid to hold cash for as long as this late-stage last, which he believes is around 1-2 years. I thought the most surprising thing he said in the interview is that we've had a beautiful deleveraging.

purelogic
purelogic

I can't really make much sense of what Ray Dalio is saying. If his "bond bear market" thesis is correct, it will feel good to hold cash in the sense that you'll be able to get high fixed income returns using that cash in the near future.

FrankBrady
FrankBrady

Someone should gently remind Ray Dalio that the Great Wall Street Casino is NOT "the Economy'.

ManAboutDallas
ManAboutDallas

Isn't it obvious Ray's just trying to goad the last of the dumber-than-a-box-of-rocks contingent to take the other side of his trade ? He's ready to cash in and he NEEDS people to whom he can SELL ! Remember 'ole B'rer Rabbit: " Oh please, B'rer Fox, please don't fling me in 'dat Briar Patch!" ( all the way to the "Laughing Place" )


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