Why in the World Would You Own Dollar Debt? - Ray Dalio

[kevink]

Worthwhile post by the famous Mr. Dalio:

https://www.linkedin.com/pulse/why-w...hen-ray-dalio/

Much discussion of the article on Linkedin and Bogleheads of course. As usual not necessarily all that much in the conclusions that non-billionaire retail investors will be able to turn into actionable advice.

[Retireby45ish]

I just want to know what he means by his last sentence of “buy higher-returning, non-debt investment assets. “

stocks? Foreign stocks? What else does he mean

[razztazz]

Quote:

Originally Posted by Retireby45ish I just want to know what he means by his last sentence of “buy higher-returning, non-debt investment assets. “ stocks? Foreign stocks? What else does he mean

Was watching a fight once on ESPN. At the break the camera and mic followed the fighter who was losing into his corner. His manager starts shouting "You're not fightin' good! You're not fightin' good!" The fighter says: "What should I be doing?" The manager says: FIGHT BETTER!

[chassis]

Quote:

Originally Posted by Retireby45ish I just want to know what he means by his last sentence of “buy higher-returning, non-debt investment assets. “ stocks? Foreign stocks? What else does he mean

Stocks and real estate are two examples.

[NW-Bound]

Warren Buffett and Ray Dalio have now both sounded the alarm on US bonds.

To borrow from the late Louis Rukeyser, "Just because these two agree, it does not mean that they are both wrong."

[Montecfo]

Quote:

Originally Posted by NW-Bound Warren Buffett and Ray Dalio have now both sounded the alarm on US bonds. To borrow from the late Louis Rukeyser, "Just because these two agree, it does not mean that they are both wrong."

It's not exactly a news flash. With yields this low and a growing economy, it's rather clear that bonds are not the place to be.

[NW-Bound]

Quote:

Originally Posted by Montecfo It's not exactly a news flash. With yields this low and a growing economy, it's rather clear that bonds are not the place to be.

While some people agree with Buffett and Dalio that the negative return of bond looks to be inevitable given the current backdrop, many investors still think of the idea of not owning bonds as anathema.

I wonder what the late Bogle would have said now. I do not recall him ever describing a situation where one would jettison all bonds off his portfolio.

[Markola]

“For these reasons I believe a well-diversified portfolio of non-debt and non-dollar assets along with a short cash position is preferable to a traditional stock/bond mix that is heavily skewed to US dollars. I also believe that assets in the mature developed reserve currency countries will underperform the Asian (including Chinese) emerging countries’ markets. I also believe that one should be mindful of tax changes and the possibility of capital controls. “

Ok, unless Ray Dalio is saying flee U.S. bonds entirely and move to an allocation of 100% international stocks, gold, crypto and paid off real estate, which I don’t think he is, he recommends something approximating what Vanguard advises clients to hold, and as reflected in their Life Strategy Funds and Target Date Funds.

For example, the current allocation of the Life Strategy Moderate Growth Fund (VSMGX) is:

[ATTACH]

[NW-Bound]

In a recent interview on Bloomberg TV, Bill Gross who used to be called the "Bond King" said that he had been shorting the 10-year and longer bonds. He expected roaring inflation in the days ahead.

Quote:

The investor predicts a jump in inflation ahead that will give Federal Reserve Chair Jerome Powell “pause” about the central bank’s current lower-for-longer policy. “Inflation, you know, currently below 2% now is not going be below 2% in the next few months,” Gross said. “I see a 3% to 4% number ahead of us."

By the way, Gross said he made $10 million shorting Gamestop against the Redditors, but that is not relevant to me as much as his inflation talk. I surely hope it will not be as bad as Gross predicted.

See: https://finance.yahoo.com/news/bill-...184652396.html

[kevink]

Quote:

Originally Posted by Markola “For these reasons I believe a well-diversified portfolio of non-debt and non-dollar assets along with a short cash position is preferable to a traditional stock/bond mix that is heavily skewed to US dollars. I also believe that assets in the mature developed reserve currency countries will underperform the Asian (including Chinese) emerging countries’ markets. I also believe that one should be mindful of tax changes and the possibility of capital controls. “ Ok, unless Ray Dalio is saying flee U.S. bonds entirely and move to an allocation of 100% international stocks, gold, crypto and paid off real estate, which I don’t think he is, he recommends something approximating what Vanguard advises clients to hold, and as reflected in their Life Strategy Funds and Target Date Funds. For example, the current allocation of the Life Strategy Moderate Growth Fund (VSMGX) is: [ATTACH]

Paraphrasing one commenter on the Bogleheads thread on the Dalio article, that's a classic 60:40 which beats Dalio's "All Seasons" since only 40% of your money is invested in assets unlikely to yield a positive real return.

Vanguard's international bond funds are US dollar hedged, which Dalio would surely say defeats the purpose. Something like this ETF might be a decent option:

https://www.ssga.com/us/en/individua...y-bond-etf-bwx

I'm not ready to take on that kind of complexity and additional risk but I can certainly see the appeal of something like Jonathan Clement's approach: 60-70% in globally-diversified equities (could be as simple as 100% VT or a complex, small/value tilted approach a la Merriman, which is what Clements does) and the rest in iBonds, VTIP and cash in an online bank MM/CD account. Or for those with the skills and appetite, perhaps take another of Dalio's recommendations and borrow U.S. cash to buy real estate, etc.

[Which Roger]

Quote:

Originally Posted by NW-Bound Warren Buffett and Ray Dalio have now both sounded the alarm on US bonds. To borrow from the late Louis Rukeyser, "Just because these two agree, it does not mean that they are both wrong."

Or maybe it really is different this time. Or maybe not. I'm tuning out the noise and staying the course.

[corn18]

Quote:

Originally Posted by NW-Bound In a recent interview on Bloomberg TV, Bill Gross who used to be called the "Bond King" said that he had been shorting the 10-year and longer bonds. He expected roaring inflation in the days ahead. By the way, Gross said he made $10 million shorting Gamestop against the Redditors, but that is not relevant to me as much as his inflation talk. I surely hope it will not be as bad as Gross predicted. See: https://finance.yahoo.com/news/bill-...184652396.html

Did he bother to mention that he lost $10M shorting GME before he made $10M?

[gcgang]

Thanks for the link. I enjoy reading Dalio.

I realize that the ~30% of my portfolio in short term CDs and cash is losing purchasing power, but I’m not in this for the highest returns anymore. OTOH, the UTMA and overfunded 529 for my daughter is all in stock with 50%+ in non US.

Can’t get myself to move any cash into crypto but probably should, as the real risk I face is what Dalio talks about, where the dollar loses its reserve currency status and loses value.

[NW-Bound]

Quote:

Originally Posted by corn18 Did he bother to mention that he lost $10M shorting GME before he made $10M?

If you read the link I provided, you will note the following.

Quote:

“I got in too early,” said Gross. “I was in the hole by about $10 million.” But he stuck with it to sell at a profit.

$10 million is no big deal for Gross, whose net worth is about $1.5 billion. That's 0.67%.

I have lost that much percentage off my stash on a single trade (not too often though, thank goodness). However, I will not sell short, nor sell naked calls. The loss could easily escalate to way beyond 0.67%.

Gross said he was still doing it by selling out-of-the-money naked calls on Gamestop. The money is not that big for him, but I guess he was doing it to "screw the kids".

[NW-Bound]

Back on bonds, I have mentioned often that I never have much bond, but lots of cash equivalents. These funds, I use as collateral to sell cash-covered puts, when the timing feels right to me. From the option premium, I manage to make a few percent each year off the cash.

The above tactic works for me, albeit is not risk-free. The risk is that I may be forced to buy more stocks when they drop. However, I think I can manage that risk a lot better than the risk of bonds, which Buffett has called "reward-free risk".

[kevink]

Good counterpoint article that among other things points out that Dalio writes to sell something to a specific, very wealthy audience. His missives, insightful as they are, aren't public service pieces.

https://www.bloomberg.com/opinion/ar...lking-own-book

[lawman]

So I'm heavily invested in bond funds and am uncomfortable about it..My problem is I just don't feel comfortable selling my bond funds and going into equities at these highs..Suggestions

[MichaelB]

Quote:

Originally Posted by lawman So I'm heavily invested in bond funds and am uncomfortable about it..My problem is I just don't feel comfortable selling my bond funds and going into equities at these highs..Suggestions

Perhaps consider shifting some of your bond fund holdings to TIPs, if you haven’t done so.

[gcgang]

Quote:

Originally Posted by lawman So I'm heavily invested in bond funds and am uncomfortable about it..My problem is I just don't feel comfortable selling my bond funds and going into equities at these highs..Suggestions

Sell your bond funds and go into equities at these highs (primarily non US).

Not sure what you mean by feel comfortable. You just gotta figure out the appropriate risk/reward that gets you where you wanna go. Comfort be darned.

[lawman]

Quote:

Originally Posted by MichaelB Perhaps consider shifting some of your bond fund holdings to TIPs, if you haven’t done so.

Can you give me the symbol for a TIPS ETF?