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-world-would-you-own-bonds-when-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]

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]

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]

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]

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:

 

[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.

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-gross-says-made-10-184652396.html

 

[kevink]

“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:

 

[Which Roger]

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]

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-gross-says-made-10-184652396.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]

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.

“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/articles/2021-03-16/ray-dalio-makes-sense-on-bonds-but-he-s-talking-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]

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]

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]

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?

 

[NW-Bound]

This morning, while drinking coffee, I looked up my stocks to check on them as I usually do for a daily ritual. Kind of crummy day, with more positions down than up. The whole stash was down about -0.6% or so. Worse than the S&P at that point (-0.5%), but better than the NASDAQ (-1%).


I went to Costco with my wife to get some gardening soil, as they have a sale on some spring supplies. Came back and found that I was up now. The market turned around. Hallelujah!


BND, Vanguard Total Bond fund, dropped early in the day, but recovered too at market close.


But why? It turned out that the market was soothed by Powell, the Fed chairman, who said that he would be lenient on raising rate till 2023. Whoa, that's almost 2 years from now. Can that be true? Party on. The market goes into "Buy, buy, buy..." mode.


As the market closed, I was up pretty good today. Even beat the Russell 2000, which is the best index today. How lucky is that? Maybe tomorrow, I will pay the price, when everything reverses.

 

[Montecfo]

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

Shift into only ultrashort bonds, MM, CDs etc. Not a lot of yield but you cut your rates risk sharply.

 

[tenant13]

Shift into only ultrashort bonds, MM, CDs etc. Not a lot of yield but you cut your rates risk sharply.

A few months ago I dropped some money into 1-3 months T-Bills and had them set on autopilot (once they mature, Schwab buys them again). I bought small amounts of 10 and 20 years T-Bonds and also invested the equivalent of my T-Bonds purchase amount into bitcoin.

T-Bills are basically cash - nothing really changes with them (I make $1/month on 50k, lol). 10yr T-Bond is almost 8% down and 20yr - almost 18% down. At the same time value of bitcoin increased five fold. And my equities are doing way better than I could have expected year ago.

I can wait 10/20 years to get back the nominal amount I spent on these t-bonds (plus 0.65/1.25% in interest) but it just doesn't seem very prudent.

 

[MichaelB]

Can you give me the symbol for a TIPS ETF?

Here’s a list it TIPs ETFs of varying maturities. https://etfdb.com/etfs/bond/tips/

Like any investment, due diligence is required. If I were to include TIPs in our asset allocation I’d consider buying newly issued individual bonds directly from the US Treasury.

 

[OldShooter]

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?

We are quite comfortable with our TIPS position. It has been in 80-100% of our fixed income tranche for well over a decade. We hold the TIPS directly though, not through an intermediary and mostly just one issue, the 2s of 2026. IMO yield curves on TIPS are not a big issue and certainly not a big risk because they do not have to carry an inflation estimate. Through sheer luck we have actually made quite a bit of money due to near-zero interest rates subsequent to when we bought them, but more importantly to us they have been sleep-well inflation insurance.

IMO they are a "Go big or go home" type of asset. I see no logic in tiny TIPS holdings, like the 5% sometimes mentioned.