Ray Dalio of Bridgewater Associates, is widely regarded as one of the best macro money managers with an impeccable track record of double digit gains. Dalio runs one of the top five hedge funds on the planet and investors have entrusted him with $90 billion under management.
Dalio expects that there will be a “seismic” currency adjustment which could be the greatest in 40 years.
China and Brazil and some other emerging countries are in the opposite situation. They should be tightening monetary policy, but they can’t have a tighter monetary policy because their policy is linked to the U.S. As time progresses, their inflation and their bubbles will become more severe.
Through 2011, and into 2012, these links are going to cause intolerable conditions. I believe that sometime in the next 18 months, we will probably have a seismic shift, very similar to the Bretton Woods breakup in 1971, in which linked monetary policies and linked exchange-rate policies come undone. The pain of holding them together is going to be terrible, and that’s going to create the seismic shift.
Essentially Dalio fears that the indebted nations in the West only have two options – devalue their currencies or restructure their debts. Subsequently, investors are storing their wealth in commodities which should continue to do well into late 2012.Dalio said, “[The commodity bubble] continues until China and those countries become too tight, and that’s probably not until late 2012.”
In addition to commodities, Dalio is bullish on gold.
We are still long gold. We are also long commodities, and currencies of emerging countries with surpluses, versus the currencies of developed countries with deficits. Gold is a very underowned asset, even though gold has become much more popular. If you ask any central bank, any sovereign wealth fund, any individual what percentage of their portfolio is in gold in relationship to financial assets, you’ll find it to be a very small percentage. It’s an imprudently small percentage, particularly at a time when we’re losing a currency regime.
Gold still only makes up only 0.15% of all assets meaning that Dalio is correct in his assertion that gold is “a very underowned asset.” As we near closer and closer to the new currency regime, it is prudent to hold gold.