Bridgewater’s Ray Dalio was on CNBC yesterday and he didn’t dance around the issues. He made strong, bold predictions. First of all, Ray Dalio thinks the US dollar will slowly lose its reserve currency role. Emerging market currencies and gold will hold a bigger role in the next 10 years. Second, he isn’t worried about inflation and he’s bullish about US equities.
“US Equities first are comparatively cheap but more importantly flows are beneficial to them,” Dalio said.
He thinks most currency devaluations are bullish. Dalio expects emerging market funds, like Sovereign Wealth Funds (SWFs), that invest in bonds will shift into equities and these capital flows will benefit equities.
He’s bullish about US equities but he’s more bullish about emerging market equities and bonds. “Portfolios have too much concentration in developed countries’ stocks and bonds relative to other assets,” said Dalio. “The key thing is going to be diversification. Most investors have too much dollar denominated assets or too much of their portfolio in developed countries. I don’t think that they have typically much gold in their portfolio. Gold is a form of money…The main theme now for investors is that if they diversify their assets into other assets, I think other assets will perform better. It will also lower the risk of their portfolio.”
There you have it. The US dollar will depreciate, meaning emerging market currencies and gold will appreciate. US bonds will also see outflows and lose value. Emerging markets’ stocks and bonds will also appreciate.