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
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.
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.
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
- For every equity buyer, there is a seller.
- Someone must hold every dollar printed 100% of the time.
- 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.
Dalio is clueless about how markets even work, and he is lecturing people about feeling stupid.
By Mike "Mish" Shedlock