Deflation hedges

[TwoCitiesCapital]

Dalio with his thoughts.  To be clear, he is talking his book, so a grain of salt is required.

https://www.linkedin.com/pulse/implications-hitting-hard-0-interest-rate-floor-ray-dalio/?published=t

Long-term interest rates hitting the hard 0% floor means that virtually all asset classes go down because the positive effects of interest rates falling won’t exist (at least not much). Hitting this 0% floor also means that virtually all the reserve country central banks’ interest rate stimulation tools (including cutting rates and yield curve guidance) won’t work. The printing of money and buying of debt assets that central banks are now allowed to buy almost certainly won’t work much (because bonds can’t be pushed much higher and they are also less likely to be sold to buy other assets of entities that are in financial trouble). Further, with this hard 0% interest rate floor, real interest rates will likely rise because there will be disinflation or deflation resulting from lower oil and other commodity prices, economic weakness, and more credit problems. If that plays out in the typical way, rising credit spreads will raise debt service payments to weaker credits at the same time as credit lending shrinks, which will intensify the credit tightening, deflationary pressures, and negative growth forces. God help those countries that have these things and a rising currency, too.

 

Crazy that his book was down 20%....

[mcliu]

Wasn't he also saying "Cash is trash" like a week before everything blew up?

[TwoCitiesCapital]

Wasn't he also saying "Cash is trash" like a week before everything blew up?

 

Yea, but his comments like that are typically meant to be understood systematically.

 

He's already on record saying he believes the next decade will be a paradigm shift from disinflation/deflation to something more inflationary.

 

So when he says says cash is trash, he means holding an allocation to cash for the next 10-years will be a mistake. Not that holding cash for the next 10-weeks is to be understood that way.