Dalio Says Investors ‘Crazy’ to Hold Government Bonds Now

Bridgewater Associates’ Ray Dalio, founder of of the world’s largest hedge fund, said investors would be “crazy” to hold government bonds now and possibly for years because of money-printing by central banks to rescue the global economy.

“This period, like the 1930-45 period, is a period in which I think you’d be pretty crazy to hold bonds,” Dalio said Wednesday on the Bloomberg Invest Talks webcast. “If you’re holding a bond that gives you no interest rate, or a negative interest rate, and they’re producing a lot of currency and you’re going to receive that, why would you hold that bond?”

Central bankers around the world are playing the most instrumental role trying to keep the coronavirus recession from deepening into a depression. Already, the Federal Reserve balance sheet has ballooned by almost 50% since the end of February to a record $6 trillion, and there may be trillions more in stimulus spending from the U.S., Europe and Asia.

So far, the Fed’s buying has helped to push Treasury yields down.

While Dalio may not like bonds, he thinks governments have to employ every bit of monetary ammunition they can muster to compensate for the collapse in income and spending resulting from the pandemic. While economists are divided on how long and painful the recession will be, Dalio thinks about it differently: as a $20 trillion “hole” in the global economy that needs to be filled.

“There’s no choice,” said Dalio, whose firm manages about $160 billion. “If you don’t do that, the consequences are enormous.”

Unlike the 2008-09 financial crisis, when the U.S. government had to decide whether to save big banks and help homeowners, the scope of the rescue effort is much wider now. Not only has the Fed started buying junk bonds for the first time, the government is lending to small businesses and sending money directly to tens of millions of Americans whose livelihoods have been devastated by the pandemic.

Downturns of this magnitude are so dramatic that they inevitably produce a “new world order” with a very uneven distribution of winners and losers, including in asset classes, Dalio said. He cited gold and certain stocks, especially those of companies with strong balance sheets, as some of the “beneficiaries.”