Market Extra: Remember when Ray Dalio said you’d ‘feel pretty stupid’ holding cash? How’d that work out?
Bridgewater Associates founder Ray Dalio offered some guidance to investors a few short weeks ago, on the sidelines of the World Economic Forum in Davos, Switzerland.
It was simple and clear as MarketWatch reported: “If you’re holding cash, you’re going to feel pretty stupid,” the hedge-fund maestro said.
The comments came just days before the Dow Jones Industrial Average DJIA, +1.38% and the S&P 500 index SPX, +1.49% touched fresh all-time highs on Jan. 26.
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However, Dalio was flat-out wrong, if he intended to preserve investors, waiting on the sidelines, from missing spectacular gains.
In fact, the Dow and S&P 500 has unraveled, retracing their steps right into correction territory on Thursday, defined as a decline of at least 10% from their peaks, a mere two weeks following his comments. (The Nasdaq Composite Index COMP, +1.44% is just shy of correction territory from its January peak, down 9.7%.)
CNBC’s Carl Quintanilla illustrates in a tweet:
Looked like a smart call — for a couple of days, at least. https://t.co/GNRbjUPeMd
— Carl Quintanilla (@carlquintanilla) February 9, 2018
“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.
Perhaps Dalio can’t be entirely blamed for that unabashedly euphoric statement, which in retrospect might have marked the very top of this market cycle.
The hedge-fund manager, whose fund runs some $ 150 billion, has been warning that rising interest rates and the Federal Reserve’s efforts to normalize monetary policy were the biggest threats to risk assets’ seemingly relentless clamber higher. He may just have been caught up in the ebullience that seemed to emanate from the annual Davos gathering, with many attendees persuaded that halcyon days were ahead amid synchronized global economic growth and dovish central bankers.
However, many market participants noted that markets were due for a correction after a stellar run in January. But the velocity and violence with which things have turned around may be catching some folks, including Dalio, off guard.
At the end of the day, holding on to cash in a market noted for lofty valuations is seldom a bad idea.
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