Ray Dalio, billionaire investor and co-chairman of Bridgewater Associates, called on investors in a research note to prepare portfolios for the coming transition out of this decade's central bank-led reflationary environment into a future met with unsustainably large liabilities and rising social and geopolitical tensions.
The note, titled Paradigm Shifts, is a summation of ideas Dalio has formed throughout his career studying markets, as well as a targeted focus this past year to study economic and market moves in major countries over the last 500 years.
Using the last centuries' paradigm shifts within U.S. markets as a guide, Dalio believes major economic and market-moving events have continued to happen within distinctive decade-defining characteristics, but for roughly the same reasons.
He sees these shifts driven by actions and reactions of policy makers, investors, business owners, and workers which leads to an unwind of three core equilibrium levels:
- Debt growth in line with income growth that is required to service the debt load
- The economy's operating rate remains within a normal bounded distribution
- Projected returns of cash < projected return on debt < projected return on equities < projected return on risky assets
Given this backdrop - and a new decade on the horizon - Dalio believes now is a good time for investors to question how the current decade's reflationary environment paradigm may be unsustainable, and "visualize how the paradigm shift will transpire when that unwinds."
The note concluded by suggesting investors consider adding gold to their portfolios, and other assets that perform well in times when money is being depreciated and amid ongoing domestic and international strife.
"What will be the next-best currency or storehold of wealth when most reserve currency bankers want to devalue currencies in a fiat system?"