Ray Dalio says cash is not a safe place right now despite heightened market volatility

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Ray Dalio of Bridgewater Associates stood by his belief that the new Omicron COVID version does not replace liquidity despite market volatility.

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“Cash is not a safe investment, it is not a safe place because it will be taxed by inflation,” the founder of the world’s largest hedge fund said Tuesday on CNBC’s “Squawk Box.”

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During turbulent times, it is also important to have a safe, balanced portfolio, the billionaire investor said.

“You can reduce your risk without reducing your returns. You wouldn’t do it market-time. Even if you were a great market timer, the things that are happening can change the world.” So it can change the price of the market. Dalio said.

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The Omicron Covid strain, first identified in South Africa, rocked the stock market on Black Friday after the World Health Organization termed it a “form of concern”. The Dow Jones Industrial Average fell 900 points on Friday to suffer its worst day since October 2020. Stock futures signaled another big day on Wall Street after rebounding on Monday as investors monitored the ongoing health crisis.

The stock market bounced back sharply from the bottom of the pandemic in March 2020 due to massive fiscal and monetary stimulus that the government and the Federal Reserve orchestrated to support the economy. However, the excess money supply in the system could create some economic and political problems, Dalio said.

“You can’t raise the standard of living by increasing the amount of money in credit in the system because it’s more money chasing the same amount of stuff,” he said. “It will affect the financial markets in ways we have seen and it will affect the inflation rate. It will not raise the standard of living in a significant way. As soon as inflation starts to bite, it has political consequences.”

Prices for personal consumption spending excluding food and energy, a key inflation gauge, accelerated in October to its sharpest pace since the early 1990s, a measure closely followed by Fed policymakers.

The central bank is battling inflation which has been more aggressive and persistent than they expected. Officials have said they believe inflation is at a point where they can begin to gradually reduce the monthly incentives they provide through bond purchases.

“What we’re seeing has played out many times in history; it’s like watching the movie again,” Dalio said.

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