R. Dalio suggests selling bonds, buying gold and bitcoin

“Investors should reduce their investments in bonds and direct about 15% of their funds to gold, thus hedging against the US debt crisis that may arise in the next 3 years, warns Wall Street veteran Ray Dalio.

 

The founder of the largest hedge fund Bridgewater Associates says that investors should diversify their investments across various asset classes and regions with strong public finances. A reduced proportion (underweight) in the bond asset class, about 10-15% allocation to gold and “a little bit” of bitcoin could mitigate portfolio risk and increase returns, R. Dalio considered in a Friday LinkedIn post.

 

The investment veteran’s thoughts appeared at a time when financial markets, especially bonds, were spooked by the swelling US debt. Renewed oil prices and inflation fears have fueled market reactions that have pushed long-term U.S. Treasury yields to two-decade highs. The U.S. Treasury’s intervention in announcing bond purchases has not helped either.

 

High yields are further increasing the cost of servicing the U.S. government debt, which has exceeded $40 trillion for the first time in history.

 

Dalio has long been making dire predictions about the ballooning U.S. debt. U.S. government spending this year is expected to reach $7.5 trillion, while revenue is expected to be $5.5 trillion. Interest costs alone will reach $1 trillion this year, Dalio estimates. And all this at a time when the United States needs to refinance $10 trillion in debt.

 

If this dynamic is not reversed, the US debt crisis could come “within three years, give or take two years,” warns the Wall Street veteran, calling for urgent reductions in budget deficits through lower spending, higher tax revenues and lower interest rates.

 

He is also skeptical about the public finances of the UK, China and Japan.

 

“I expect assets that are not controlled by governments, such as gold and bitcoin, to hold up relatively well,” says R. Dalio.

 

This week, as US bonds and the US dollar fell due to the aforementioned fears in the markets, the price of gold rose to a 3-month high, while bitcoin rose more than 20% in recent days alone, exceeding $77,000 and is the most expensive in almost 3 months.”