Short and Sweet

Joe Biden and the new era of big government
Bridgewater’s Dalio says stay clear of bonds, buy ‘stuff’

composite black and white photos of Roosevelt, Johnson and Biden

For many, the above headline accompanying a recent Financial Times “Big Read” will be welcome news. For others, it will serve as a warning. FT says the Biden administration’s economic program “echoes” Franklin Delano Roosevelt’s New Deal and Lyndon Johnson’s Great Society. “The passage of the [stimulus] bill in a deeply divided Congress…,” explains FT, “has a much broader significance. It cements a leftward shift in US politics and economics that has gained traction during the coronavirus crisis, affording government a far bigger role in solving problems in society than it has enjoyed in recent decades.” Part and parcel of that shift is a severe leftward tilt in Washington’s economic policy that poses a direct threat to the dollar’s longer-term value and stability in the bond market courtesy of a deluge of debt and printed money dropped from Air Force One – a situation aptly captured in the Ramirez cartoon below.

Bloomberg reports that major financial institutions from Goldman to JPMorgan are worried about inflation, citing it as an “invisible force rocking Wall Street.” In a recently posted LinkedIn piece, Bridgewater Associates’ Ray Dalio stated flatly that “the economics of investing in bonds (and most financial assets) has become stupid … [B]ecause you are trying to store buying power, you have to take into consideration inflation. In the US, you have to wait over 500 years, and you will never get your buying power back in Europe or Japan. In fact, if you buy bonds in these countries now, you will be guaranteed to have a lot less buying power in the future. Rather than get paid less than inflation, why not instead buy stuff – any stuff – that will equal inflation or better? We see a lot of investments that we expect to do significantly better than inflation.” Of course, the ultimate “stuff” – the ultimate stores of value – are gold and silver. Most of the inflation-proofing strategies outlined by analysts in the Bloomberg report include real assets, gold, commodities, et al.

ramirez cartoon other people's money dropped from Air Force One

Cartoon courtesy of MichaelPRamirez.com


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