Thomas Peter/Reuters
- Billionaire investor Ray Dalio has said the US is “on the wrong path” after inflation surged to a 31-year high.
- He also warned investors that strong inflation erodes their wealth, even if their portfolios are rising.
- Dalio said the US has to focus on raising productivity, if it wants to continue to grow and prosper.
Billionaire hedge fund manager Ray Dalio has said the US is “on the wrong path” after inflation hit a 31-year high in October.
Dalio posted a newsletter on LinkedIn warning that strong inflation is eroding people’s wealth. He said people shouldn’t be fooled into thinking they’re getting richer just because their financial portfolios are going up.
He had a stark warning for the US, saying it must focus spending on investment to boost productivity, rather than to fuel consumption.
“The United States now is spending a lot more money than it’s earning, and paying for it by printing money that is being devalued. To improve, we have to raise productivity and cooperation. Right now we are on the wrong path,” Dalio said.
The investor’s intervention came after data showed Wednesday that US consumer price index inflation shot up to 6.2% year-on-year in October, the highest level since 1990. The jump was powered by rising prices for energy, shelter, food and vehicles, with the US economy running red hot as it recovers from the coronavirus pandemic.
Dalio founded the $150 billion hedge fund Bridgewater Associates, and is its co-chief investment officer.
He said the high level of inflation was a result of stimulus policies from the US government and Federal Reserve. “At this time 1) the government is printing a lot more money, 2) people are getting a lot more money, and 3) that is producing a lot more buying that is producing a lot more inflation,” he wrote in the newsletter.
“Some people make the mistake of thinking that they are getting richer because they are seeing their assets go up in price, without seeing how their buying power is being eroded. The ones most hurt are those who have their money in cash,” he added.
Investors are normally very worried about inflation because it eats away at the value of their portfolios. For example, if an asset returns 3% in a year but inflation is 4%, the investor has lost 1% in real terms.
Yet in recent weeks the stock market has remained relatively buoyant, despite the surge in price levels. Many analysts say this is because real returns on bonds are at record lows, meaning there’s no alternative to buying stocks.