Ray Dalio Issues Warning: Time to Hedge Now, Before War or Debt Crisis Hits
Famed investor Ray Dalio has two things keeping him up at night these days:
Escalating North Korea aggression
The looming U.S debt ceiling debate
“If the above things go badly, it would seem that gold (more than other safe-haven assets like the dollar, yen and treasuries) would benefit,” he recently wrote in a personal essay.
The stock market seems stretched to the limit. Dalio says “prospective risks are now rising and do not appear appropriately priced.”
Coming from someone who runs the biggest hedge fund in the world, comments like these are part of why the stock market has had trouble continuing higher recently.
Dalio thinks war with North Korea is a real possibility and urges investors to hedge their risk in case geopolitical tensions escalate fast. The war of words between the U.S. and North Korea has reached a point where it could be difficult for the U.S. to ignore further provocation.
However, the dangers aren’t just overseas. If Congress fails to act to raise the debt ceiling soon, Dalio believes a technical default by the U.S. is a real possibility.
Either way, the stock market has a tough row to hoe ahead.
Importantly, Dalio notes that these dangers are more political than economic, at a time when political rancor is at an all-time high and absolutely nothing is getting done in Washington. Readers of this column already know that, over the last few months, the U.S. has been quietly using public pension funds intended for federal workers to finance current government (over)spending! This can’t go on much longer.
Dalio advises investors to stay liquid, diversify and not become vested in any particular market outcome. Dalio is bullish on gold and recommends investors consider safe-haven assets right away.
“If you don’t have 5%-10% of your assets in gold as a hedge, we’d suggest that you relook at this,” said Dalio.
He’s not alone. Steve Hanke, professor of Applied Economics at John Hopkins University, thinks owning some gold in troubled times is prudent. According to Hanke, gold has the potential to hit $1,400 before the end of the year if geopolitical tensions continue to grow.
Commodities expert Dennis Gartman also believes investors should have about 10 to 15 percent of their portfolios allocated to gold. According to Gartman, inflationary pressures, especially an increase in wages, and the fact that monetary authorities have been expanding supply reserves could well have a positive impact on gold.
If you’ve hit some “homers” in the last six months in stocks, physical precious metals could help you diversify with a recognized safe haven asset and build your family’s future.
INDIA’S GOLD IMPORTS TO REBOUND
Did you know? India’s gold consumption is bested only by China.
But maybe not for much longer.
According to refinery reports, India’s gold imports are likely to rise by a third in 2017. This means up to 750 tonnes of gold this year for restocking by jewelers. A solid monsoon rainfall season is expected to boost physical gold demand further, especially in rural areas during the upcoming festival season.
India is the world’s second biggest consumer of gold. Higher imports by India should help support gold prices worldwide in the coming months.
FORE-WARNED IS FORE-ARMED
Dalio’s prognostications, while troubling to hear, come at a time when retirement investors still have a chance to diversify while the stock market remains high.
Do you want to place your financial future in paper-based assets that are at the mercy of waffling politicians and experimental central bankers?
Retirement investors who have no exposure to gold as a safe haven asset could be in for a negative financial surprise if war breaks out or the political crisis in Washington deepens.
Like deer in headlights, the costs of doing nothing may have terrible consequences in the coming days.