We’re seeing signs of economic recovery, and we’re certainly seeing a bull market in stocks right now. But when you look at these developments from a particular perspective, it suggests a major opportunity for investors.
That’s what Ray Dalio says. Dalio is the Founder of Bridgewater Associates, the world’s largest hedge fund (and one of the world’s most consistently successful).
But, more importantly, Dalio’s success comes from his understanding of the large cycles that appear in the way capital flows around the globe.
Now, Dalio says, one such cycle is going to alter the investment landscape and create a serious bull market.
At a panel at the World Economic Forum, Dalio said, “There’s a lot of money in a place that’s getting a very bad return. And in this particular year, there’s going to be, in my opinion, a shift.” He continued, “The shift of that massive amount of cash is what will be a game changer.”
This is a facet of what I’ve been talking about for a while, the “risk on, risk off” trade.
Essentially, since the 2008 financial crisis, a huge portion of global investors– both institutional and individual– have been afraid of taking serious risks. That’s why U.S. Treasuries have been bought up to absurd levels, driving yields lower.
It’s also why all the Fed’s quantitative easing hasn’t led to a lick of inflation. All the assets and cheap cash are sitting on banks’ balancing sheets as a protective measure.
However, both Dalio and I think that those days are coming to a swift end.
After all, the biggest fears overhanging the market and keeping all this wealth tied up in low-risk assets are abating.
The market is finally figuring out that the European debt crisis isn’t that big of a deal. The “Fiscal Cliff” and the debt ceiling debate both played out in such a way that shows Congress won’t derail the economy to prove a point.
Every economic indicator has been showing improvement.
But this big wealth shift really is the game changer in the equation. We’ve seen bull markets before. We’ve seen economic recoveries before.
But we haven’t seen a situation in which an overwhelming majority of global wealth has hibernated in only the safest assets – and has rushed out of them all at once, willing to chase higher returns around the globe.
The effect? Rising stock prices, particularly with tech stocks and emerging markets.
There’s also going to be a curious effect on commodities and gold. This exit from safe assets will boost economic activity – but it will also lead to a threat of inflation, which the Fed will have to manage. That, in turn, will lead to rising commodities (except for gold).
It’s going to be an exciting year.