If I have a to choose a side in the Great Rotation debate that’s now being waged across thousands of television segments, chief strategist notes, newsletters, blog posts and articles, then I choose to side with Ray Dalio of Bridgewater, also known as one of the the most brilliant global macro investors in history.
What Ray Dalio understands – that many in the chattering classes do not – is that the rotation is not just a bonds-to-stocks phenomenon. It is a cash-to-everything story predicated on the positive feedback loop of returns elsewhere and the relatively destructive long-term returns on cash and super-short-term fixed income.
And so for these purposes, when we say bonds-to-stocks, we’re referring to the treasury maturities that have been substituted for cash, cash itself at banks, money market funds, maturing CDs, corporate balance sheet cash, mattress cash, short-term bond funds that cannot mathematically compete with constant inflation above 2% and on and on. This broader description of what is left to be rotated represents a wicked assload of assets (yes, that’s a technical term I learned at MIT).