Ray Dalio says cash is not a safe place right now despite heightened market volatility

KEY POINTS

• Bridgewater Associates' Ray Dalio stood by his belief that cash is not the place to be despite the volatility in the markets triggered by the new Covid omicron variant.
• "Cash is not a safe investment, is not a safe place because it will be taxed by inflation," the founder of the world's biggest hedge fund said Tuesday on CNBC's "Squawk Box."
• During turbulent times, it's also important to be in a safe, well-balanced portfolio, the billionaire investor said.

Bridgewater Associates' Ray Dalio stood by his belief that cash is not the place to be despite the volatility in the markets triggered by the new Covid omicron variant.

"Cash is not a safe investment, is not a safe place because it will be taxed by inflation," the founder of the world's biggest hedge fund said Tuesday on CNBC's "Squawk Box."

During turbulent times, it's also important to be in a safe, well-balanced portfolio, the billionaire investor said.

"You can reduce your risk without reducing your returns. You will not market-time this. Even if you were a great market timer, the things that are happening can change the world, so it changes what could be priced into the market," Dalio said.

The omicron strain of the coronavirus, first identified in South Africa, rattled the stock market on Black Friday after the World Health Organization labeled it a "variant of concern." The Dow Jones Industrial Average slid 900 points Friday to suffer its worst day since October 2020. Stock futures indicated another big down day following a rebound Monday on Wall Street as investors monitored the ongoing health crisis.

The stock market rebounded swiftly from the pandemic bottom in March 2020 thanks to the massive fiscal and monetary stimulus measures the government and the Federal Reserve orchestrated to support the economy. However, the excess money supply in the system could create certain economic and political problems, Dalio said.

"You can't raise living standards by raising the amount of money in credit in the system because that's just more money chasing the same amount of goods," he said. "It will affect financial markets in the ways we've seen and it will affect the inflation rate. It won't raise living standards in an important way. As inflation then begins to bite, it has political consequences."

A key inflation gauge spiked in October, accelerating at its fastest pace since the early 1990s. The personal consumption expenditures price index excluding food and energy, a measure closely followed by Federal Reserve policymakers, rose 4.1%. 

The central bank has been wrestling with inflation that has been more aggressive and persistent than they had anticipated. Officials have said they believe inflation is at the point where they can start gradually reducing the amount of monthly stimulus they are providing through bond purchases.

"What we are seeing happen has played out many, many times in history; it's like watching the movie over again," Dalio said.