Ray Dalio Screams: The Stock Market Is Rigged!

 Here is the article. 

Here are highlights for me to learn from:

1. Central banks and the coordination with the central government - market makers - value of the money
2. Free market - is it dead? 
3. Traditional ways - political agenda - economic agenda? 
4. Air Canada - TSX: AC - $9 billion in liquidity, lost near $2.5 billion over 6 months alone, $10 million/ daily, but market cap remains above $5 billion
5. 
   

The market is rigged

In a recent interview with Bloomberg, Dalio outlined what he really thinks about the stock market in 2020.

“Today the economy and the markets are driven by the central banks and the coordination with the central government,” he said. “We’re in a situation now where they’re the market makers…including the value of money.”

Dalio warned that the entire concept of free markets is now dead. “Capital markets are not free markets allocating resources in the traditional ways,” he stressed. “They have a political agenda, not an economic agenda.”

It’s not hard to see how markets are overinflated. Just look at Air Canada (TSX:AC). The company has $9 billion in liquidity and lost nearly $2.5 billion over the last 180 days alone. The daily burn rate is likely above $10 million. Bankruptcy is a serious consideration, yet the market cap remains above $5 billion!

Follow Dalio’s advice

Dalio isn’t the only one concerned.

Jeremy Grantham, head of GMO Asset Management, is an expert at spotting bubbles. He foresaw the property bubble in Japan, the dot-com bubble in the 1990s, and the financial crisis of 2008. He’s often a year or two early, but investors that trusted his opinion weren’t too concerned, as they avoided losses of 50% to 90%.

What does Grantham have to say about the current environment?

“Everything is uncertain, perhaps to a unique degree,” he begins, after noting that the current economy is in the worst 10%, or even bottom 1% in history.

“The market’s P/E level typically reflects current conditions. Markets have historically loved fat margins, low inflation, stability and, by inference, low levels of uncertainty. This is apparently one of the most impressive mismatches in history,” he concludes.

Dalio and Grantham are clearly concerned about the market’s frothiness. Grantham is pointing out the historical mismatch. Dalio is placing the blame on government intervention.