Billionaire investor Ray Dalio says cash is a better investment than stocks and bonds as the Fed sticks to its rate-hike plan

Ray Dalio. YouTube / Rich Talk

• Billionaire investor Ray Dalio doubled down on his faith in cash, saying it's currently more attractive than stocks and bonds. 
• "Cash used to be trashy. Cash is pretty attractive now," the Bridgewater founder said. 
• Higher interest rates translate into tight money supply in the economy, offering some returns on the dollar, Dalio said. 

Billionaire investor Ray Dalio doubled down on his view that cash is no longer trash, saying that the dollar is more attractive than stocks and bonds. 

Dalio's U-turn on the dollar comes as the Federal Reserve continues with its most aggressive campaign of interest-rate increases since the 1980s to control inflation. 

"Cash used to be trashy. Cash is pretty attractive now. It's attractive in relation to bonds. It's actually attractive in relation to stocks," the Bridgewater founder said in a CNBC interview on Thursday.  

"You have the classic move that as rates go up, money supply becomes tied. You lose the parts of the economy, the parts of the market that are the bubble parts that needed the cash flow. So you're seeing it reflected in not only the long duration stocks," but in private equity and venture capital, he added. 

Dalio, who coined the term "cash is trash," previously dismissed the dollar as virtually worthless in April 2020, as he expected near-zero rates and bloated money supply to erode the value of dollars over time. But with the Fed boosting interest rates sharply to rein in prices pressures, the yield on the dollar has risen. 

The US Dollar Index, which measures the greenback against a basket of six currencies, surged to a 20-year high last year thanks to the Fed's rapid-fire rate hikes. Higher interest rates add support to the dollar as they tends to attract more foreign investment. 

Meanwhile, stocks and bonds have been hit hard in the past year on the back of the aggressive rate hikes, with the tech-heavy Nasdaq shedding about 34% last year. 

"What's also happening is that we now have the accumulation of a lot of debt and money," Dalio added. That means dealing with issues like the US debt ceiling. A continued accumulation of liabilities could ultimately impact with the value of the dollar, he warned.