(i've attempted to transcribe this from the audio, all errors are mine)Think about price changes. Think about the value of money with interest rates being where they are. [...] Most investors think the safest investment is in cash, as cash doesn't have much volatility. But cash is going to be the worst investment, particularly in this environment, because its a tax. [Cash] doesn't have the volatility to it, but now its a -2% per year. It's a non-volatile hidden tax of 2% per year - look at compounded effect of 1,2,3% a year on your life.
Cash, no in this environment, and bonds in this environment in my opinion are not good asset classes. [...] so go away from yield and you have to think what are the other storeholds of wealth.
Stocks has always been a beneficiary, a storehold of wealth, back to march 1933 valuation, august 1971 and so on - yes we saw gold but we saw stocks - real things real income streams - they don't have to be the most stable, they can have growth to them, multiples go up and so on.
Balance is the most important thing. You don't want cash, I don't think you want bonds. I do think you want alternative stores of wealth but diversified wealth. When I say diversification I mean diversification not just of stocks and stock sectors but diversification of asset classes, diversification of currency and diversification of country to achieve balance. If you balance well you don't give up any return in order to reduce your risk because all assets compete with each other and so on.
Do pay attention to the currency because there is a currency risk. We have gotten used to looking at everything through the lens of our currency. So when we say [...] you know, "how're you doing? I'm doing great [...] my portfolio has increased by 10% this year" - because you're measuring it in a currency. Those currencies that depreciate the most often have that price rise but you can lose money and buying power because you're viewing it through that lens. It's a little bit like being in a boat in the water that's going up and down and you look at land and think land is volatile. The asset classes that you're looking at through that lens [...] so you need currency diversification too.
Fixed income exposure has declined a lot as interest rates approach zero because of the mechanics of what zero interest rates mean. When you get interest rates low enough, not only don't they provide a return but they don't provide a diversification benefit because there's a limitation of how much interest rates can go down which means a limitations on how much those [fixed-income] assets can rise in price.
[...] that's a problem for the central banks too. I mentioned that there's monetary policy 1, 2 and 3. monetary policy 1 -- you can't cut the interest rates. So historically then what you get is the printing of money, buying of financial assets, buying of government assets and so on - the reflationary type of policies we have here. So if you're seeking diversification when interest rates are close to zero -- bond yields are close to zero -- you wont get [diversification] in bonds [...] the way monetary policy works is to produce an easing is to have reflation assets such as that which happened on april 9.
I found the remark about bonds not providing a diversification benefit somewhat surprising - but the argument makes sense - if interest rates don't have much or any room to drop further, the price of any existing bonds you might hold in your portfolio cannot substantially appreciate. This suggests bonds could be removed from a portfolio until such a time in future once interest rates have increased so that there are opportunities for bond price appreciation if interest rates are dropped again.