‘I don’t have a lot of cash’: Billionaire Ron Baron says the US pays for wars, pandemics by ‘making your money worth less’ — and he’s never owned a bond because of that. Do you agree?

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JANUARY 21, 2024

Billionaire Ron Baron says he’s never owned a bond.

Markets are sensitive to geopolitical conflicts. With crises in Ukraine and the Middle East, investors are grappling with increased uncertainty. This may lead some to question whether it’s time to take a different approach to asset allocation.

For billionaire investor Ron Baron, stocks remain a staple.

In a November interview with CNBC, he was asked whether he’s still buying stocks given the conflicts going on around the world.

“Everyday,” he replied. “I’m amazingly bullish.”

The founder and CEO of Baron Capital highlighted inflation as a key factor in his preference for equities. The Consumer Price Index jumped a record 9.1% year over year in June 2022, but inflation cooled to 3.1% in November 2023. It ticked up to 3.4% in December 2023.

“Whenever you have a war, you have a pandemic, you have to have inflation.The government has to pay for it,” he explained. “Then when you come out of it, they have to pay it back. The way they pay it back is not by paying down any debt, they pay it back by making your money worth less.”

This has profound implications if you want to protect the purchasing power of your money.

‘I’m always invested’

There are many potential explanations for the rising price levels we’ve seen after the COVID-19 pandemic: the increased purchasing power from stimulus checks fueling demand, supply chain disruptions hindering the flow of goods and driving up costs, and an easy monetary policy that kept interest rates low, encouraging borrowing and spending.

The Federal Reserve raised interest rates significantly to tame spiking inflation. But the prices of many necessities, such as food and housing, remain higher than pre-pandemic levels.

According to Baron, rampant inflation is not just a one-time event.

“The way we think about things is that inflation is going to reduce the value of your money in half about every 14 or 15 years, by four or 5% a year of inflation. That’s my whole lifetime,” he said.

During periods of high inflation and rising interest rates, bonds are generally not considered great investments. Following the Fed’s aggressive rate hikes, there were notable drop in bond prices. This is because new bonds are issued at higher rates, making the existing bonds less attractive. The fixed interest rate of a bond might not keep up with the rate of inflation, meaning in terms of real returns (interest rate minus inflation rate), the bond could effectively yield a negative return.

And you won’t find Baron clipping bond coupons anytime soon.

“I’ve never owned a bond, ever,” the octogenarian told CNBC. “And I don’t have a lot of cash either.”

Simply put, Baron is still focusing on stocks. He said, “I’m always invested. And whenever I have a chance to buy more, I buy more.”

Tesla

Baron was asked about Tesla (TSLA), which should come as no surprise as he has been a long-time Tesla mega-bull. His firm has been investing in the electric vehicle giant since 2014.

Shares of the company more than doubled in 2023. But Baron believes there’s more potential to be realized.

“Wait until you see what’s going to happen when all of a sudden they start selling cars, instead of for $40,000 apiece, for $25,000 apiece, which is going to happen in about a year or year and a half,” he said to CNBC.

In November, he told MarketWatch that he expects Tesla to achieve a market cap of $4 trillion within 10 years. Tesla, which is also a solar and energy storage player, currently has a market cap of around $673 billion.

To be sure, stocks can fluctuate wildly and even Tesla doesn’t always go up along a straight line. While the EV maker’s shares enjoyed a huge rally last year, they are still down over 95% from their all-time high in November 2021.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.


Courtesy: CNBC