Ray Dalio and his fund’s Weimar Hyperinflationary Case Study

World's biggest hedge fund, Bridgewater, published wonderful analysis on deleveraging case studies through the history of the world. As Ray Dalio's analysts note: "the differences between deleveragings depend on the amounts and paces of 1) debt reduction, 2) austerity, 3) transferring wealth from the haves to the have-nots, and 4) debt monetization. Each one of these four paths reduces debt/income ratios, but they have different effects on inflation and growth. Debt reduction (i.e., defaults and restructurings) and austerity are both deflationary and depressing while debt monetization is inflationary and stimulative. Ugly deleveragings get these out of balance while beautiful ones properly balance them. In other words, the key is in getting the mix right." Of these the most interesting one always has been that of the Weimar republic, as it certainly got the mix wrong. Ray Dalio and his colleagues are worried that USA might also get the mix wrong. According to BCG in order to reduce global debt to GDP to a sustainable 180%, which some even find still too high …, the world economies should reduce its debt with $21 trillion! Of this amount, USA must reduce $8.2 trillion and the EZ $6.1 and $6.7 for the rest of the world. And if you wonder how banks will withstand such huge deleveraging, makes no wonder, they will not and that is why CB will continue printing until we get the other outcome: deleverage through inflation (hyperinflation).

According to the case study on Germany hyperinflation, the Reich government was forced to choose between
cash shortage and contraction or money printing. The government chosen the latter and you know the rest. Cash lost 100% of it’s value compared to gold, and all debt disappeared.

 
Starting debt of 913% fell to basically zero. Non-reparations government debt of 133% GDP in 1919 was wiped out by inflation. Gold-based reparation of 780% GDP effectively went into default in the summer of 1922 when reparation payments were halted. We summarize this in the table below and then go through the pieces.

Then there is the question of what happens to gold. In Weimar's case, gold-denominated reparations were simply forgiven. Ray Dalio is worried that no this time gold will first be confiscated. All of it. Only then will the debt be forgiven. In the form of a hyperinflating of trillions in claims, in a coordinated way across all currencies, and relative to a basket of hard assets.

As a conclusion it seems that Ray Dalio and his colleagues in Bridgewater are worried that 1. Well, as the According to the Greek case study shown, this time around not only gold will firstly be confiscated but the savers will be totally destroyed.

Ray Dalio is an American businessman and founder of Bridgewater Associates. Bridgewater Associates has since attracted many clients including pension funds and is currently (as of January 2012) the largest hedge fund in the world with nearly $120 billion under management.

BridgeWater Associates Secrets’ Revealed by Former Employee on Blog

Bridgewater Associates is one of the largest hedge funds in terms of assets under management in the investment world. Despite its size the founder and manager Ray Dalio, keeps a tight lid on his colleagues. It seems that he do it with success because his fund is one of the most secret hedge funds.

However, Kathleen Ogrady who worked in Bridewater for several months posted a blog with some information about the fund and revealed some previous undisclosed information.

Kathleen learned more about self-leadership in several months than most people learn in a lifetime. After seeing a recent article on Ray Dalio in The New Yorker, titled Mastering the Machine, she felt compelled to write about her experience on her blog.

Kathleen states that she learned the following five lessons at Bridgewater:

Lesson #1: Don’t waste time on formalities.
Lesson #2: Be confident, make friends, and ask questions. Gambling on assumptions leads to chaos.
Lesson #3: Play is inherently linked to productivity. Whenever possible inject humor and fun into your work.
Lesson #4: Anything is possible, as long as you believe it has to be.
Lesson #5: Know yourself, and don’t let anyone else determine your worth, but you.

Ray Dalio is an American businessman and founder of Bridgewater Associates. Bridgewater Associates has since attracted many clients including pension funds and is currently (as of January 2012) the largest hedge fund in the world with nearly $120 billion under management.

Ray Dalio Principles

Ray Dalio writes about his most fundamental life and management principles in his text titled "Ray Dalio Principles" which is required reading for all employees at Bridgewater. A major part of Bridgewater’s corporate culture is a relentless focus on the open discussion of mistakes and weaknesses.

Several gems of Ray Dalio Principles. Below is a link to the ‘Principles’ of Ray Dalio founder of Bridgewater Associates:

Ray Dalio Principles

- I remained wary about being overconfident, and I figured out how to effectively deal with my not knowing. I dealt with my not knowing by either continuing to gather information until I reached the point that I could be confident or by eliminating my exposure to the risks of not knowing.

- While most others seem to believe that learning what we are taught is the path to success, I believe that figuring out for yourself what you want and how to get it is a better path.

- How much do you let what you wish to be true stand in the way of seeing what is really true?

- How much do you worry about looking good relative to actually being good?

- The most important qualities for successfully diagnosing problems are logic, the ability to see multiple possibilities, and the willingness to touch people’s nerves to overcome the ego barriers that stand in the way of truth.

- Know what you want and stick to it if you believe it’s right, even if others want to take you in another direction.

- In a nutshell, this is the whole approach that I believe will work best for you—the best summary of what I want the people who are working with me to do in order to accomplish great things. I want you to work for yourself, to come up with independent opinions, to stress-test them, to be wary about being overconfident, and to reflect on the consequences of your decisions and constantly improve.

While most others seem to believe that mistakes are bad things, I believe mistakes are good things because I believe that most learning comes via making mistakes and reflecting on them. – Ray Dalio


Ray Dalio is an American businessman and founder of Bridgewater Associates. Bridgewater Associates has since attracted many clients including pension funds and is currently (as of January 2012) the largest hedge fund in the world with nearly $120 billion under management.

Ray Dalio’s Recommended Books

In an interview on 3/6/2012, Ray Dalio was asked what his favorite books were. Below is the list:

The Lessons of History, by Will Durant. 104 pages.

Will Durant’s 15 volumes of history (The Story of Civilization) which coverover the last 5,000 years. Dalio described him as possibly the greatest historian of all time.

History is a vital part of investing. We bring you the following quote regarding history and investing:

“In the fall of 1974 I was in graduate school at USC taking a portfolio-management investment course. The financial markets were in difficulty, and I didn’t understand how securities were being sold at such depressed levels. I had only recently discovered Security Analysis by Graham and Dodd when we had a guest lecturer come in named Charlie Munger, who went on about this idea of value investing. After the class was over, I walked up to Charlie and asked him if there was one thing that I could do that would make me a better investment professional. His answer was, ‘Read history, read history, read history.’ Robert Rodriguez, CEO, of FPA

The Alpha Masters: Unlocking the Genius of the World’s Top Hedge Funds

Ray Dalio is an American businessman and founder of Bridgewater Associates. Bridgewater Associates has since attracted many clients including pension funds and is currently (as of January 2012) the largest hedge fund in the world with nearly $120 billion under management.