September 16, 2012

Ray Dalio recent thoughts

Ray Dalio of Bridgewater hedge fund response to the question 'What keeps you up at night?' is most likely the reason why the ECB and FED went 'unlimited' with QE policy this month.

Points to note:
- Europe crisis has much more trouble to come and will result in a lost decade
- $2 trillion euros of losses to be soaked up by European banks by either write offs or monetary policy
- Age of great returns is over, as there will be no benefit from interest rates falling (as they are already zero)
- De leveraging safely requires the correct balance between austerity, monetary and fiscal policy
- Depressions happen when there is no monetary or fiscal policy

At 9.50, the question is: What keeps you up at night?

Response: We are in a one world economy and the world is slowing. In the past when the world economy sank the response was to lower interest rates. This can't be done now as rates are already at zero, thus there is an air pocket of what policy can be used. IF the world falls into recession, the response will need to be global with the correct mix of prudent monetary and fiscal policy. Ray fear that the response will be be prudent, due to the fact the policy makers will not know how to respond.

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.