September 25, 2013

Ray Dalio believes that Japan needs another "big round" of stimulus

Hedge fund legend Ray Dalio stated on Friday 20 of September 2013, that the Japanese economy will need another huge round of stimulus to boost sluggish growth, and some emerging markets are headed for a crisis.

Ray Dalio, chairman and CIO of $150+ billion firm Bridgewater Associates, one of the world's largest hedge funds, was speaking at the Japan Society in midtown Manhattan.

"The effects are going to wear off," Dalio said, about prior stimulus measures. BOJ is "going to have to do another big round of purchases," he shared.

In a 30 minutes conversation, Ray Dalio addressed important issues in economies like China and France. He were an optimist about investing in emerging markets, especially in equities, which dropped like a rock this year. According to him emerging markets will not be an "an attractive place" to invest this year "given flows and pricing."

He said emerging markets face "a major balance of payments problem" that will eventually lead to significant problems. It seems that Kyle Bass and other great hedge fund managers share the same view, as some of them expect either India or some other country to go into a crisis mode.

“We are going to have the emerging market crisis," Ray Dalio said during a Q&A period.

India should "prepare for the worst" since it has been one of the biggest beneficiaries of foreign capital flows that are already bypassing emerging market equities, he said.

As for Europe, Dalio said that France is of particular concern to him since "it has not dealt properly with debt to income ratios rising."

Update: There is information that Ray Dalio and Bridgewater Associates went long treasuries yesterday, and even though we don’t know whether its short-term or medium-term trade, it’s worth taking notice as some other prominent managers like Marc Faber also like treasuries short-term and believe they are due for a rebound.

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.

September 24, 2013

Ray Dalio - How The Economic Machine Works



The economy works like a simple machine.

But many people don't understand it— or they don't agree on how it works — and this has led to a lot of needless economic suffering.

I feel a deep sense of responsibility to share my simple but practical economic template. Though it's unconventional, it has helped me to anticipate and sidestep the global financial crisis, and has worked well for me for over 30 years.

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.

April 18, 2013

RAY DALIO: There's No Sensible Reason Not To Own Gold

"I think gold should be a portion of every one's portfolio to some degree because it diversifies the portfolio. It is the alternative money." - Ray Dalio

"Gold is a currency. Throughout the history, I won't tell you in length, money was like a check in a checkbook and what you would do was get your gold and gold was like a medium. So gold is one of the currencies-- We have dollars, we have euros, we have yen and we have gold.

Now it doesn't have the capacity. The capacity of moving money into gold in a large number is a extremely limited. So the players in this world that I have contact with that move that money really don't view gold as an effective alternative, but it could be a barometer and it is an alternative for smaller amounts of money.

There's no sensible reason not to have some. If you're going to own a currency, it's not sensible not to own gold. Now it depends on the amount of gold. But if you don't own, I don't know 10%, if you don't have that and that depends on the world, then there's no sensible reason other than you don't know history and you don't know the economics of it.

Buy Gold

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.

March 02, 2013

Ray Dalio Transcript from Davos

Regarding his outlook on inflation: 
“I think the economy works like a machine and I think it’s important to understand how the machine works in order to answer that question. So if there is a transaction, you could pay with money or you can pay with credit. If you have money, that is making up for a contraction in credit. It’s not inflationary because the total amount spent in comparison to the total number of goods sold will determine the price.

So when we’ve added money, we’ve made up for credit and that’s been fine. What’s happened now is that because of all the money that has been added to the system, there is a great deal of liquidity in the world. So there is money in corporations, in households. Liquidity is all over the place, a lot of it. And it has gone there because of monetary policy and it has also gone there seeking safety.

That is changing on the margin. The returns of cash are terrible. So as a result of that, what we have is a lot of money in a place — and it needed to go there to make up for the contraction in credit — but a lot of money that is getting a very bad return. That, in this particular year, in my opinion, will shift. And the complexion of the world will change as that money goes from cash into other things.

Now each region is very different, each set of circumstances. But the landscape will change I think particularly later in the year and beyond as those people who put their money there are receiving this bad return and feel an environment of safety [now] because the imbalances of Europe have largely been rectified. They have been rectified because the amount of borrowing is now consistent with the ability to fund that. And so the tail risks were taken off the table and that less risky environment is going to create that kind of a shift I think.”

Do we see a credit bubble? 
“There is a lot of liquidity, but the most fundamental laws of economics is you can’t have debt rise faster than income. You can’t have income rise faster than productivity and the long term growth will be dependent on productivity. And we have these cycles around productivity growth because of debt cycles. We don’t have a credit bubble because of the production of too much credit, but we do have a bubble in liquidity.

There is too much liquidity and so bonds are a poor investment, they will have a poor return. Cash will have an even worse return, that’s assured. And that’s a bubble. Too much money in there. So the cash bubble exists, but we are reaching an equilibrium in terms of the debt growth.”

“I think it is important to understand the adjustment that is happening is not just central banks feel there was a funding gap, the amount of money that can be lent and the amount of money that needed to be borrowed, there was a gap. And the central banks needed to come in and help fill that gap.

What’s happened in the adjustment is that the amount of money that is being lent and borrowed has fallen a lot and with that depressions have historically occurred. So it is important to realize that when we go back to normalcy, normalcy [will not be] like the past. In other words those countries can’t spend the way that they have spent before. Equilibrium means a depressed economy. And what that means is the fundamental law is that we can’t raise debt faster than income from now on. And if we can’t raise debt faster than income we have to have a low debt growth and the issue will come to productivity.

So the shift of the discussion is going to change. The shift of the discussion is now going to change in the economics of how do you become competitive. And so competition will be the discussion and I won’t go on there, but there are clear benchmarks for discussion about productivity and ultimately you can only spend what you produce.

If you use the measures …literally what does it cost to have an educated person in France, the United States and China? Look at those comparisons and the cost of an educated person in these countries is multiples of the cost of an educated person in China and so when it comes down to it, there are going to be very big social questions. It’s going to be values of life. How long is vacation? How much savings? Very much quality of life types of questions. How much will there transfers of wealth? Productivity is going to be the question. There are clear benchmarks of productivity. I won’t go on, but we have a list of those things that correlate with 90 percent correlation with the outcome of the growth rate the next ten years. They are like a health index. If you look at that health index, you can go down that and compare it and those are going to be the drivers. Productivity, because the debt cycle will no longer be the main driver.”

Ray Dalio’s view on currency wars 
“I’m not particularly concerned about currency wars. I also think central banks will play a much lesser role going forward. I think the ECB’s balance sheet will gradually taper off. The same thing with the U.S. So I think they will naturally recede. I think that their next move will be, as described, a move from liquidity to the purchases and then we have a shift. So I don’t think that is the issue. I think the shift of the cash, that massive amount of cash will be what will be a game changer…into stocks, into everything. It will mean more purchases of goods and services and financial assets. It will be into equities, it will be into real estate, it will be into gold, it will be into a lot of….just basically everything.”

And his comments about FED
“Again I think it’s important to think of the economy as operating like a machine and everything is a transaction. So the amount of spending is what matters. Now spending can mean money or it can mean credit. If credit is picking up then money can decrease and so spending is the thing that matters. When it picks up, it will be incumbent on the central banks to reduce the amount of money so that the amount of spending is consistent with the productivity growth rate. And so I believe that that can be done as long as there is balance. As long as debt doesn’t rise faster than income, income doesn’t rise faster than productivity, and productivity then grows at a decent pace. That’s what matters.”

“I think it is very difficult to talk about the world as a whole because conditions are very different. I think in the U.S., it’s a transition year. It’s one of those years that will go down in history as one you won’t even remember. It’s a transition in between cycles as we move from one to the other. I think in Europe, what we have achieved is the debt creation has been brought down to a level that is funding and that is a depression-like condition and that will now be an environment in which social pressures and political pressures will be difficult. And the importance there is not to have a pick-up in debt relative to income again and deal with it through productivity. I think in China they are in the other side of the cycle. The other side of the cycle is that debt is rising too fast relative to income and that is something that is the opposite side of the cycle and they will have to deal with it. So I think that those conditions are a landscape. They are transitions for all those countries.”

Regarding Investing 
Dalio says the most common mistake in investing is not looking ahead and considering the transaction – who is going to be the buyer and who is going to be the seller (of a particular asset)?

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.

January 30, 2013

Ray Dalio in Davos


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.

January 24, 2013

Ray Dalio: "Return = Cash + Beta + Alpha"

An Inside Look At The World's Biggest And Most Successful "Beta" Hedge Fund

The All Weather Story

How Bridgewater associates created the all weather investment strategy, the foundation of the ‘risk parity’ movement

President Richard Nixon sat in the Oval Office staring into a television camera and addressed the nation: “I directed Secretary Connelly to suspend temporarily the convertibility of the dollar into gold.” After 27 years of relative monetary stability, the United States was breaking from the Bretton Woods system of fixed exchange rates that had tied the dollar’s value to gold.

Ray Dalio, fresh out of college, was then a clerk on the New York Stock Exchange. Watching Nixon’s speech in his apartment, he tried to fathom the implications. Paper money derived its value from being a claim on gold. Now those claims wouldn't be honored. The next morning he walked on to the chaotic floor of the NYSE expecting stocks to plummet. Instead the Dow Jones Industrial Average rose almost 4% and gold shot higher in what was later dubbed the “Nixon rally.” Ray had heard Nixon’s announcement but misunderstood its implications. 

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.