ray dalio: gold, em's, the dollar -- predictions

[jk]

http://www.cnbc.com/id/41886920

watch the video. don't rely on the summary in the article. my notes follow:

1. the dollar will lose its dominant role and become one among a few reserve currencies.

2. the drop in the dollar will reduce its value in reserve holdings from about 2/3 of reserves to 1/2 of reserves.

3. the trigger will be em countries, esp china, taking action against inflation imported by too-low rates via their currency pegs.

4. u.s. equities will be [weak] beneficiaries as u.s. companies benefit from the lower dollar.

5. he reviews the credit cycle/credit bubble history.

6. monetary and fiscal stimulus will wear off in/by q4 2011, when private credit growth will have to start to drive growth. this will be slow; i.e. growth will slow q4 2011-q1 2012. growth will slow to 2% real.

7. at the same time em's will still be growing strongly.

8. peripheral europe is in trouble because they can't print. same for the u.s. states w.r.t. their budgets- they can't print money. thus you get a self-reinforcing negative economic process.

9. printing money lets you extend the [implicit] write offs of bonds compared to a big quick write off.

10. most of these processes will unfold in an orderly fashion. the one disorderly process he foresees is the reconciling of aforesaid imbalances: interest rates and currency values across the developed/developing world boundary. he says he does not think countries will act to resolve these imbalances. he doesn't say what he thinks will happen instead. implicitly, given what he said before about em's needing to take action to control their domestic inflation, THAT will likely be the trigger for a disorderly reconciliation process.

11. 2012 will be a difficult year in that the em-developed world tensions will rise, and the fact that we are competing for commodities

12. more inflation pressures in 2012

13. 2012, especially late 2012, will see a global tightening which will put all markets at greater risk.

14. inflation/money printing is necessary to mitigate the aftereffects of a credit bubble. this does not necessitate "very high" rates of inflation.

15. there are debtor developed countries and creditor emerging countries, but the latter have much lower incomes. diversify into em currencies.

16. most people don't own enough gold. gold has traditionally been a form of money.

17. doesn't like muni's, but disclaims expertise in that area.

18. 2011 is the sweet spot as we increase utilization of slack resources. 2012 is more challenging.

[vinoveri]

Re: ray dalio: gold, em's, the dollar -- predictions

Thanks for the posting.

Starting at 10:00 min mark, listen to his lauds of Fed policy and his explanation of "that way it works", which I think is accurate.
-credit growth results in a speculative bubble which then pops and the gov/fed step in and bail to save the day

While this may be all true, but my problem with this view is Not that it is Not true, but that people think its OK and the way to run an economy. He doesn't blame the Fed for causing the bubble, and doesn't seem to recognize that those who didn't speculate have to bailout the defaulting debt via zero rates/returns and subsequent inflation.

But hey, we're back to the question of expediency vs what's just. All these financial types are the same, oh so wise ....

[jk]

Re: ray dalio: gold, em's, the dollar -- predictions

Thanks for the posting.

Starting at 10:00 min mark, listen to his lauds of Fed policy and his explanation of "that way it works", which I think is accurate.
-credit growth results in a speculative bubble which then pops and the gov/fed step in and bail to save the day

While this may be all true, but my problem with this view is Not that it is Not true, but that people think its OK and the way to run an economy. He doesn't blame the Fed for causing the bubble, and doesn't seem to recognize that those who didn't speculate have to bailout the defaulting debt via zero rates/returns and subsequent inflation.

But hey, we're back to the question of expediency vs what's just. All these financial types are the same, oh so wise ....

he's very clear. about the 20min mark iirc they ask him what he thinks about qe2. he says "i don't make policy. i just try to understand how the economic machinery works." he's a realist and doesn't put a lot of energy into worrying about what he can't affect.

[vinoveri]

Re: ray dalio: gold, em's, the dollar -- predictions

he's very clear. about the 20min mark iirc they ask him what he thinks about qe2. he says "i don't make policy. i just try to understand how the economic machinery works." he's a realist and doesn't put a lot of energy into worrying about what he can't affect.

Point taken that he's a realist, however he and those like him can in fact affect policy should they wish to ... kinda like the bankers who as we know do affect policy; recall that the fed provided liquidity to hedge funds as part of their programs. These guys make their money off the way the system works so I would submit they have a vested interest in maintaining it.

The policy surreptiously steals from the middle classes; lamenting it while lauding and exploiting it is a bit hypocritical don't you think?

[sishya]

Re: ray dalio: gold, em's, the dollar -- predictions

Good video and I follow his logic. He is also equating GOld with money - one of the few main stream guys who would do spell that.

[jk]

Re: ray dalio: gold, em's, the dollar -- predictions

Point taken that he's a realist, however he and those like him can in fact affect policy should they wish to ... kinda like the bankers who as we know do affect policy; recall that the fed provided liquidity to hedge funds as part of their programs. These guys make their money off the way the system works so I would submit they have a vested interest in maintaining it.

The policy surreptiously steals from the middle classes; lamenting it while lauding and exploiting it is a bit hypocritical don't you think?

i'm a realist, too, and i'm less interested in judging his character than learning from one of the best financial analysts around. dalio usually gives an interview to barron's around once every 2 years. otherwise you don't get to hear his thoughts unless you run one of the big institutional funds [pensions, endowments] which get to invest with him. he's only speaking now, as he says, because he's gotten some bad publicity around his corporate culture, bad enough to have an effect on recruitment. i have enough respect for him that i consider it a lucky break that he got that bad publicity, and so made himself available in a public forum.

i usually do not watch any videos because of their low information density. for dalio, i watched a 24min video that took even longer because it was balky streaming. and i took notes.

[WildspitzE]

Re: ray dalio: gold, em's, the dollar -- predictions

thanks for the heads up... interesting commentary, wish he would've expanded more on those last thoughts (per year).

[c1ue]

Re: ray dalio: gold, em's, the dollar -- predictions

Broad strokes: can't argue with what Dalio is speculating. It is plausible and also quite similar to what EJ/iTulip has said.

Details: I have issues with a number of his assertions - which are 2nd order contradictory.

2. the drop in the dollar will reduce its value in reserve holdings from about 2/3 of reserves to 1/2 of reserves.

Clearly what Dalio is assuming is that the numerical amount of dollars won't drop, but the trade value of the dollars will fall.

Is this a good assumption?

If the US economy shrinks as a percentage of overall world trade, and the dollar in turn ceases being the only world reserve currency, does this not itself constitute a rationale for foreign countries to reduce dollar reserves?

And is the $6T or more in dollars presently offshore (likely much more now) - were it to be returned to the US via repudiation/recycling into new reserve currencies - is this not precisely one of the mechanisms for a high/hyper-inflationary episode?

9. printing money lets you extend the [implicit] write offs of bonds compared to a big quick write off.

This is sensible, but what is the mechanism? If state/local/municipal governments cannot print, how then will their massive bond burdens be written off? Is he in fact of the belief that the federal government will intervene directly? And if so, what are the international consequences?

[bill]

Re: ray dalio: gold, em's, the dollar -- predictions

Thanks JK for posting
Bankers can’t wait until dollar tanks off, inflation picks up, Fed slams hammer down and USA market gets cheap. They will exit their non-dollar assets and enter USA market when private credit once again will flow and expand. That’s what I call relocating the Debt Processing plant when timings right.

Is this the early stages of his EM exit promotion? Even though his comments are spot on he’s a little late showing up on MSM now. I can’t say he’s wrong about current conditions.

He talked about G-20 CB supplying liquidity to markets and should start to contract 2012 or thereafter.
Keep a close watch on SWF as they will start to emerge as major players when CB’s start to contract.

I found this interview today he gave in 2005.
http://bigpicture.typepad.com/commen...ray_dalio.html

A few of my past post regarding the same.
http://www.itulip.com/forums/showthr...316#post177316
http://www.itulip.com/forums/showthr...54496#poststop

http://www.itulip.com/forums/showthr...834#post190834

[jk]

Re: ray dalio: gold, em's, the dollar -- predictions

Broad strokes: can't argue with what Dalio is speculating. It is plausible and also quite similar to what EJ/iTulip has said.

Details: I have issues with a number of his assertions - which are 2nd order contradictory.



Clearly what Dalio is assuming is that the numerical amount of dollars won't drop, but the trade value of the dollars will fall.

Is this a good assumption?

If the US economy shrinks as a percentage of overall world trade, and the dollar in turn ceases being the only world reserve currency, does this not itself constitute a rationale for foreign countries to reduce dollar reserves?

And is the $6T or more in dollars presently offshore (likely much more now) - were it to be returned to the US via repudiation/recycling into new reserve currencies - is this not precisely one of the mechanisms for a high/hyper-inflationary episode?



This is sensible, but what is the mechanism? If state/local/municipal governments cannot print, how then will their massive bond burdens be written off? Is he in fact of the belief that the federal government will intervene directly? And if so, what are the international consequences?

c1ue, i didn't quote him accurately. he said the value of u.s. dollar reserves would shrink from 2/3 to 1/2, but he did not say this would be because of a drop in the value of the dollar. that was my interpretation, but you're right, it could happen in other ways.

also, the money printing allowing for an extended write off period was a generalization for a whole country, and did not apply to munis, which were addressed [or not addressed] separately. you should watch the video to get it more precisely.

[Slimprofits]

Re: ray dalio: gold, em's, the dollar -- predictions

Mastering the Machine
How Ray Dalio built the world’s richest and strangest hedge fund.
by John Cassidy
JULY 25, 2011

Read more http://www.newyorker.com/reporting/2...#ixzz1T54ZhGTZ

Dalio believes that some heavily indebted countries, including the United States, will eventually opt for printing money as a way to deal with their debts, which will lead to a collapse in their currency and in their bond markets. “There hasn’t been a case in history where they haven’t eventually printed money and devalued their currency,” he said. Other developed countries, particularly those tied to the euro and thus to the European Central Bank, don’t have the option of printing money and are destined to undergo “classic depressions,” Dalio said. The recent deal to avoid an immediate debt default by Greece didn’t alter his pessimistic view. “People concentrate on the particular thing of the moment, and they forget the larger underlying forces,” he said. “That’s what got us into the debt crisis. It’s just today, today.”

Dalio’s assessment sounded alarmingly plausible. But when one plays the global financial markets a thorough economic analysis is only the first stage of the game. At least as important is getting the timing right. I asked Dalio when all this would start to come together. “I think late 2012 or early 2013 is going to be another very difficult period,” he said.