Friday, 22 July 2011

2012 - We Were Warned

Not the Mayan prognostication of planet armageddon (whilst they had their cheeks stuffed with coca leaves), but financial chaos, the GFC continued after a quick break allowing govts to get underwater in debt.

Now that the Eurobuffoons have kicked the can into 2012, its time for a perspective post.

Ray Dalio is the sixty-one-year-old founder of Bridgewater Associates, the world’s biggest hedge fund.

Not a Mickey Mouse Neoclassical Spruiker/Economist spouting Keynsian bullshit from 2nd year university, he is a player, a money maker.

An article in the New Yorker: Mastering the Machine

-Dalio is a “macro” investor, which means that he bets mainly on economic trends, such as changes in exchange rates, inflation, and G.D.P. growth.

-In search of profitable opportunities, Bridgewater buys and sells more than a hundred different financial instruments around the world—from Japanese bonds to copper futures traded in London to Brazilian currency contracts—which explains why it keeps a close eye on Greece.

-In 2007, Dalio predicted that the housing-and-lending boom would end badly.

-Later that year, he warned the Bush Administration that many of the world’s largest banks were on the verge of insolvency.

-In 2008, a disastrous year for many of Bridgewater’s rivals, the firm’s flagship Pure Alpha fund rose in value by nine and a half per cent after accounting for fees.

-Last year, the Pure Alpha fund rose forty-five per cent (!!!), the highest return of any big hedge fund. This year, it is again doing very well.

Dallio is rich—preposterously rich. Last year alone, he earned between two and three billion dollars, and reached No. 55 on the Forbes 400 list. But what distinguishes him more from other hedge-fund managers is the depth of his economic analysis and the pretensions of his intellectual ambition. He is very keen to be seen as something more than a billionaire trader. Indeed, like his sometime rival George Soros, he appears to aspire to the role of worldly philosopher. In October, 2008, at the height of the financial crisis, he circulated a twenty-page essay immodestly titled “A Template for Understanding What’s Going On,” which said the economy faced not just a common recession but a “deleveraging”—a period in which people cut back on borrowing and rebuild their savings—the impact of which would be felt for a generation. This line of analysis wasn’t unique to Dalio, but almost three years later, with economic growth stagnating again, it does not seem off the mark

The punchline? 

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.
Read the whole article, its very impressive.


  1. 2013 - a perfect storm? Roubini has forecast 2013 as the year China will land, in his view, hard. Oh what interesting times.

    China Fanboy

  2. Yes CF, the Chinese shadow banking mess will not end well, its just fuelling a speculative property frenzy out of the govts control.

    Coupled with the EuroIdiots tin can being too heavy to kick and the insane debt situations in Japan and the USA and it should be quite a party.

    Having cash, gold and no debt in 2014 will be a good place to be. The mind boggles at the stocks and RE one will be able to pick up el cheapo.