Ray Dalio on Deleveraging

Caveat: this is post about macroeconomics, a subject that many people undoubtedly find boring.  If you want to skip watching the video, which runs about an hour, just read my takeaways at the end of the post—he’s a smart guy talking about the underlying causes of the current headlines, and it is worth paying attention to what he’s got to say.

I just watched a video of a talk-cum-interview-cum-q-and-a with Ray Dalio, who is the hedge-fund-manager du-jour for his ideas on long term credit cycles. Depending on how much attention you’re willing to pay, it’s worth watching the whole hour. Dalio generally makes clear points and the interviewer more or less keeps the discussion on target.[1]

Takeaways

  • Dalio’s got a more or less rosy view for the US (and maybe even Europe)—IF everything stays on track
  • He suggests that, ultimately, the financially troubled states in southern Europe have more votes than the richer ones in the north. If they can outvote the north why would they leave the Euro? He says that Germany is more likely to leave the Euro than Greece (!), though he may just be grandstanding.
  • Europe’s in such straights because it has one monetary policy and lots of different fiscal policies
  • Like most smart people, Dalio thinks that we should expect competence rather than ideological orthodoxy from our political leaders.
  • Dalio wouldn’t make any specific comments about politics (he knows better), but he essentially said that slogans couldn’t replace a good macroeconomic policy, and that fiscal and monetary policy need to stay in balance. Tea party=bad.
  • He says that the US has undergone a “beautiful deleveraging” because our debt ratios are decreasing while the economy is increasing, even if it’s doing it slowly. For me that counts as tacit approval of the job Obama’s done on the economy.
  • I need to read up on Dalio’s ideas at his hedge fund’s website.

[1]  Though she occasionally tries to sucker Dalio into prophesying when A) he’s smart enough not to try and B) his goal is getting people to understand the balance that they should expect from the people steering the economy. The most egregious example (with liberal paraphrasing):

Dalio: You need to build your portfolio to minimize risk based on the possibility that inflation might rise or it might fall and growth might rise and it might fall. There is no way to know what is going to happen, so you need to hedge against each of those possibilities.

Interviewer: So what is the best portfolio structure for what is going to happen next?

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