Notes from Ray

Ray Dalio, founder of Bridgewater Associates, is perhaps the most indepent macro thinker in the industry. His Principles are among the most unique and well-defined of any business we have come across.  I finally had the opportunity to listen to this interview w Charlie Rose, which is available at the link below.  Here are a few points worth noting for those as short on time as I have been over the past few months:

  • Three big themes: deleveraging; monetary and fiscal policy out of ammunition; political will has deteriorated to address structural issues.
  • We have reached our debt limits.  Europe has reached their debt limits.  Now the process is in reverse.
  • You can break the world into two parts. The developed debtor world, which is deleveraging.  And the emerging creditor countries.
  • The key is to spread it out as long as long as we can so it is not disorderly.
  • If we just cut spending by 3% and raised taxes by 3% we would cut the deficit in half over ten years.  Instead we have a political division so there is no compromise, which is extremely dangerous during a deleveraging process.
  • Resolving the public sector debt does not resolve the problem.  Overindebted individuals face the same problem.
  • The social impact of extended unemployment is a cancer to society.  The unemployed must be made productive.
  • Reality works in a certain way.  You have to understand reality.  Europe has a debt problem.  There are three options.  Transfer the money. Print the money. Or write-down the debt.
  • We all should recognize that we can be wrong.  Success comes from knowing what you don’t know.
  • The number one principle at Bridgewater is if something doesn’t make sense, you have the obligation to explore it.
  • One of his favorite books is Einstein’s Mistakes.
  • The great fallacy of all of mankind is people know more than they do.
  • Every place has to have a culture.  Culture is values.
  • Bridgewater is an unusual place with an unusual culture. The number one principle is don’t believe anything.  Think for yourself.
  • An independent thinker has to have a different point of view than the next person.
  • The cost of being wrong is a terrible thing.  So worry about being wrong.
  • Everybody is looking at what to do, and each approached it with a bias, but no one has thought about or discussed how the economic machine works.
  • There is not enough discussion on how to get people to be self-sustaining.
  • The most important thing you can give anyone is opportunity.
  • The number one problem today is our leaders are not having a quality dialogue.
  • There are two worlds.  Debtor developed countries and emerging creditors.  Classically, the US and China.
  • Those worlds can be divided into those that can and cannot print.
  • Europe cannot print.  There is a limit to wealth transfers. They will likely print (ultimately) and take haircuts.
  • China cannot control credit growth.  This is an emerging credit bubble.  This is a dangerous thing that the Chinese must gain control of.
  • The US is in a deleveraging.  We don’t have the ability to ease via monetary policy.  It is not as effective.  On top of that, we have social tension.
  • We should be able to grow at a rate comparable to income growth – 1.5% to 2% – but unemployment creates social tension analogous to that existing in Greece, Spain, etc.
  • That is the best case scenario.  If we have a disruption, we can not recapitalize the banks.  It is not feasible.
  • You have to have agreement to have a plan.  You can not have people at odds.
  • Our job is to stay one step ahead.
  • I suppose I’m concerned.  It is a test of us.  It is a test of our society.

http://www.charlierose.com/view/interview/11957