8 ms·

Dalio, Biggest Hedge Fund Manager: "developed world has reached its debt limit"

84 points by rajpaul 15y ago

Cushman 15y ago
And whose fault is that, Mr. Hedge Fund Manager?
- sliverstorm 15y ago
  If being a hedge-fund manager means you are responsible for the market crash, does being a computer programmer mean you are responsible for DDoS attacks by Anonymous?
  - Cushman 15y ago
    Programmers in general, no; programmers who spend some of their time working on DDoS tools, so if Anonymous wins they'll have power? Come on. The idea of a hedge fund, by which I'm meaning an investment portfolio which consistently outperforms the market, is intrinsically insane. It's like a VC trying to diversify their portfolio so that even if Silicon Valley as a whole tumbles into the sea, they'll still make money. I don't have any philosophical problem with investment, and I think SV venture capital is a great model: You buy a piece of something because you think it will do well. If it doesn't do well, you lose your money. That's what encourages you to only give money to things you think are good ideas. The entire discipline of investment banking stems from "managing risk"-- the ludicrous idea of "Man, losing money sometimes sucks. Maybe there's a way to stop that from happening." My contention is that the present economic collapse is evidence that, in fact, there is not. If the "market" -- the whole value of human endeavor -- sucks, your life will suck. This is a consequence of the fact that you are a human. Trying to walk away from that with more of the value than anyone else is insane. And sure, with the right financial tricks you can pull it off, for a while; many people have died rich from doing it. But it's gonna come to a head.
dshaw002 15y ago
He has a copy of his company's and his own personal management document, Principles, on his hedge fund's site. It's a really good and interesting read. http://www.bwater.com/Uploads/FileManager/Principles/Bridgewater-Associates-Ray-Dalio-Principles.pdf http://www.bwater.com/Uploads/FileManager/Principles/Bridgew...
trebor 15y ago
Wow, that's the clearest explanation I've heard of how we got into this cycle. Good for Dalio being honest and clear!
- mark_l_watson 15y ago
  Agreed! I just read the article with his quote (didn't have time to watch the video)and a 1 minute read helped me to understand the problem better. A bit of a tangent, but: my wife and I have almost never bought on credit (save for cars, even our current house) - preferring to pay cash, and accept a "lesser" life style. I have taken some kidding about this over the years since we live a modest lifestyle, but in recent years some family and friends finally understand our odd viewpoint on earning and spending.
  - trebor 15y ago
    I've managed to survive without debt thus far. I still have a credit card, but always paid in full for everything that I bought on it. Just watching friends and family struggle with debt is enough to keep me far from it.
  - giardini 15y ago
    We've done the same. And now we regret it. Our pension funds and investments have tanked in the various downturns. Well, I guess we can handle that. Our friends bought million-dollar homes they can't afford and now Obama wants the banks to renegotiate and write their loans down. And those who invested conservatively, like myself, get to bail out the banks and, along with them, my profligate friends. IOW you and I are the suckers in this game. We can be smug about our "wise" choices, but the way this game is playing out, anyone who tried to be fiscally conservative is a loser, and the winners are the spendthrifts. I'd like to say more, but I've got to go to the hardware store and buy a pitchfork and some torches while I can still afford them.
    - mark_l_watson 15y ago
      I hear you, but I would still rather have a less expensive paid for house right now than an expensive home that the government may or may not artificially reduce the interest payments on.
JimboOmega 15y ago
The problem he refers to is a classic deflationary scenario. Everybody saves money (to pay off debts, or etc). Money becomes scarcer, since nobody can borrow it (banks are deleveraging as well), and people aren't spending it. The classic solution is to expand the money supply to get things moving again, which is the point of QE, etc. Creating inflation lessens the value of debt in real terms, too. Not at all a new thought, in this situation or others. See wiki on debt deflation: http://en.wikipedia.org/wiki/Debt_deflation http://en.wikipedia.org/wiki/Debt_deflation
- jpdoctor 15y ago
  > The classic solution is to expand the money supply to get things moving again, which is the point of QE, etc. Let's see, we've been through 2 rounds of QE. Maybe number 3 will be the charm. What was that saying about trying the same thing and expecting a different outcome?
  - kruhft 15y ago
    Insanity: doing the same thing over and over again and expecting different results. -- Albert Einstein
    - gruseom 15y ago
      Nope. Not Einstein. It comes from the early 80s. There are two sources: a tennis murder mystery and the Narcotics Anonymous handbook. As you can see, we've been through this before :) There are heaps more things Einstein never said, as well as Gandhi, Picasso, Leonardo, and other big names. Basically, the more you look into it, the more you find that if you have a favorite catchy quote by someone famous, they probably didn't say it.
      - sp332 15y ago
        One can never trust the veracity of an attribution on the Internet. -- Abe Lincoln
latch 15y ago
"I believe that the biggest problem that humanity faces is an ego sensitivity to finding out whether one is right or wrong and identifying what one’s strengths and weaknesses are." If you want to get better at anything, the first thing you do is acknowledge that you can do better. Having recently left the investment banking world, you might be surprised how many average-at-best developers think they have no room for improvement. EGO IS DEATH.
billybob 15y ago
TL;DR: "Imagine you earned $100,000 a year and you didn`t have any debt. You can go to a bank and borrow $10,000 a year. You can spend, therefore, $110 a year. When you spend $110,000 a year, somebody else earns $110,000 and they can go to a bank and there`s a self-reinforcing process in which your debt rises in relationship to your income. And that goes on for a long time and that goes on for 50 or 75 years through history. We`ve had 50, 75-year cycles and then you reach a point where you can`t anymore get more debt and the process starts to change."
- billybob 15y ago
  I think this is a very concise way of putting it. This is essentially why I don't think further stimulus or monetary policy tweaking is going to help us. We have gotten drunk on overspending. Drinking more won't remove the hangover. We just have to sober up and wait.
  - khafra 15y ago
    Every time I hear the inebriation metaphor applied to monetary policy, it makes me want a drink.
- bermanoid 15y ago
  ... and there's a self-reinforcing process in which your debt rises in relationship to your income. I haven't had my coffee yet and the world is still looking fuzzy to me, so I'm probably just being dense. But does this not make sense to anyone else? Why would my income to debt ratio change because I've spent my borrowed money somewhere? I must be misunderstanding this argument, is he saying that as people spend more we all end up making more, and then we all end up borrowing more on what we've made? That would make sense (though in reality what happens is that most people's incomes stay level and the proceeds are funneled to investors - this is largely the reason that the top 5% fall into a more top-heavy Pareto distribution of wealth whereas everyone else is exponentially distributed, but I digress...), but that still shouldn't increase proportional debt, unless I'm missing a key part of this argument.
  - 15y ago
FD3SA 15y ago
"Ok. What`s depressing -- what`s depressing jobs is that the world supply and demand for labor has changed. In other words, there`s a lot more people working as China came on and India came on and they are competitive. There`s a world supply of labor has change -- has increased and technology has had an effect. So we`re in an interesting era because I think almost and if you think of a person as -- in a machine, an economic machine as being tool, a part of that economic machine the demand for labor has changed in a very profound way. It`s an interesting question. We might enter into a period in which we don`t need people as tools. So what does that mean?" So he is concerned about the breakdown of the Luddite fallacy. Interesting, considering he has everything to gain from promulgating the guarantee of infinite employment opportunities for average citizens. I believe this is a fair canary in the coal mine for the structural employment nightmare we shall face in the coming decades.
teyc 15y ago
I don't think he is correct. Debt can be sustained as long as there are marginal returns to be had. The real problem is that the marginal returns are no longer there because energy prices have been increasing at the same pace. This suggests that energy availability to be the limiting factor. Once growth is throttled by expensive energy, the debt position of countries, companies and individuals start to look shaky. This is what is happening now. If companies are unable to increase their profitability, then there is less taxes to be collected, which means weaker governments, and a slower economy. This in turn affects an individual's ability to find and keep work, and service their debts.

84 points by rajpaul 15y ago

Cushman 15y ago

And whose fault is that, Mr. Hedge Fund Manager?

sliverstorm 15y ago
If being a hedge-fund manager means you are responsible for the market crash, does being a computer programmer mean you are responsible for DDoS attacks by Anonymous?
- Cushman 15y ago
  Programmers in general, no; programmers who spend some of their time working on DDoS tools, so if Anonymous wins they'll have power? Come on. The idea of a hedge fund, by which I'm meaning an investment portfolio which consistently outperforms the market, is intrinsically insane. It's like a VC trying to diversify their portfolio so that even if Silicon Valley as a whole tumbles into the sea, they'll still make money. I don't have any philosophical problem with investment, and I think SV venture capital is a great model: You buy a piece of something because you think it will do well. If it doesn't do well, you lose your money. That's what encourages you to only give money to things you think are good ideas. The entire discipline of investment banking stems from "managing risk"-- the ludicrous idea of "Man, losing money sometimes sucks. Maybe there's a way to stop that from happening." My contention is that the present economic collapse is evidence that, in fact, there is not. If the "market" -- the whole value of human endeavor -- sucks, your life will suck. This is a consequence of the fact that you are a human. Trying to walk away from that with more of the value than anyone else is insane. And sure, with the right financial tricks you can pull it off, for a while; many people have died rich from doing it. But it's gonna come to a head.

dshaw002 15y ago

He has a copy of his company's and his own personal management document, Principles, on his hedge fund's site. It's a really good and interesting read. http://www.bwater.com/Uploads/FileManager/Principles/Bridgewater-Associates-Ray-Dalio-Principles.pdf http://www.bwater.com/Uploads/FileManager/Principles/Bridgew...

trebor 15y ago

Wow, that's the clearest explanation I've heard of how we got into this cycle. Good for Dalio being honest and clear!

mark_l_watson 15y ago
Agreed! I just read the article with his quote (didn't have time to watch the video)and a 1 minute read helped me to understand the problem better. A bit of a tangent, but: my wife and I have almost never bought on credit (save for cars, even our current house) - preferring to pay cash, and accept a "lesser" life style. I have taken some kidding about this over the years since we live a modest lifestyle, but in recent years some family and friends finally understand our odd viewpoint on earning and spending.
- trebor 15y ago
  I've managed to survive without debt thus far. I still have a credit card, but always paid in full for everything that I bought on it. Just watching friends and family struggle with debt is enough to keep me far from it.
- giardini 15y ago
  We've done the same. And now we regret it. Our pension funds and investments have tanked in the various downturns. Well, I guess we can handle that. Our friends bought million-dollar homes they can't afford and now Obama wants the banks to renegotiate and write their loans down. And those who invested conservatively, like myself, get to bail out the banks and, along with them, my profligate friends. IOW you and I are the suckers in this game. We can be smug about our "wise" choices, but the way this game is playing out, anyone who tried to be fiscally conservative is a loser, and the winners are the spendthrifts. I'd like to say more, but I've got to go to the hardware store and buy a pitchfork and some torches while I can still afford them.
  - mark_l_watson 15y ago
    I hear you, but I would still rather have a less expensive paid for house right now than an expensive home that the government may or may not artificially reduce the interest payments on.

JimboOmega 15y ago

The problem he refers to is a classic deflationary scenario. Everybody saves money (to pay off debts, or etc). Money becomes scarcer, since nobody can borrow it (banks are deleveraging as well), and people aren't spending it. The classic solution is to expand the money supply to get things moving again, which is the point of QE, etc. Creating inflation lessens the value of debt in real terms, too. Not at all a new thought, in this situation or others. See wiki on debt deflation: http://en.wikipedia.org/wiki/Debt_deflation http://en.wikipedia.org/wiki/Debt_deflation

jpdoctor 15y ago
> The classic solution is to expand the money supply to get things moving again, which is the point of QE, etc. Let's see, we've been through 2 rounds of QE. Maybe number 3 will be the charm. What was that saying about trying the same thing and expecting a different outcome?
- kruhft 15y ago
  Insanity: doing the same thing over and over again and expecting different results. -- Albert Einstein
  - gruseom 15y ago
    Nope. Not Einstein. It comes from the early 80s. There are two sources: a tennis murder mystery and the Narcotics Anonymous handbook. As you can see, we've been through this before :) There are heaps more things Einstein never said, as well as Gandhi, Picasso, Leonardo, and other big names. Basically, the more you look into it, the more you find that if you have a favorite catchy quote by someone famous, they probably didn't say it.
    - sp332 15y ago
      One can never trust the veracity of an attribution on the Internet. -- Abe Lincoln

latch 15y ago

"I believe that the biggest problem that humanity faces is an ego sensitivity to finding out whether one is right or wrong and identifying what one’s strengths and weaknesses are." If you want to get better at anything, the first thing you do is acknowledge that you can do better. Having recently left the investment banking world, you might be surprised how many average-at-best developers think they have no room for improvement. EGO IS DEATH.

billybob 15y ago

TL;DR: "Imagine you earned $100,000 a year and you didn`t have any debt. You can go to a bank and borrow $10,000 a year. You can spend, therefore, $110 a year. When you spend $110,000 a year, somebody else earns $110,000 and they can go to a bank and there`s a self-reinforcing process in which your debt rises in relationship to your income. And that goes on for a long time and that goes on for 50 or 75 years through history. We`ve had 50, 75-year cycles and then you reach a point where you can`t anymore get more debt and the process starts to change."

billybob 15y ago
I think this is a very concise way of putting it. This is essentially why I don't think further stimulus or monetary policy tweaking is going to help us. We have gotten drunk on overspending. Drinking more won't remove the hangover. We just have to sober up and wait.
- khafra 15y ago
  Every time I hear the inebriation metaphor applied to monetary policy, it makes me want a drink.
bermanoid 15y ago
... and there's a self-reinforcing process in which your debt rises in relationship to your income. I haven't had my coffee yet and the world is still looking fuzzy to me, so I'm probably just being dense. But does this not make sense to anyone else? Why would my income to debt ratio change because I've spent my borrowed money somewhere? I must be misunderstanding this argument, is he saying that as people spend more we all end up making more, and then we all end up borrowing more on what we've made? That would make sense (though in reality what happens is that most people's incomes stay level and the proceeds are funneled to investors - this is largely the reason that the top 5% fall into a more top-heavy Pareto distribution of wealth whereas everyone else is exponentially distributed, but I digress...), but that still shouldn't increase proportional debt, unless I'm missing a key part of this argument.
- 15y ago

FD3SA 15y ago

"Ok. What`s depressing -- what`s depressing jobs is that the world supply and demand for labor has changed. In other words, there`s a lot more people working as China came on and India came on and they are competitive. There`s a world supply of labor has change -- has increased and technology has had an effect. So we`re in an interesting era because I think almost and if you think of a person as -- in a machine, an economic machine as being tool, a part of that economic machine the demand for labor has changed in a very profound way. It`s an interesting question. We might enter into a period in which we don`t need people as tools. So what does that mean?" So he is concerned about the breakdown of the Luddite fallacy. Interesting, considering he has everything to gain from promulgating the guarantee of infinite employment opportunities for average citizens. I believe this is a fair canary in the coal mine for the structural employment nightmare we shall face in the coming decades.

teyc 15y ago

I don't think he is correct. Debt can be sustained as long as there are marginal returns to be had. The real problem is that the marginal returns are no longer there because energy prices have been increasing at the same pace. This suggests that energy availability to be the limiting factor. Once growth is throttled by expensive energy, the debt position of countries, companies and individuals start to look shaky. This is what is happening now. If companies are unable to increase their profitability, then there is less taxes to be collected, which means weaker governments, and a slower economy. This in turn affects an individual's ability to find and keep work, and service their debts.