Ray Dalio

Ray Dalio on Evergrande, China, Bitcoin and the Fed (September 21, 2021)

Link.

He was a caddy in the 1960s and he invested in the markets when he was 12.

When you hit a zero interest rate and you have too much debt and everyone needs money, here's how it works:

• government borrows money from the Fed
• Fed prints money for the governemnt
• government sends checks to citizens
• value of cash and bonds have negative real returns
• money goes into other assets

Themes in China:

• common prosperity
• data control
• micromanagement

America is a bottom-up, individualist economy.

China is a top down economy.

Bitcoin is worth a trillion. Gold is worth around 5 trillion.

If it's successful, it shouldn't be much more than $5 trillion.

Is the stock market in a bubble? (June 23, 2021)

Link.

6 things that make a bubble:

1. Prices relative to traditional measure: are P/Es high, yields low, etc.
2. Prices are discounting unsustainable conditions: the nature of the buying cannot be sustained
3. New buyers have entered the market: one aspect of the speculative element
4. There is broad bullish sentiment: not having the asset makes you feel silly
5. Purchases are being financed by high leverage
6. Buyers / businesses have made extended forward purchases: businesses that used commodities getting lots of forward coverage

In 2000, about 13% of the top thousand companies were in a bubble. Now 5% of companies are in a bubble.

There are a lot of stocks that are not in a bubble.

Dalio & Summers on Inflation, Restructuring and the Global Economy (June 21, 2021)

Video link.

Summers says we're looking at a 2% GDP gap with a 14% fiscal stimulus along with massive growth in the Fed's balance sheet & low interest rates. We're also looking at labor shortages at record levels. We're also looking at a current rate of inflation that's running at 8% over the last few months. Of course, some of that is transitory.

The prevailing forecast was inflation of 2% for the whole year and we've already had more than this in the first 5 months of the year.

Dalio says we have a supply/demand issue of bonds. We're going to have to sell a lot of bonds. The people that buy bonds already have a lot of American bonds and the Chinese financial markets are becoming more attractive. Dalio doesn't think there will be enough demand to buy those bonds. The Fed might need to keep on buying - classic monetary inflation.

Summers thinks we're on a problematic course. The balance of risks is on the too much liquidity, too overheated. He thinks there are these risks elsewhere too, but the US is the most vulerable.

GDP is growing fast and we have epic labor shortages. Creating this much liquidity to respond to an major output gap would be very different. Doing this during a labor shortage seems intensely problematic.

Dalio thinks factors are negative for the dollar, particularily against Asian currencies.

Summers thinks the US is much more like a small country than we used to be (because foreign markets are so much larger). This means the dollar can make more dramatic moves.

The really difficult monetary policy moments aren't when crashes like the April 2020 corona downturn or when Lehman crashed. Monetary policy decisions are obvious when markets are completely melting down. Optional monetary policy is difficult when the optimal policy decision isn't obvious.

Corporate profit used to be 6% of revenue and now it's 14%. That shift is because less is going to labor.

Summers is all for bringing back the ability of unions to organize and for raising the minimum wage.

Dalio is worried about the inflation of financial assets and the bubbles that are being created. The net worth of most people in developed countries is higher than it's ever been, but production hasn't risen in stride.

Summers thinks there will be bad returns for financial assets going forward. He's been saying it for a while and thinks it's even more true now.

Dalio thinks the economy and the market will be very sensitive to any Fed tightening.