Is Dalio mad, broken, or right?

In case you missed it, everyone’s favorite Billionaire hedge fund manager, Ray Dalio (please note the heavy sarcasm – with one manager we work with calling his views d&*^-bag champagne socialism in a recent exchange) came out with his latest musings last week, saying that the ‘World has Gone Mad and the System is Broken.”

His observations/arguments basically boil down to:

  • There’s too much investment demand, pushing interest rates down/negative and company valuations (especially startups) insanely high
  • There’s the need for more government debt supply, because Washington and rest of world can’t rein in spending, and central banks are willing/able buyers of that debt in a perverse circle
  • There’s a huge need for money by pension and health care obligations for an aging population – with the choices cutting benefits, raising taxes, or printing money
  • At same time all those pensions need money and can’t really get it without tough choices, money is essentially free for the well to do and creditworthy


That’s basically it – all in four bullet points on LinkedIn with nary a paragraph break in site. Do billionaires not do grammar good? And shouldn’t he have his own blog or something…why does he post to LinkedIn? After his ugly spaced text, he’s got an ending that says this is all unsustainable and we’re approaching a big paradigm shift. But we’re left with a sort of ‘so what’ question. What does he want us to do? Buy Bridgewater funds for protection… ? We’ve outlined better risk parity plays. Does he want us to vote for some politician to fix all this? Or is he just putting a marker our there to say ‘I told you so’ if we have a big crash sometime in the next…?? Months?? Years?? Decades?? The time frame is conspicuously vague in stating the world “is approaching…” When exactly?

Here’s the other thing – all of this is known. This isn’t a deep look into the big unknown and positioning a portfolio for another 2008 financial crisis a la the Big Short. The unknown is more about whether all of these fear points and seemingly contradictory forces will create some sort of unique brew that takes us onwards and upwards, than it is about these forces causing a huge market sell off. The trick is finding out how all of these forces counterbalance one another in market prices. Will we continue to see asset price inflation (stocks at all time highs, bonds negative yields meaning they too are at all time highs in price). Will there be massive class warfare, revolutions, and the like as we’re seeing in Hong Kong causing people to take risk off and put it in….. (negative yielding bonds?, gold?, bitcoin?).

Nobody knows what will happen, even his royal hedgeness Dalio. Which is maybe the point – maybe he’s admitting he has no idea where we go from here – so don’t blame him for what happens in All Weather? For our two cents, we’ll continue to look for dynamic investment strategies that react to paradigm shifts and get on board with them. Things that do well in volatility spikes, but also when the spikes don’t happen. Investments that are setup for the Black Swan, but ever aware of the White Moose. Antifragile alternative investments like the newly launched Mutiny program spreading risk across multiple volatility traders putting on various types of convexity trades designed to not just make money when markets go down, but at an increasing pace.

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