Monday, July 18, 2011

Bridgewater Associates - How Ray Dalio Built the World's Richest and Strangest Hedge Fund

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If you are into the world of hedge hoggers, the New Yorker has a pretty fascinating piece on Ray Dalio and Bridgewater Associates.  Technically, Bridgewater is the world's second largest hedge fund 'firm' behind JP Morgan but JPM has a few other (minor) businesses like being the country's largest TBTF.  We almost never see Dalio speak, but I've referenced his March 2011 CNBC interview. [Mar 3, 2011: Rare TV Interview with Manager of World's Largest Hedge Fund - Ray Dalio]

This is quite a lengthy piece, but I'll post some of the items that are investor specific; much of it runs parallel to thoughts I've published on FMMF.  Indeed, he might be more dour than I am. ;)

  • This spring, he told me that economic growth in the United States and Europe was set to slow again. This was partly because some emergency policy measures, such as the Obama Administration’s stimulus package, would soon come to an end; partly because of the chronic indebtedness that continues to weigh on these regions; and partly because China and other developing countries would be forced to take drastic policy actions to bring down inflation. Now that the slowdown appears to have arrived, Dalio thinks it will be prolonged. “We are still in a deleveraging period,” he said. “We will be in a deleveraging period for ten years or more.
  • Dalio believes that some heavily indebted countries, including the United States, will eventually opt for printing money as a way to deal with their debts, which will lead to a collapse in their currency and in their bond markets. “There hasn’t been a case in history where they haven’t eventually printed money and devalued their currency,” he said.
  • Other developed countries, particularly those tied to the euro and thus to the European Central Bank, don’t have the option of printing money and are destined to undergo “classic depressions,” Dalio said. (where I differ is I believe eventually the ECB will be backed into a corner and "print" and follow the Fed model)  The recent deal to avoid an immediate debt default by Greece didn’t alter his pessimistic view. “People concentrate on the particular thing of the moment, and they forget the larger underlying forces,” he said. “That’s what got us into the debt crisis. It’s just today, today.”
  • Dalio’s assessment sounded alarmingly plausible. But when one plays the global financial markets a thorough economic analysis is only the first stage of the game. At least as important is getting the timing right. I asked Dalio when all this would start to come together. “I think late 2012 or early 2013 is going to be another very difficult period,” he said.

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