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Ray Dalio with TED == * [time=Sat, Apr 11, 2020 1:34 PM] * Watch this talk to get a good overview of many of the things he talks about in his blog. ###### tags: `notes` [TOC] {%youtube yrxYhv2O3wU %} ## The four driving forces of the economy / lifestyle / wealth (04:45) 1. productivity: people learning inventing doing well. grows slowly. 1-3% / year. is not volatile, it compounds. raises the living standard 2. short term debt cycle. recessions and expansions and booms (8-10 years) 3. long term debt cycle (50-75 years). new type of money, new type of credit. 1945: New World Order was created at the end of WWII 4. politics. how we deal with each other. internal x external. - internal: wealth gap, values gap, commom mission, coherence or opposition. these causes revolutions. roosevelt, hitler. - external: between countries. rising power challenging existing power. greater good or fighting with each other ## Are we heading for a depression? - right now we're going into the stress test. - 1929 - 1932 there was a fall in the economy. double digit unemployment rates, 10% fall in the economy. yes we have that same characteristics now. - how was it dealt with back then? 1933 the govt printed a lot of money, same type of programs we're having now. yes same thing. interest rates hit 0. same dynamics now. it took a long time to recover. same structure, same pattern. so yes, this is not a recession, this is a breakdown. and operation (how it's dealt with) is the same. the production of money and credit. ## Four levers / tools to recover from a depression (10:50) - cutting spending (austerity) - debt restructuring (forgiveness, amnesty) - redistribution of wealth (e.g. through taxes) - printing money - ---- - usually goes on for 3 years (printing money and redistribution), and followed by rebuilding. human creativity, inventiveness, adaptability. - we'll get through this, and into a new world order. through adaptability. - (13:00) what we're dealing with is just money and credit. they are digital (stories). good services are real. everything else is just accounting. we change the digits, we work those out and we work ourselves through. we build and grow into the restructured environment ## *"how long is this going to last, when can we go back to normal"* (15:30) - About how the markets and sentiments out there are people think we'll get back to normal in a year or so. - What he sees is USD 20T of losses. businesses, even hospitals are at risk of going bankrupt. we then need to see entity by entity, who will pay for the restructuring (bailouts, of supply chain, of how we operate) i.e. we're looking at a longer timeframe of recovery - this is bigger than 2008. it used to be banks having too much leverage, went broke, then kept alive by creation of money and credit by the govt. this time many more beyond banks are involved, the small biz, even many more govts. - we have less effective monetary policy because interest rates already at the bottom, reached their limit. so just buying financial assets by the central bank won't work. have to buy the debt of the govts. - and the govts need be effective in getting the buying power and production to those who need it around the world ## Who will thrive ? (aka many are wondering *"what are the opportunities here"*) - *// what are we going to do? everyone pivoting there? haha. but yeah, adaptability* - the "as real as it can get", fundamental, meat and potatoes kind of companies. the not leveraged, sembako, basic needs type. - innovators. those who don't have balance sheet problems ## On tech advances (21:00) - the basic and fundamentals: money, credit, crisis, who has what income, who has what expenses, the balance sheet, how we deal with money and credit, most (market players) don't have these things in perspective because it happens only once in a lifetime. - the tech advances we see in this period, the models are being built, translated into algorithm. which type? we only have cause and effect right now. all the ML are currently built with a limited training data in a sense. - algorithmic decision making: 1) code / instructions built into the logic. or 2) have the algorithm make sense from a lot of data (deep learning). - so the capacity to learn and invent, all of these are available now. but we can't rely on anything it can "figure out" now because we haven't trained that sample into the model. - because we don't have the understanding of the cause and effect relationships to know how to make decisions in this current situation. ## Thoughts on how people could approach this period regarding their investment decisions (401k etc). how should they approach asset allocation. - winning in the market is more difficult than winning a gold medal in the Olympics. you wouldn't think about competing in the Olympics but everybody thinks they can compete in the markets. you can't time these things. be humble - so what an individual investor needs to do is to know how to diversify well and do it in a balanced way. diversify in different asset classes, countries, currencies. - cash is not a safe (even worst) investment. it feels safe because it's not volatile. but it taxes you and your buying power. so be conscious of the dangers of cash - beware of recency bias. look at things as "expensive or cheap" instead of "doing well and doing badly lately". the amount of wealth doesn't change that much, so if one thing goes up, another goes down. ## About the deglobalisation we're heading towards. What is going to happen, how hard is it going to be. (30:00) - the questions are: who's going to get what and who's going to pay for what. who gets what and who pays for what. - he's a globalist but the world is too fragmented and interconnected now. - can you depend on other people giving you what you need. can you depend on them not taking advantage of me. not anymore (within and between countries). - also can't rely on everyone working together to be more productive, towards a common goal. - this has happened before formation of the US and stuff, read the history - we're too fragmented (paranoid, vigilant, skeptical, suspicious, of hidden agendas, distrust) now that it has become dangerous to say thank you to those who are helping (china, companies). environment of hostility, enemies. demonisation. ## On "fixing" capitalism. - does the system work now? do we want the outcomes we're getting that the system is producing. - now the resources go to those who control the resources, not much of equal opportunities, the american dream. - we can increase the size of the pie and divide it well. but sometimes there comes a time where we need a reform, to create productivity. it's not just giving money away, but to make people productive, psychologically and physically. - there will be redistribution of wealth. now it's a matter of HOW we do the restructuring. do we do it in a way that increases the size of the pie, divided well, and incentivises growth of productivity (education, equal) ## What's next - everyone is impacting everyone else. it's up to us whether this will be a cooperation between entities (countries, companies, big money controllers) to build something better or will it turn into a fist fight. need collective actions, united, common purpose, common view. - so stand the ground for what's true, probably controversial, and politically incorrect ## Links * [The video on TED](https://www.ted.com/talks/ray_dalio_what_coronavirus_means_for_the_global_economy) * [Dalio's blog on LinkedIn](https://www.linkedin.com/in/raydalio/detail/recent-activity/posts/) * [And the famous Macroeconomics in 30 minutes](https://www.economicprinciples.org/) ### The couple of posts I find interesting * [The Changing World Order series on LinkedIn: Intro](https://www.linkedin.com/pulse/changing-world-order-ray-dalio-1f/) * [The first chapter in The Changing World Order](https://www.linkedin.com/pulse/chapter-1-big-picture-tiny-nutshell-ray-dalio/) // love the intellectual rigour articulated here * [Diversifying Well Is the Most Important Thing You Need to Do in Order to Invest Well](https://www.linkedin.com/pulse/diversifying-well-most-important-thing-you-need-do-order-ray-dalio/) * [His assessment on the coming paradigm shift](https://www.linkedin.com/pulse/paradigm-shifts-ray-dalio/) * [My Thoughts About the Coronavirus](https://www.linkedin.com/pulse/my-thoughts-coronavirus-ray-dalio/) * [Our Early Thinking on the Coronavirus and Pandemics](https://www.linkedin.com/pulse/our-early-thinking-coronavirus-pandemics-ray-dalio/) * [The Three Big Questions Are 1) What is the Value of Human Life Relative to A Unit of Economic Activity, 2) What is the Value of Necessities Relative to Luxuries and 3) Who Will and Should Benefit From All the Money That is Being Created? ](https://www.linkedin.com/pulse/three-biggest-questions-we-need-answer-now-ray-dalio/)