Ray Dalio's Big Picture

[saechunu]

This may be of interest to someone else around here who shares my respect for Dalio/Bridgewater (one of a small number of people who I've learned may be worth listening to). Usefully, he's written this down concisely, so we don't have to decipher his often unintelligible rambling when interviewed!

The Big Picture

https://www.linkedin.com/pulse/big-picture-ray-dalio

Big picture, the near term looks good and the longer term looks scary. That is because:

1. The economy is now at or near its best, and we see no major economic risks on the horizon for the next year or two,

2. There are significant long-term problems (e.g., high debt and non-debt obligations, limited abilities by central banks to stimulate, etc.) that are likely to create a squeeze,

3.Social and political conflicts are near their worst for the last number of decades, and

4. Conflicts get worse when economies worsen.

So while we have no near-term economic worries for the economy as a whole, we worry about what these conflicts will become like when the economy has its next downturn.

The next few pages go through our picture of the world as a whole, followed by a look at each of the major economies. We recommend that you read the first part on the world picture and look at the others on individual countries if you’re so inclined.

A couple of points of interest to me:

i) His comment in point '5) Economic, Political, and Social Fragmentation Is Bad and Worsening' about it being "unusual for social and political tensions to be so bad when overall economic and market conditions are so good", and consequent conclusion that "When the next downturn comes, it’s probably going to be bad."

ii) His observation/chart under 'Emerging Markets ex-China' regarding its long term debt cycle and the low relative debt levels of EM vs. Rest of the World. Possibly some commonality here with GMO's 7yr asset-class real return forecasts, which have EM equities and debt as the only asset classes with positive forecasts.

[odysseus2000]

1. The economy is now at or near its best, and we see no major economic risks on the horizon for the next year or two,

There are always economic risks & just now we have plenty UK specific ones, including:

Brexit, the biggest economic change since the 1970's

Election

From, at least my small business perspective, a big slow down in consumer spending.

To argue the economy is near its best seems a little deluded to me.

Regards,

[dspp]

I think he is arguing that it is near its global best. I tend to agree - there has been plenty of debt-fuelled spending, low/mid energy prices, low/mid commodity prices, no resource constraints that I have noticed, only minor wars of little economic significance : what's not to like.

That debt overhang and any consequences of trying to unwind it is my big worry in that respect, plus big conflict surprises, and the long term human social trends he flags briefly.

In the UK picture your concerns are very valid imho. I find it interesting that he doesn't even bother discussing the UK. That alone ought to make some folk think carefully. Mind you I tend to be a pessimist so have to correct myself - so I guess that's why I am fully invested right now (!).

Many thanks to saechunu for posting up the original link to this. Plenty to chew over.

regards, dspp

[odysseus2000]

dspp
That debt overhang and any consequences of trying to unwind it is my big worry in that respect, plus big conflict surprises, and the long term human social trends he flags briefly.

Debt always worries & yet most of the advanced democracies have a lot of debt, Japan for example has long been in a long term low interest rate situation as a consequence of heavy spending decades ago. One can also argue that the US, UK are crippled by debt & yet the living conditions have never been better. One does not see anything like the poverty of say the 1930's, quite the opposite. The pragmatic approach of living with debt while at the same time having substantial assets has not lead to the disasters many have predicted. This might change, but it might not.

Regards,