Ask Ray Dalio Answer

by finandlife21/09/2018 09:07

RAY DALIO

I received a lot of great questions over the weekend and I wanted to share some of my answers with you here, with more to come in the following days.

QUESTION:

What’s your view on countries with low public debt but high private debt (i.e. consumers in debt but not the government)?

ANSWER:

Countries with low public debt and high private debt quickly become countries with high public debt when bubbles burst because governments typically take on debt to help save the private sector.

QUESTION:

You say the current situation looks like 1935. What different dynamics can we expect due to pension funds and a dollar which is not linked to anything like gold anymore?

ANSWER:

I would expect much more central bank printing of money and pushing money directly into people’s hands to do MP3 (as distinct from just buying bonds).

QUESTION:

After reading the first 64 pages of your template, I have a question. Between debts denominated in foreign currencies and one's own currency debts, which to choose for avoiding debts crisis and also have economic growth?

ANSWER:

Don’t have debt in foreign currency because you won’t be able to print the money to help service it and it will be more difficult to restructure on favorable terms.

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Some more answers to your questions that were submitted over the weekend.

QUESTION:

In which stage do you consider the major economies to be in the current situation? Do you see a debt crisis coming soon?

ANSWER:

By my measures, all the major developed countries are a) late in their long term debt cycles (because debt and non-debt obligations like pensions and health care obligations are very high, at the same time monetary easing will be less effective because interest rates are near 0pct and quantitative easing is less effective) and b) 60-80 percent through their short term debt cycles. Japan is closest to pushing on a string, Europe is between pushing on a string and normalization and the U.S. is closer to normalization. The next big debt crisis, which probably won’t happen for a couple of years, will likely quickly move them all toward pushing on a string.

QUESTION:

How would you consider Italy's debt load? I would consider it as "foreign-denominated" which leaves the country vulnerable to an inflationary type of depression.

ANSWER:

Italy won’t have an inflationary spiral as long as it remains in the Union because it can’t print money. Think of Italy like being a state in the US - let’s say Texas during an oil bust or like Greece in the EU.

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If you're interested, here's some more questions and answers from this past weekend's posts.

QUESTION:

Is there room for higher public spending and tax cuts around the world to stimulate the economy in a future recession?

ANSWER:

Yes, fiscal stimulation coupled with monetization of the debt is the logical next move as long as the foreign demand for our currency remains a strong reserve currency. Political fragmentation that stands in the way of good policies and foreign investors losing confidence in the dollar because of unsound policies are the two biggest risks in the next downturn.

QUESTION:

Between debts denominated in foreign currencies and one's own currency debts, which to choose for avoiding debts crisis and also have economic growth?

ANSWER:

Don’t have debt in foreign currency because you won’t be able to print the money to help service it and it will be more difficult to restructure on favorable terms.

QUESTION:

Did you release this book because you see one coming around the corner?

ANSWER:

No. I released it because it was the 10th anniversary of the debt crisis and I thought people would be more interested in the subject matter and because I now want to pass along the principles that helped me.

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25.9.18

 

For those interested, here's another question and answer from last weekend's posts.

 

QUESTION:

 

Can an aggressive decentralization strategy for goods and infrastructure affect the future outcomes of this next debt crisis? Can we efficiently leverage the projected autonomous manufacturing, vertical farming, and increased global battery storage quickly enough to provide less of a hurt for the masses?

 

ANSWER:

 

The problem is mostly a distribution problem. The productivity gains coming from new technologies (especially AI) will be great. Even now there are adequate resources to produce what is needed by most everyone. We need better distribution of opportunities and productivity. Our big long term economic problem is that there are too many promises that can’t be kept and at the same time as there is a narrowing of opportunities to be productive (as technologies out-compete people) so the economy is becoming very effective in providing an abundance of opportunity, income and items to satisfy a relatively small percentage of the population. That imbalance is a big issue that should be addressed and probably won’t be. My worry is about what the next downturn will be like when it inevitably comes along with this polarity and with the reduced ability of monetary policy.

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QUESTION:

Good summation of the recent deterioration in US-China relations, but what do you suggest we do?

ANSWER:

My intent is not to comment on what policy is best as much as to convey to you what is the case so that you are aware of it and can manage it well. Our discussion on what policy is best probably won’t have any effect on what happens and the most important thing to control is how you take care of yourself. Having said that, I will answer your question about what policy would be best in my opinion. Think of the two ways of negotiating: 1) the war path (which is to find ways of hurting each other until one party gives up), and 2) the tough negotiation path (which is to exchange things that are very important to the other and to find a non-hurtful way of resolving those matters that one can’t agree on). I prefer the second path because wars have a way of slipping beyond anyone’s control and are so horrendous that almost all who chose this path regretted it. I don’t know where this is headed. Perhaps this gets better after the midterm elections and after Xi and Trump meet at the G20, however, I do think that what has happened has irreversibly changed the parties’ assessments of the risks of war and how they will behave with each other.

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QUESTION:

Just how concerned should we be about this? (In reference to 'The "War" with China is Spreading' article)

ANSWER:

 

There is a wide range of possibilities (depending on how both sides handle the situation I described) so I don’t want to say that we are definitely headed to trouble, but I would say that we should be very concerned. If you have the time, I recommend that you study the 1937-45 period in detail; and then if you have the time, study the 1913-25 period in detail. Perhaps I will write up descriptions of those periods and the patterns through time and how the circumstances compare with those today. I think we should savor peace and realize how much better the world would be if we struggle well rather than fight. China and the U.S. could make the world so much better if they compete well with each other rather than have wars of any sort.

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Economics

DISCLAIMER

I am currently serving as an Investment Manager at Vietcap Securities JSC, leveraging 16 years of experience in investment analysis. My journey began as a junior analyst at a fund in 2007, allowing me to cultivate a profound understanding of Vietnam's macroeconomics, conduct meticulous equity research, and actively pursue lucrative investment opportunities. Furthermore, I hold the position of Head of Derivatives, equipped with extensive knowledge and expertise in derivatives, ETFs, and CWs.

 

To document my insights and share personal perspectives, I maintain a private blog where I store valuable information. However, it is essential to acknowledge that the content provided on my blog is solely based on my own opinions and does not carry a guarantee of certainty. Consequently, I cannot assume responsibility for any trading or investing activities carried out based on the information shared. Nonetheless, I wholeheartedly welcome any questions or inquiries you may have. You can contact me via email at thuong.huynhngoc@gmail.com.

 

Thank you for your understanding, and I eagerly anticipate engaging with you on topics concerning investments and finance.

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