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Monday, June 4, 2012

Ray Dalio

For those interested in successful investment managers, it would be hard to find someone more appropriate to study than Ray Dalio.  Ray Dalio is founder of Bridgewater Associates, one of the world's most successful hedge funds.  His funds look globally to find value.

Here is a recent interview Sandra Ward from Barron's did with him: "Dalio's World."  Dalio gives his view on the deleveraging process that is unfolding as well as his thoughts on gold and other investment areas.

One of the really interesting analogies Dalio makes in this interview is to compare present-day Europe and the problems it is having with America in 1789.  In 1789, America was 13 colonies held together by the Articles of Confederation.  The colonies had debts from the War of Independence, and they had tariffs with each other.  The setup was very similar to Europe's present Maastricht Treaty that created the European Union.  It was 13 years after independence that a central government in America was formed that could tax and take on debt and form a Treasury.

Dalio's view is that Europe must decide if it is willing to take that additional step and form a central government.  One has to wonder if this is at all possible given its long time history.
One thing that is important in thinking about these parallels is that America had superb leadership in forming its central government.  People like Alexander Hamilton (the only founding father not born in the U.S.) stepped up and performed crucial functions exactly when they were needed.  He, for example, had the Federal Government assume the debts of the colonies and proceeded to pay them off. This in spite of people around him advising that the debts should be reneged on.  After all, no one really expected to be paid back by the poor, fledgling nation.  Because of Alexander Hamilton, it didn't take long before America was one of the top credits in the world.

Another point worth noting is that America at the time was peopled by hungry, aggressive, hard-working peoples who had fled other countries for an opportunity to get ahead.

Dalio makes interesting points on the similar situations but the differences are so magnified, just in the areas of leadership and willingness of the people to find a way out of their debt quagmire, that it is hard to see a  workable solution.  Continually kick the can down the road and it goes off a cliff.


  1. I'd argue there's a big difference between th US Govt federalizing Revolutionary War debt and the European union nationalizing the "la dolce vita" debt of the southern part of the EU. If I were a German citizen, there is no way I would agree to pay for the reckless spending of Greece, Spain or Italy.

  2. I agree. The same is true for the U.S. Debt accumulated to defend the nation and debt accumulated to consume beyond our means are different. I'll go out on a limb and predict that the markets will stage a rally after Greece leaves the EU. Greece then will be forced into a Zimbabwe hyperinflation scenario which will destroy their economy. It is what happens when bad choices are made and there is a lack of leadership. Like the teenager who gets in a wreck driving drunk it will be a powerful lesson for other nations.