New Ray Dalio piece

Discussion of the Cash portion of the Permanent Portfolio

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Kevin K.
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New Ray Dalio piece

Post by Kevin K. » Thu May 07, 2020 11:30 am

Not sure whether to put this under the Cash or Gold forum headings but as always with Ray Dalio it's at least worth a skim. Long on history and analysis with a dearth of immediately actionable advice but it sure makes a compelling argument for us being very late in the phase of the U.S. dollar being the world's reserve currency.

I'm recalling Medium Tex's wry description of U.S. Treasury bonds being the best horse at the glue factory. One has to wonder how long that will remain the case, and what will replace it.

https://www.linkedin.com/pulse/changing ... ublished=t
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Re: New Ray Dalio piece

Post by Smith1776 » Thu May 07, 2020 10:22 pm

I read this piece earlier today and thought it to be phenomenal work. It's insightful, convincing, and as unbiased as one gets when writing about investing.

Dalio's arguments for owning gold are well crafted. Gold has occasional periods of tremendous outperformance due to abrupt economic upheavals and a certain kind of punctuated equilibrium. These tend to happen only about once in a generation or two, but when they do happen (and you never know when), gold becomes the saving grace investment. Of course, typical backtesting that goes back a few decades doesn't reflect this. The result? A myopic view of investment history.

Modern portfolio backtesting is like sitting in the front row of a movie theatre. You sit so close that you can't see anything. You get incredibly convoluted and deep data sets that can easily allow a person to fool themselves into thinking they know more than they do.

I could not resist making a trip to the Knuckleheads forum and couldn't help but notice that the Dalio piece isn't even being discussed. ::)
“My natural state is an outsider, and no matter what group I'm in or where I am, I've always felt like I'm outside the group, and I've always been analyzing the group.” - Michael Burry
Kevin K.
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Re: New Ray Dalio piece

Post by Kevin K. » Fri May 08, 2020 9:53 am

Yeah I noticed that too and thought about posting the Dalio piece there but all it'd do is cause a few posts trashing some of Dalio's past predictions before the thread got locked.

Taylor Larimore did start a thread about which ETF's performed best during the March market meltdown and I couldn't resist posting a link to Tyler's piece on "The Most Painful Month" on Portfolio Charts but the response thus far.....crickets - as usual. They drink some strong Kook Aid over there.
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Re: New Ray Dalio piece

Post by ahhrunforthehills » Fri May 08, 2020 11:32 am

Kevin K. wrote:
Thu May 07, 2020 11:30 am
Not sure whether to put this under the Cash or Gold forum headings but as always with Ray Dalio it's at least worth a skim. Long on history and analysis with a dearth of immediately actionable advice but it sure makes a compelling argument for us being very late in the phase of the U.S. dollar being the world's reserve currency.

I'm recalling Medium Tex's wry description of U.S. Treasury bonds being the best horse at the glue factory. One has to wonder how long that will remain the case, and what will replace it.

https://www.linkedin.com/pulse/changing ... ublished=t
I really started to worry about this a couple months ago. Reading this calmed my nerves quite a bit:

http://www.international-economy.com/TI ... cySymp.pdf

What I was really surprised to learn was how much having World Reserve Currency status is both a blessing and a curse. You have the ability to print like crazy, but you also lose the ability to manipulate your currency the same way as a Non-World Reserve Currency nation.

As an example, let's say that Switzerland has a naturally strong currency. A strong currency means that their own country's businesses would suffer.

If you think about it, any goods they export to other countries would become more expensive (because of the higher currency exchange rate). So what can they do? What is the best way to F-up your strong currency? Fire up the printing press! But instead of helicopter money, they instead buy foreign assets with the newly printed money. Totally genius! It increases the value of their country (by acquiring foreign assets based in a foreign currency) while simultaneously still supporting their economy by making their exports attractive in the global market and keeping their currency in check.

I saw an interview with someone named Lyn Alden (https://www.youtube.com/watch?v=3SLIQMGR1Zw) where she made an interesting point. She said that the United States might decide to voluntarily step back from World Reserve Currency so it can become a currency manipulator. World Reserve currency is a blessing in the first phase of its life... but it becomes a burden after you squeezed most of the juice out of it.
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Re: New Ray Dalio piece

Post by pmward » Fri May 08, 2020 12:26 pm

Kevin K. wrote:
Thu May 07, 2020 11:30 am
it sure makes a compelling argument for us being very late in the phase of the U.S. dollar being the world's reserve currency.
Not quite. To quote the end of the article:

"Typically leading up to a country losing its reserve currency position 1) there is an already established loss of economic and political primacy to a rising rival that creates a vulnerability (e.g., the Dutch falling behind the UK or the UK falling behind the US) and 2) there are large and growing debts that are monetized by the central bank printing money and buying government debt, leading to 3) a weakening of the currency in a self-reinforcing run from the currency that can’t be stopped because the fiscal and balance of payments deficits are too great for cutbacks to close."

#1 we have no rival with enough currency and debt to be able to support global trade and reserve currency status. We are the only country that has this. China is definitely trying to position themselves in the future to be the default backup, but they still have a long ways to go. The loss of reserve currency status will be a multi-decade affair. It's not something that is imminent and all at once.

#3 we have not gotten here yet. We have to get here to really inspire other countries to consider the potential "rival" in #1. Things would have to get *much* worse.

So yes they are trying to devalue the currency, but this does not mean the dollar is going to crash and burn anytime soon... even in our lifetimes. Dalio was not in any way trying to insinuate that this was something that was for sure going to happen, or that if it would happen it would be anytime soon. He is merely looking at the blueprint from the past and saying that this is a possibility that is on the table *if* things continue as they are. Be careful with trying to draw too many conclusions. He's merely showing what happened in the past, and that is not in any way trying to predict the future. It's a warning, not a prognostication. It's not too late, and he is trying to educate people to inspire change before it does become too late. And in the meantime, he's strongly hinting that people should own some gold in their portfolio just in case.
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Re: New Ray Dalio piece

Post by ahhrunforthehills » Fri May 08, 2020 1:00 pm

pmward wrote:
Fri May 08, 2020 12:26 pm
The loss of reserve currency status will be a multi-decade affair. It's not something that is imminent and all at once.

+1

That link I posted basically repeats this viewpoint again and again. The general consensus is looking at 20-30 years minimum. Nothing sudden... the US Dollar will be gradually reduced.

I found this interesting (again, taken from my previous link):

"... by 1880, the US economy was larger than the United Kingdom's, but the dollar was barely used abroad for the next thirty years. By 1914, when the dollar began its ascendancy, the United States was the leader in world trade and its economy was MORE THAN DOUBLE the size of the United Kingdom's."

I think this really cuts to the bone of how slow these changes really are.

How long before China's economy is double that of the United States? Who knows. But this chart seems to think 30 years:

https://commons.wikimedia.org/wiki/File ... 2_PPP).png

Seems like China has 30 years to convince the world they can be trusted.
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Re: New Ray Dalio piece

Post by Ad Orientem » Fri May 08, 2020 2:44 pm

Dalio's points are solid, but I do tend to agree that the near term issue is not inflation. We are probably in the early stages of a deflationary depression. But yeah, long term the combination of unrestrained money printing and sovereign debt reaching levels never seen before will become a problem.
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Re: New Ray Dalio piece

Post by pmward » Fri May 08, 2020 4:22 pm

Ad Orientem wrote:
Fri May 08, 2020 2:44 pm
Dalio's points are solid, but I do tend to agree that the near term issue is not inflation. We are probably in the early stages of a deflationary depression. But yeah, long term the combination of unrestrained money printing and sovereign debt reaching levels never seen before will become a problem.
Yeah and he agrees with this as well. His opinion is that we are basically in an equivalent period of time to the late 30's right now. So we are nearing the end of a decade-ish of deflation.
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Re: New Ray Dalio piece

Post by Kevin K. » Fri May 08, 2020 5:22 pm

Thanks for the wise perspective pmward and Ad Orientem!

I hope the U.S. will stop making it so easy for China to increase its influence and that the dollar's status as the world's reserve currency will persist for a good long while. And yeah - it's a good time to own some gold.
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Re: New Ray Dalio piece

Post by Don » Sun May 10, 2020 6:53 pm

Has Bitcoin tarnished gold as a PP pillar? I was expecting a greater rise in the price of gold with all of the money printing going on.
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Re: New Ray Dalio piece

Post by Hal » Sun May 10, 2020 10:36 pm

Don wrote:
Sun May 10, 2020 6:53 pm
Has Bitcoin tarnished gold as a PP pillar? I was expecting a greater rise in the price of gold with all of the money printing going on.
This link may help.
https://www.youtube.com/watch?v=uS3NzM2tAmw
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Re: New Ray Dalio piece

Post by pmward » Mon May 11, 2020 11:09 am

Don wrote:
Sun May 10, 2020 6:53 pm
Has Bitcoin tarnished gold as a PP pillar? I was expecting a greater rise in the price of gold with all of the money printing going on.
Bitcoin has other factors specific to it causing it to rise at the moment. Google "Bitcoin Halving".
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