New Ray Dalio piece

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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. ::)
"Talk is cheap. Show me the code." - Linus Torvalds
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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Re: New Ray Dalio piece

Post by Ad Orientem » Tue May 12, 2020 10:00 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.

No. Bitcoin is a figment of the technological imagination that is and has been easily manipulated by organized crime, has no intrinsic value, and is purely speculative in nature. It performs none of the functions expected of gold.
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Re: New Ray Dalio piece

Post by bitcoininthevp » Fri Jul 03, 2020 2:05 pm

Ad Orientem wrote:
Tue May 12, 2020 10:00 am
No. Bitcoin is a figment of the technological imagination that is and has been easily manipulated by organized crime, has no intrinsic value, and is purely speculative in nature. It performs none of the functions expected of gold.
"Bitcoin is a figment of the technological imagination"
This has no meaning.

"easily manipulated by organized crime"
What sort of manipulation? Price? All actors in a market are "manipulating" the price when they buy and sell. Harry also objects to the idea of participants in the marketplace as manipulators (he talks of silver market example).

"has no intrinsic value"
There is no such thing as intrinsic value. All value is subjective and based on an individual's preferences and environment.

"purely speculative in nature"
Many are using Bitcoin for practical purposes. As a savings vehicle in several high inflation countries for example. That said a lot of interest is speculation, I agree. But not all. And that speculation is about Bitcoin having strong monetary properties. See below:

"It performs none of the functions expected of gold."
I assume you mean gold's functions as money. Here are some valuable characteristics of money:

Durability: bitcoin and gold both strong here.
Portability: bitcoin is digital thus much more portable than gold.
Divisibility: A single bitcoin can be subdivided into 100,000 sub units. Gold much hard to pay with shavings.
Uniformity/Fungibility: gold strong here (verifiability of such uniformity later). I think bitcoin is a bit weaker currently due to transactions being public. Improvements hopefully to come there.
Limited supply: bitcoin has a mathematic max of 21m coins. Gold is scarce as well but more susceptible to increases in supply with price rises (stock to flow). I think the mining asteroids argument is far off.
Acceptability: bitcoin is bad here. Gold has history and global awareness. This will be the last domino to fall on bitcoin's monetization.
Censorship Resistance: gold pretty good. Bitcoin better due to digital nature.
Security: Much easier to store bitcoin (paper, brain) than bulky gold.
Verifiability: bitcoin can be verified with free software. Gold you need contraptions for coins which are cheap. But hard for bars (see recent scandals on fake gold)
Seizure resistance: bitcoin wins as there isnt anything in the physical world that you really need to own it. Plausible deniability. Gold can be searched and found
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Re: New Ray Dalio piece

Post by mathjak107 » Fri Jul 03, 2020 4:29 pm

When bitcoin has 5000 years of history I will look at it as I do gold
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Re: New Ray Dalio piece

Post by Smith1776 » Fri Jul 03, 2020 5:50 pm

Mathjak touches upon one of my reservations about Bitcoin that I don't have about gold. Sure, gold and bitcoin have a lot of the same properties, but the difference is that gold (and silver) are proven as being timeless with thousands of years of history to back them up. That history is worth something. Bitcoin's supporters are espousing that the asset is something similarly timeless without the benefit of, well, time.

My second cause for hesitation is the fact that while the number of Bitcoins may be limited to a supply of 21 million, the supply of cryptocurrencies is not limited. Even worse, there are many cryptocurrencies that have vastly improved upon Bitcoin's 1.0-esque problems. Hashgraph looks particularly promising. None of the scaling problems, tremendous energy consumption, and slow transactions times like Bitcoin. Some like Libra also have commercial support, which is another conundrum.

In the end, I don't want to shun Bitcoin and just dismiss it. I think the fair statement to make is that the jury is still out.
"Talk is cheap. Show me the code." - Linus Torvalds
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Re: New Ray Dalio piece

Post by bitcoininthevp » Sun Jul 05, 2020 1:50 pm

Smith1776 wrote:
Fri Jul 03, 2020 5:50 pm
Mathjak touches upon one of my reservations about Bitcoin that I don't have about gold. Sure, gold and bitcoin have a lot of the same properties, but the difference is that gold (and silver) are proven as being timeless with thousands of years of history to back them up. That history is worth something. Bitcoin's supporters are espousing that the asset is something similarly timeless without the benefit of, well, time.
I think that hesitation is totally fair, personally. Those speculating on bitcoin becoming money, if they are correct, will be (some already are) insanely wealthy. But still a speculation in the meantime.

Image
Smith1776 wrote:
Fri Jul 03, 2020 5:50 pm
My second cause for hesitation is the fact that while the number of Bitcoins may be limited to a supply of 21 million, the supply of cryptocurrencies is not limited. Even worse, there are many cryptocurrencies that have vastly improved upon Bitcoin's 1.0-esque problems. Hashgraph looks particularly promising. None of the scaling problems, tremendous energy consumption, and slow transactions times like Bitcoin. Some like Libra also have commercial support, which is another conundrum.
I disagree. The equivalent would be someone discovering metals for the first time and saying the same about gold. Non gold metals do not have the same properties as gold, even if they might be shiny. Coins other than bitcoin do not have the same properties as bitcoin, even if they call themselves cryptocurrency.

Just one example: It costs $10+ million per day to sustain an attack on the Bitcoin network. The same attack on a "TOP 5" coin is $200k.

Libra or anything similar is centralized and susceptible to government control overnight.

Many of the promises of these alt coins ("faster!", "clean!") are just hand waving if not intentionally deceptive.
Smith1776 wrote:
Fri Jul 03, 2020 5:50 pm
In the end, I don't want to shun Bitcoin and just dismiss it. I think the fair statement to make is that the jury is still out.
I know its just a figure of speech. But "some" of the jury is out and some is not.
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Re: New Ray Dalio piece

Post by ppnewbie » Wed Dec 30, 2020 3:11 am

The bank of international settlement made gold a tier one asset recently.
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