Sunday, October 23, 2011

Notes from Ray Dalio's interview with Charlie Rose

Here's a link to the Ray Dalio interview on Charlie Roses's website. ZeroHedge has the complete transcript of the interview.

Big picture
1.       We’re going through deleveraging since we have reached our debt limits
2.       Problem with monetary and fiscal policies being out of ammunition  
3.       Everybody is at each other’s throats and there is a lack of quality conversation about dealing with these issues.

Debt and Deleveraging
·         Can divide the world in two parts:
o   Debtor developed world that has reached its debt limits
o   Creditor emerging world
·         There’s a subcategory of countries that can print money and not print money
·         There is a big imbalance between these worlds which is the problem of debt
·         The deleveraging process will take at least 10 years. It’s important to spread it out and make sure it is orderly.
·         Debt super-committee: Do not believe we will find a political solution – pessimistic about that.
·         Private sector is even more important than public sector debt. Individuals are overly indebted. If you resolve budget deficit and do not resolve private sector debt issue, the promised amount still cannot be paid.
·         Balance between austerity and stimulus: Have to make sure any investments that are made deliver a payback.

The government budget balance:
·         If you raise taxes by 3% and cut spending by 3%, they would eliminate half of $8.5T deficit over the next 10 years. Instead we have a division between republicans who don’t want to raise taxes and democrats don’t want to cut spending. 70% of taxes paid by top 10% earners.

·         What’s depressing jobs is that the world’s demand and supply for labor has changed with India and China. Also technology has had an effect.

·          There is a debt problem. Can either transfer money from rich to poor countries, or you can print money, or you can write down the debts.
·         Thinks they will print money and do haircuts

China and EM
·         China can’t control credit growth through interest rates (because of their current policy) which is leading to credit bubble.
·         Lending is bypassing the credit system which is a dangerous thing and creates risk.

United States
·         Bank leveraged about 15 to 1, so there is a capital problem if assets go down by 1/15
·         Usually there bank crises every 10 years
·         Getting money in the hands of someone who will spend money is not easy for monetary policy, so it will not be very effective
·         We should be able to grow at a rate comparable to income growth (i.e. 1.5% to 2%) if deleveraging is orderly, but unemployment rate will stay the same or go higher which will lead to social tension and can lead to a Greek-like situation

·         The #1 principle at BW is that if something doesn’t make sense to you have the right and obligation to explore it.
·         Knowing what you don’t know if extremely value. We can be wrong and we should recognize it.
·         “The great fallacy is that people know more than they do” The process for learning is to say “I don’t know.”
·         People should be asking “I wonder” instead of “I think this”
·         BW is an unusual place and an usual culture
·         They are exactly the opposite of a cult since the top principle is to think for yourself and not believe anything. Speak up, don’t hide it, and don’t talk behind people’s backs
·         One of his favorite books is Einstein’s mistakes.

·         The biggest problem is the lack of quality dialogue
·         He doesn’t adequately know all the views behind it but he understands the frustration and discontent.

Rose: Are you optimistic or pessimistic?
“I am concerned… It’s a test of us and our society”

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