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Ray Dalio On Markets: Dance Like Everyone's Watching

The Westport Woodsman sees danger ahead... and pictures a very boring dance party
Coming soon to a Bridgewater office near you.

Coming soon to a Bridgewater office near you.

It seems like everyone in finance has felt at least a fleeting pang of existential dread lately.

Tech stocks are acting like they forgot to take their Lithium, oil prices seem as shaky as the current President's seeming understanding of oil prices, employment numbers are less indicative of economic realities than they are political Rorschach test, someone let Blue Apron go public, and banks are beginning to feel those old pre-2008 feelings.

It's enough to make a lot of people experience the early stages of doubt and low-level panic. Ray Dalio is not a lot of people.

For the last nine years, central banks drove interest rates to nil and pumped money into the system creating favorable carries and abundant cash. These actions pushed up asset prices, drove nominal interest rates below nominal growth rates, pushed real interest rates on cash negative, and drove real bond yields down to near zero percent, which created beautiful deleveragings, brought about balance sheet repairs, and led to more conventional economic conditions in which credit growth and economic growth are growing in relatively good balance with debt growth. That era is ending.

Other than our newfound yet unfounded certainty that Ray definitely has the phrase "Beautiful Deleveragings" tattooed in a flowing cursive on the small of his back, the real takeaway here is that Dalio is simultaneously giving a golf clap to big government economic decision-making while also warning everyone to hold on to their butts because unlike an organization that has adopted "Principles" correctly, these economists are fallible.

Central bankers have clearly and understandably told us that henceforth those flows from their punch bowls will be tapered rather than increased—i.e., that the directions of policy are reversing so we are at a) the end of that nine-year era of continuous pressings down on interest rates and pushing out of money that created the liquidity-fueled moves in the economies and markets, and b) the beginning of the late-cycle phase of the business/short-term debt cycle, in which central bankers try to tighten at paces that are exactly right in order to keep growth and inflation neither too hot nor too cold, until they don’t get it right and we have our next downturn.

Ray cannot not tell it like it is (literally, you guys, he can't) so he's warning everyone the days of cheap money are numbered and we should all start acting like it. And to drive that home, Ray uses a metaphor that all older white guys can relate to...

Recognizing that, our responsibility now is to keep dancing but closer to the exit and with a sharp eye on the tea leaves.

Well hold on, if we're just gonna slow dance over here by the exit while you look cautiously at some tea, what the fuck are we even doing here Ray? Can we at least short some Tesla and do a scooch of Molly with Dan Loeb while he talks super-fast about Nestle? We want to have FUN, Ray! The president says it's ok. Or let's at least drink all we can from those punch bowls you were talking about before. Wait, if there's still punch, why are we even drinking tea?

Enjoy your summer weekends, everyone. But take Ray Ray's advice and remember to let your money dance like everyone's watching.

[We also recommend scrolling down to the comments to see people "accuse" Ray of being biased in his take on "beautiful deleveragings" because humorless stupidity is fun.]

Central Banks’ Reversals Signal the End of One Era and the Beginning of Another [LinkedIn]


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