Video Notes: Ray Dalio and What Corona Virus Means for the Global Economy
Ray Dalio and What Coronavirus means for the Global Economy. Ray's video was the MVP of last week's newsletter. He's back again with current thoughts and doesn't disappoint. He starts with the macroeconomic picture, turns to what you should do with your 401k, and then offers solutions for the world. I have notes.
He lays out the current economic situation and asks a lot of questions:
Who will pays these bills? And how will that be shared? There will be a big question of wealth distribution of who will end up with the bill? Will there be a taking care of ones self? Or will people come together?
We are at a defining moment: We are in a new world. That world is most similar to the 1930s to 1945 era.
There are four things that are the driving forces of our lifestyle:
Productivity - most powerful. Comes from learning and inventing. It grows slowly. 1-3 % a year.
Short-term debt cycle. 8-10 years.
Long-term debt cycle. 50-75 years. This is where you begin a new type of money. This was 1945 - new world order, where you invent a new type of money. They wiped out the old money in Bretton Woods. That was the American world order. 75% of the money is running in US dollars.
Politics - largely how we deal with each other. Internal politics and external. How do you deal with the wealth gap? How do you deal with the values gap? Do we have a common mission or an American dream that we are all building together?
There is always a revolution in these and it’s about wealth distribution.
External politics means between countries. When there is a rising power challenging an existing power. This is a defining moment. This is a stress test. What is it like when you are outside the ring of support (e.g., the US dollars). We are going to have to consider who has what.
What should you do with your 401?
Being successful in the markets is harder than getting a gold medal at the Olympics
The worst thing you can do is think you can time.
Individual investor needs to diversify well and in a balanced way. Don’t think “what has done well lately is good investment rather than it’s expensive” “what has done poorly recently is a bad investment rather than it’s cheap”
Do not think that cash is a safe investment
Cash is seductive since lack of volatility but taxes you 2% a year
Globalization, what gives?
If we retreat from globalization, which we certainly will do, we start comparing idealism with reality.
Who will write what checks to people in what countries outside their domain?
Who will we help and what will that mean? The reality is most of them won’t be helped.
Is one countries vulnerabilities another countries opportunities?
Over the last 500 years, there have been 16 countries with rivalries. In 12 of those situations, there have been wars. How do you resolve a dispute as to who does what?
I am a globalist - that the best of the best can work together. But it’s dying. We are in a fragmented world. Can I depend on somebody else to give me what I need? It exists between countries as well as within countries.
Where he gets scary:
Read history and understand the mechanics. This separation happened before we had this isolation. This deglobalization happened before that. It happened for reasons and don’t overlook those reasons. Just because we wish it could happen. Everything is dependent on those who have their hands on the levers of power.
The Chinese are helping the things that are needed in this crisis. To say that is a politically challenging thing. It’s almost dangerous to say Thank You to those who are helping.
We are now asking ‘who is evil?” There is demonizations of different people. You must see it around you. It exists. So how we come out of this and how we behave with each other.
So you think ‘capitalism needs to be reformed.’ What is our opportunity here?
Do we want the outcomes that we are getting? What is our American dream? What is that? We aren’t even talking about that. There was an environment after WWII of equal opportunity and harmony of ‘we are in this together’ My grandparents are obsessed with WWII . My grandfather was imploring me to watch this PBS special on WWII this week. How it's so important and I have no excuses for not watching it. He asks me all the time when am I going to go to Omaha Beach. You’ve been all over the world. Why not Omaha beach!?
Any system seems to work for those who control the system. It’s self-perpetuating. The education of those who are those is better than those who aren’t those.
Those in the top 40% spend 5x on their children’s education than those in the bottom 60%. But that becomes self-perpetuating. I would have said it's more like the top 10% but maybe Ray has better data than I have. Probably does.
Ray says we need to restructure the economy to boost productivity, particularly of the poor.
There comes a time when you need reforms. Those reforms need to create productivity. They need to be psychologically productive.
You need to restructure the whole economy - inevitable consequence of what we are doing here.
We've had a huge transfer of wealth through the production of borrowed money. What we will talk about is how to do that restructuring.
When you damage the economy you damage productivity.
When you have equal education you have more people who can compete with each other. It will produce more productivity than it will cost if it is done well.
States and localities think of education as a cost and a budget item.
That has to be engineered well. So they are productive. Everyone has to believe that the system is fair. Am I optimistic that we will get there? I do not know.
How to rebuild the economy:
Can we build an economy that raises the interests of the low paid higher?
The heroes are ‘those kind of people’ but it takes everyone. It takes an efficient allocation of resources. We see those who control a lot of resources being able to make a contribution.
It’s good character. That type of character. That brings our country together. They have to recognize their role in doing that. The frontlines and the CEO better work well together. They have to have usefulness. We have to establish the usefulness.
We need basics. Education. Healthcare. That you cannot fall below. When you go below that level there is no opportunity. There are costs to it. 60/40 leaning pessimistic
The average cost of incarceration is expensive. Getting people into a job saves a lot of money. Philanthropists can’t do it alone. If our country did those types of things, I think it’d be great.
Jack Dorsey - it’s awesome but not nearly enough. The interviewers and (sort of all us) think that Billionaires are all-powerful. That they are the leaders we need to look to. And that is a problem in itself. The balance of power and who drives the conversation has to shift, this is sort of the Anand point.
Real talk from Ray
I communicate a lot with people in power. You have to realize that few people are making decisions based on the quality of the argument. Most people have a particular objective. The information that comes out, even in the media, it’s always part of a side. How many people do you really believe don’t have a side?
The ability to see both sides and come together is perceived either as weak or a threat.
It’s not easy. Saying Thank You to China is politically challenging. “Okay he’s a China lover. Or he’s an enemy”
Have thoughtful disagreement. Open, thoughtful disagreement, to get at the right answer and have collectiveness.