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Ray Dalio Isn’t Crazy, You’re Crazy

Ray Dalio Isn’t Crazy, You’re Crazy

Listen, Ray Dalio is a guy who has “principles”, ok?

And don’t get it twisted – that’s a rare thing these days. Just ask John Kelly, who in his infamous October presser, suggested that modern day America suffers from an acute lack of principles.

So it’s rare enough that a man has any “principles” at all, let alone hundreds and hundreds of pages worth of “principles”, like Ray has.

Of course the situation isn’t entirely hopeless for you. You too can have hundreds of hundreds of pages of  “principles” for only $18.00 or $14.99, depending on whether you prefer your “principles” in hardcover or Kindle format, respectively.

Ray has been expounding (a lot) lately on the state of the global economy and really, on life in general. He of course took his “principles” on world tour to Davos last month and he’s been writing LinkedIn posts recently at a pace that suggests he’s gone broke and is now living off CPM money.

But as anyone who live-blogs markets for a living would tell Ray if he were to ask, real-time market commentary is wrong more often than it’s right which is fine for bloggers and journalists but not great for one of the world’s foremost titans of finance.

On Monday, Dalio took to LinkedIn to “explain” what’s been going on over the past two weeks, a period during which markets plunged on the back of an above-consensus average hourly earnings print (which exacerbated the inflation jitters that are driving the bond selloff) and an implosion in Seth Golden’s favorite short vol. products.

As Ray tries to explain, “about 10 days ago” he thought we were one place, but as it turns out, we were somewhere else:

As for the calculations we are doing, classically, if the spurt in growth in profits (which is good for equities) is faster than the rise in interest rates (which is bad for asset prices) that will be marginally bullish, and if there is a lot of cash still on the sidelines (which there is) that causes one last spurt in equities prices, which is also bad for bonds (raising interest rates) and leads to Fed tightening, which makes the classic top. For the most part, that will be the most important determinant of the exact timing of the top in stocks.

About 10 days ago, that’s where I thought we were. However, recent spurts in stimulations, growth, and wage numbers signaled that the cycle is a bit ahead of where I thought it was. These reports understandably led to the reactions in bonds, which affected stocks as they did. Then on Friday, we heard the announced budget deal that will produce both more fiscal stimulation and more T-bond selling by the Treasury, which is more bearish for bonds. And soon ahead, we will hear about a big (and needed) infrastructure plan and the larger deficits and more Treasury bond selling that will be needed to fund them. In other words…

Let me just finish that for him: “…in other words, when I went on Bloomberg and CNBC three weeks ago in Davos and regaled everybody with my rambling take on where we are in the cycle on the way to concluding that while we are at risk of figuratively rear-ending a semi truck, we’re not there yet and in the meantime, the conditions are ripe for a blow-off top in stocks and thus anyone holding cash is going to ‘feel pretty stupid‘, I was probably right in general and therefore I should just let it go, but I’ve taken a shine to live-principles-blogging the market lately and as of right now, those ‘pretty stupid’ people holding cash are the only people with positive real YTD returns, so I feel like I need to explain myself which is why here I am, on LinkedIn (again), writing another blog post.”

Not helping this situation was Ray’s co-CIO Bob Prince who on Sunday told FT the following:

There had been a lot of complacency built up in markets over a long time, so we don’t think this shakeout will be over in a matter of days. We’ll probably have a much bigger shakeout coming.

That would seem to be at odds with Ray’s “people holding cash are going to feel pretty stupid” comment from last month.

But really, there isn’t anything inconsistent about the message Ray has been struggling to convey over the past two months. Somewhere buried in all these LinkedIn posts and TV appearances is a coherent view on the cycle and on the Fed and on the near, medium, and long-term outlook for bonds and stocks.

What’s confusing people is Ray’s new communications “strategy” which involves trying to simultaneously convey his overarching macro outlook, time the top in stocks and call the end of the secular bond bull market, speculate on the extent to which investors shouldn’t be on the sidelines between now and when the top in equities is finally in, and communicate how any of that is consistent with him shorting the holy shit out of European equities.

Just to underscore the point, the following news hit the wires literally as I was writing this:

  • Dalio’s Bridgewater Discloses $384 Million Bet Against Adidas

Ultimately, it would probably be better for everyone if Ray just eschewed the blogging and the TV appearances for a while.

Because at this rate, it won’t be too long before he’s up at 3:00 in the morning furiously live-blogging the overnight action in Bitcoin and explaining how the latest tick above $1.00 in Ripple does or doesn’t validate his take on when the cycle is going to turn.

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