Interview with Bridgewater founder Dario: The historical pendulum is swinging in the worse direction

Interview with Bridgewater founder Dario: The historical pendulum is swinging in the worse direction

Even if there is a competitive relationship between the two, competition has ways to make both parties profit.

This is definitely embedded in a destructive or constructive competitive relationship.

If managed properly, competition can be an effective way to make both parties better.

  Dalio is very pessimistic. He said that the various chaos now and in the future will be testing the ability of different countries to manage different systems.

All this will also be a test for society and for yourself.

  Wen | Jin Cai, a special correspondent from Caijing, edited from Washington | Su Qi At the end of 2018, various Christmas decorations are behind windows of different homes, on streets of different sizes, and in tall buildings in different heights.Echoing and preparing for the new, Ray Dalio, Wall Street’s top fund manager, is surrounded by pessimism.

  Economically, politically and internationally, there is no prospect for excitement.

  In 2018, the global economy was covered by the declining shadow. China and Europe are facing the replacement of economic growth. The US economy is thriving, but the US economy, which has soared twice in strong growth, is also facing the fate of intensified growth. After all,The US economy has entered the tail of the expansion cycle.

  The rise in the US stock market in 2017 was interpreted as an early 深圳桑拿网 digestion of the strong corporate profit growth rate in 2018, and this overall increase may exceed 20%.

Unfortunately, the carnival of US stocks is continuing in 2018, especially in the last quarter of 2018, when stock market cliff-like declines occur from time to time.

  In December 2018, the Russell 2000 Index, which tracks the performance of small-cap stocks, fell into a bear market.

In mid-December, the three major U.S. stock indexes closed for the first time since March 2016 and fell into a technical consolidation zone.

Economists generally expect the worst December in the US stock market since the Great Depression.

  On December 18, 2018, the U.S. stock market closed sharply and the three major stock indexes all fell more than 2%.

The Dow Jones index fell more than 500 points, and the S & P index hit its lowest closing level in 2018.

Correspondingly, the market’s expectations of emerging and growth have receded.

In the United States, the investigation of Russia and Russia has entered deep-water areas, and it is recognized that more personnel changes within the government and political uncertainties trap investors.

The dilemma of the Fed ‘s blockade of interest rate hikes, the financial markets are bloody, but from the economic data point of view, it is easier to tighten policy further-the US economy continued to grow in the first three quarters of 2018, which makes the current expansion period promising.Become the longest lasting expansion period in history.

  The future relationship between the United Kingdom and the European Union is still chaotic. At this time, the 100-day countdown to Brexit has begun, and the divisions are so large that various types of warnings that Britain may leave the EU without an agreement are spreading.

How Brexit is interpreted and whether a stable transition can be achieved is unknown.

  The annual keyword of 2018 is the trade war. Through the advancement of the trade war in different stages, Sino-US relations have also been pushed to a new track.

After the G20 summit in Argentina, the Sino-U.S. Trade war has been temporarily suspended to avoid the escalation of the trade war, but when many people want to breathe a sigh of relief, Huawei ‘s vice chairman and CFO Meng Wanzhou is detained in Canada to keep Sino-US relationsVariables again.

  All these uncertainties raise deep interests.

Where does the US economy go?

Where does the United States go?

Where does China and the United States go?

Dalio is certainly one of the most authoritative interpreters of all these major issues.

  Over the past 20 years, Bridgewater Fund has created an average annual return on investment of more than 20%, and has consistently made $ 45 billion in profits, far exceeding all hedge funds in history.At the same time, he is also a Western investor who has deeply cultivated the Chinese market for over 30 years.Foreigners who came to China during the colonial reform and opening up helped China develop its capital market.

He comes to China on average twice a year and has witnessed the development of China. He believes that the development of the Chinese market and the management of the economy are one of the greatest wonders in the world.

  Dalio is a person who talks about cycles. On December 7, 2018, when a reporter from Caijing interviewed Dalio in New York, he stated that starting from the historical cycle, economic cycle, and debt cycle, he began to base his research on judgments.Looking at the big cycle, in the past few years, American fiscal and monetary policies have provided a variety of liquidity, from tax reductions and exemptions, to the gradual purchase of assets, to the reduction of interest rates, and various forms of stimulus to the economy. Now we can say that all canThe means used have reached their peak.

  In Dalio’s view, the cycle we are in now is the most similar to that in history from 1935 to 1940: under the huge debt crisis, alleviating the debt crisis to zero interest rates and creating a large debt crisis.

This is a history repeated from 1929 to 1932 from 2007 to 2009.

In both cases, the Federal Reserve must print money and purchase a large number of financial assets, which has led to rising financial asset prices and an improved economy, but also widened the gap between the rich and the poor.

Therefore, the gap between the rich and the poor today is very similar to the gap between the rich and the poor that existed at the time.

The huge wealth gap has given birth to populism.

  The indicators of nominal global conflict (populist index, populist index) created by the Bridgewater Fund have reached their highest point since World War II in mid-December.

The indicators of conflict at this stage, indicators that conflict in various ways-high conflict indicators mean that there will be more internal conflicts, more bipolar conflicts.

More internal conflicts also include more internal conflicts.  Dalio said that China is one of the great powers in the world, and the world is a relatively small place. Sometimes, you may find that there are two big powers, and there will be friction and conflict.

Not only competition in trade, but also competition in other areas, especially technology, is particularly important.

From the perspective of global development history, we can see that technology is a very important element.

The Netherlands jumped from a very small country into a trading empire all over the world, because they used the technology to build ships at that time, and used technology to make ships around the world, and thus created a large empire.

Competition exists in many countries around the world, and the question now is how to live together.

  The United States and China view the same concept differently.

The United States is a country composed of individuals. The individualistic competitive relationship has formed a bottom-up operation.

China takes the family as its unit, and the “country” in Chinese has both a country and a home.

China takes “home” as a unit and forms a top-down operation mode that affects all principles of doing things.

These are two different forms of society, with two different views.

This proves that there are indeed problems caused by cultural differences in the present era.

This is true in the United States, as is China-US relations.

  Near the end of the interview, Dalio told the Caijing reporter that each country must be competitive, but neither can prevent the other from running to suit its own system.

It is up to each country to decide what its own policy of power is.

Is a top-down system better or a bottom-up system better?

This is definitely a different way of management in each country.

  The United States’ competitive advantage is dating immigrants, creating a good environment, perfecting laws, and absorbing talents and resources from around the world to compete.

Of course, the United States needs to deal with the problem of the gap between the rich and the poor, and it needs to improve education and establish grades.

These are the manifestations of the superiority and effectiveness of the American system. The United States needs to try to improve democracy and capitalism and build a system that is more suitable for the United States.

  China is a top-down management system. This system is derived from Confucianism to some extent. This post-Confucian management method needs to check whether it is feasible and works well under the existing hierarchical system.If it doesn’t work well, it means there is a problem with this management method.

Each country must follow the path that they think is best for them, and while focusing on that path, take steps to increase competitiveness.

  Dalio is very pessimistic. He told the Caijing reporter that the various confusions now and in the future will be to test the ability of different countries to manage different systems.

All this will also be a test for society and for yourself.
We collaborate with each other. Do they think of common challenges?

Or will it rupture?

Unfortunately, the pendulum of history is swinging in the worse direction.

  After the hump, a wolf passed through us is in the late stages of a long-term debt cycle, when the economy is strong and unemployment is low, it is time to sell.

The possibility of a recession in the next two years may exacerbate Caijing: Let’s look at the US economy first.

U.S. employment is strong, with unemployment claims reaching 20 in early September.

20,000, the lowest since December 1969, and the number of Americans receiving unemployment benefits3.

7%, the lowest point since 1969.

Is the lower unemployment rate better?

Now that the unemployment rate has reached an all-time low, is there still room for further decline in the future?

  Dalio: When the unemployment rate is low, the central bank will adopt a tightening monetary policy. After the market reaches its peak, the economy will turn down and begin to weaken.

It’s a cycle.

  The template for my observation is that many things happen repeatedly, and this is the business cycle.

The shorter cycle is called the business cycle.

There will be a recession in the business cycle. After the recession, the market will lack liquidity and will gradually provide more liquidity. Credit will be provided. With credit, purchasing power can be realized. With purchasing power, debt can also be brought.

As economic growth becomes very strong, the transition will tighten monetary policy, which will affect the price of assets and change the difference between short-term interest rates and long-term interest rates. At the same time, it will change the expectations of investment returns and eventually lead to more debt paymentsProblems followed by the economic downturn and a recession.

After the recession, it will gradually return to low-interest-rate monetary policy, and a new cycle emerges, and the cycle repeats.After a period of time, we will find that there are various cycles, which continuously accumulate related debt pressures. We are in the later stage of the long-term debt cycle and have limited ability and space to transform people’s monetary policy.

When the economy is strong and unemployment is low, it’s time to sell.
  The United States’ competitive advantage is dating immigrants, creating a good environment, perfecting laws, and absorbing talents and resources from around the world to compete.

Of course, the United States needs to deal with the problem of the gap between the rich and the poor, and it needs to improve education and establish grades.

Picture / Visual China “Finance”: Is this the reason why the market has been bad recently?

  Dalio: This is one of the most important reasons.

Besides its intuition, people may believe that when the unemployment rate is very low and the economy is growing strongly, this is a good time. Why sell?

But one might think that asset prices remain high and austerity monetary policy will be adopted. The market will then decline and the economic weakening will follow.

  ”Finance”: When people define a bear market, the indicator is that the stock market has fallen by 20%.

Wall Street’s decline is now around 10%.

Is this a fix, or are we already heading for a bear market?

  Dalio: That’s the theory.

Of course we don’t know until we enter a bear market.

Now I am not sure if it is a bear market.

But I can talk about return expectations. When the price goes down, the stock’s expected future returns will rise.

Pay attention to the relationship between expected stock returns and interest rates.

When the interest rate reaches about 3%, we calculate the expected return on the stock at this price is about 3% or 4%.

Equity has no risk premium, so equity is more expensive than cash.

  When it continues to decline, it means that the expected rate of return increases. When expanding and relaxing monetary policy, changes in interest rates increase the stock exchange rate, and the spread will widen.

Widening spreads may lead to a contraction of about 20%, when the relationship becomes more attractive again.

I look forward to such changes.

This situation can be brought about by the combined effect of price changes of about 20% and changes in bidding policies. The expected return on stocks is high enough to replace cash.

Compared to its risks, stocks are now relatively attractive.

  Caijing: When do you expect this change to occur?

Will you have to wait longer this year?

  Dalio: I think this year, 2019 will be a difficult year.

I ca n’t predict it with any precision, but just make judgments based on risk and return: I ‘m constantly changing my portfolio based on the dynamic changes in risk and return.

When the risk is relatively high, my portfolio can become more defensive.

A recession always happens because the central bank has never been so perfect and we still have a lot of debt.

  The situation in the United States is that we are in a fragmented landscape because of this transition, which is politically challenging.

I worry that the next recession will be somehow and how political divisions will exist at that time.

  The market is quite fragile, and this vulnerability, or its understanding, is also trying to push the Fed to reexamine its monetary policy.

The US fiscal stimulus policy has achieved the economic hump effect, followed by a large amount of borrowing. Our debt level will be challenged by the market this year, and the debt problem will challenge all markets.

I’m not saying that the US market will fall sharply, just that the future economy may be more fragile because asset prices are more expensive.

  Caijing: Political factors have intervened in the ups and downs of the market for a long time last year. If the situation gets worse in 2019, it will not only allow the economy, right?

  Dalio: Political divisions will get worse.

The key question is whether the recession will happen before the next presidential election.

  If a recession occurs during the elections, political shifts pose even greater risks.

At that time, Democratic candidates in Congress may be more left-leaning, and left and right will become more extreme. This is a trend across the globe.

This period is very much like the end of 1930, which may be worth our attention.From 1929 to 1932, we fell into a debt crisis with zero interest rates; from 2008 to 2009, we fell into a debt crisis with zero interest rates.

In these two different periods, the transition has purchased supplementary financial assets, which have the effect of stimulating the prices of financial products, stimulating the economy and widening the gap between the rich and the poor.

  Then in 1937, the Fed adopted austerity monetary policy.

In essence, geopolitical conflicts have also become more serious.

There is a great deal of populism within each country.

The polarization has intensified populism.

Due to the existence of internal conflicts, larger-scale conflicts have occurred internationally.

  Now we have adopted a tightening monetary policy.

I hope that the capitals of all countries are very cautious, and policy makers in each country are very cautious in dealing with the existing contradictions between and among countries.

That’s why now is a very delicate moment.

Economy and politics will get worse in the next two years.

There may be more economic recessions in the United States in two years.

  From primitive effectors to hangover effects, the US economy has structural challenges, partly related to debt, and partly related to its ability to deal with issues with determination.

In the future, the United States may face more effects of falling into a hangover. Finance and Economics: Economists expect that the increase in non-agricultural employment will begin to gradually begin, and the economy is also coming.

In the long run, at what level will US economic growth be maintained?

  Dalio: We need to look around the world to see how much economic growth is stimulated through fiscal and monetary policies, and how much will still work in the future.

We gave the economy a booster, appearing in the form of tax cuts on fiscal policy stimulus, and in the form of low interest rates on monetary policy stimulus, which means that companies will buy back their own stock and buy other companies’ stocksBecause the price is very low, before that there was a stimulus from quantitative easing.

All these stimulus policies are our way of promoting economic growth.

  Caijing: But the time and space for policy makers to continue to promote economic development in the future is very small.

  Dalio: There will not be another round of fiscal stimulus in the future.

Instead, the United States has begun to run a fiscal deficit and sell bonds in large quantities to the rest of the world.

I think this will be a challenge, because in the long run, it is a bearish for the US dollar-when selling bonds, it is actually selling a large amount of currency at a fairly long recovery.

There are many dollar-denominated debt in international portfolios, and they can be attractive by raising interest rates or lowering the value of currencies.

The United States will not raise interest rates because it will have a higher impact on economic growth.

As a result, the Federal Reserve will reach the expected large number of banknote printing, which will devalue the incremental value.

  ”Finance”: The drive to reduce dependence on the US dollar has always existed.

But if the exchange rate continues to depreciate, in the long run, does it mean that the US dollar will eventually lose its share of the reserve currency?

  Dalio: This is a dynamic process.

More changes may not really begin in the next five to ten years.

But there is no good dollar alternative currency in the world.

The RMB is at an early stage of its own development.

The RMB faces its own challenges: if it wants to become a truly influential currency, it must have an open capital market.

Both the euro and the yen have their own problems.

I think gold is a better asset class.

The dollar will weaken, but it will not lose part of its reserve currency.

The situation will slowly worsen, but it will not happen quickly.

  ”Finance”: Back to my question, will the US ‘long-term expansion remain at around 2%?

Research by the think tank Brookings shows that with a 2% expansion, it would take 35 years for the US economy to double in size.

  Dalio: The U.S. economy has structural challenges, partly related to debt, and partly related to its ability to deal with issues with determination.

For example, for public education involving most people, infrastructure issues face political challenges.The unresolved problems of pension debt and health care have caused the United States to continue to suffer a slow squeeze. Once this squeeze becomes larger, it will also pose a great challenge to the United States.

The continued deterioration of pensions and health care issues could also trigger the next recession.

  ”Finance”: When we look into the next two years, the probability of an economic recession is 50%. Will it be smaller in magnitude than the Great Recession of nine years ago?

  Dalio: Yes, I think the next recession will be smaller in magnitude, but it will become more difficult politically.

Some opposition is now emerging.

If the economy is sluggish, then the rivalry will intensify.

  ”Finance”: Counting from the moment he won the election, he seems to have brought a lot of boost to the US economy. Some people call it the substitution effect. Is this effect disappearing now?

  Dalio: If you mean “inherent effect”, it means that (the economy) will have a lasting vitality, and I believe we will not see this effect again.

The US economy has received some stimulus, with less regulation, and less regulation has stimulated the economy.

But this stimulus has costs and costs, and it harms the environment.

  The current political situation and financial situation allow for too much stimulus.

The Democrats hold the House of Representatives after the midterm elections.

Once won the Senate House and lost the House of Representatives.

The ballots are very close, and the situation between these ambivalences also shows that once the economy declines, it will even fall into many conflicts, and more conflicts will occur.

However, the huge fiscal deficit now prevents any stimulus from picking up.

In the future, the United States may face more effects of certain hangovers.

  The possible political misjudgments were previously misleading.

When pointing out the economy, it is generally expected.

But the economy is actually politically sensitive.

You can have a huge gap between the rich and the poor, you can have capitalism, but you can’t have both Finance and Economics for a long time: the Fed’s decision to start raising interest rates at the end of 2015 is considered to have directly and indirectly caused some voters toVote for consensus in 2016.

  Dalio: Those white middle classes who have suffered losses in manufacturing and middle school uneducated have formed the social foundation of American change and have become supporters of substitution.

This group of people accepted the view that “foreign competitors robbed them of their jobs”, so immigrants and foreigners became their targets of resentment.

At the same time, the situation of these families is deteriorating. Those who lost their jobs are addicted to opioids, and the slender families are having an impact.

The people in this group have been under pressure. They are the only people in the world whose mortality is rising due to opium and suicide. This group supports replacement.

Their numbers make them elected in key states.

  ”Finance”: This reminds me of a lot of discussions on “employment-free recovery” a few years ago, when some people thought it was a long-term problem for the US economy.

What do you think of this problem now?

  Dalio: The problem is the huge wealth gap.

For a variety of reasons, many people have left their positions and salaries for many existing jobs have been significantly different from before, which has led to a gap between the rich and the poor, but not obvious on average.

  Now that we have technology that replaces manpower, those who control it have a huge income, and those who are replaced can afford it poorly.

As a result, the difference in marginal profitability has widened to the maximum extent, because more distributions are converted into profits, and most of the distribution is used to pay for manpower.

This coincides with the purchase of assets by central banks such as pre-tax deductions and the Federal Reserve, which is a complex situation in the labor market.

  ”Finance”: Where is the way out for American manufacturing?

What does it mean for the future of American politics?

  Dalio: High-tech manufacturing will continue to improve.

Technology is constantly replacing people.

With the opening of the society and the integration of the world, the manufacturing industry has turned to countries where labor costs are replaced.

But more rapid changes occur when the truck loses to the machine, which is the pattern.

We will see an improvement in manufacturing, but it will not shift to an improvement in the income of the middle-class manufacturing population.

This means that the gap between rich and poor will continue to widen.  The question is is there a bright spot in this process?

These highlights are that we are doing some great things by learning these techniques.

Disruptive technology is more common than ever.

The application of big data, artificial intelligence and other technologies has greatly improved in many fields, and so on.

  The question is how to lead to broad inclusiveness.

This is the challenge.

There is a saying about capitalism that you can have a huge gap between the rich and the poor, you can have capitalism, but you cannot have both at the same time in the long run.

Capitalism must serve most people.

Capitalism is now facing challenges.

This is why populism is occurring around the world.

  Caijing: What is the solution?

  Dalio: I don’t think this issue has been given enough attention as a national priority.

I think it needs a bit of design, and now conflicts are holding back achievement.

  ”Finance”: You mentioned the specific groups just now, they have been hit harder during the Great Recession.

  Dalio: The living conditions of white people without college education are worse than those of any part of our population.

For the more traditional states, they don’t think Washington and elites and globalists have paid attention to them.

  If you look at the election map, you can see a lot of Republican red areas, and you can tell where the Democratic blue areas are.

Blue is in the center of the city, especially along the east and west coasts-here is where the vitality of the United States is, where profits are, and where globalists and elites gather.

The amazing thing about the 2016 election is that voters looking for similarities in the decline of manufacturing and the weak economy, their distinctive personality traits, they did not even appear in the polls, they did not answer the phone, they had a lot of hatredThey have different assessments from urban residents, this is a completely different group.

  ”Finance”: Why did misjudgments occur in large papers, experts and scholars, the media, etc.?

  Dalio: Usually misleading.

When pointing out the economy, it is generally expected.

But the economy is actually politically sensitive.

  ”Finance”: I don’t think you are optimistic about the future.

  Dalio: You’re right.

But no one can predict what will happen in the future, and there will always be changes.

I think history is like a swinging pendulum.

In the era of panoramas, this pendulum has been pushed to the extreme on accelerated advancement.

Then the pendulum swings in the opposite direction, but I don’t want this era of reconstruction to become an era of nationalism.

History also proves that this pendulum swing will bring disorder and pain, and we will see worse situations and chaos.

Unfortunately, the pendulum of history is swinging in the worse direction.
  The principles governing Sino-US relations all hope to become great again.

But the two ways to become great are very different.

This is a comparison of “bottom-up” and “top-down”.

You can say that it is a competition of different systems, but each should focus on the effectiveness of its system.

Every country should be committed to the system becoming effective and suitable for its national conditions. Finance and Economics: In a broad sense, you mentioned that the future development of Sino-US relations depends on whether it is a cooperative relationship or aAdversarial relationship.

Is the partnership between the two parties over now?

  Dalio: This is a delicate topic.

China and the United States have shifted from cooperative relations to confrontational relations.

The exchange of interests between the two sides has become a threat.Once you admit the competitive relationship between the two sides, you will find that many are related to global geopolitics.

  Caijing: Why does this change occur at this time?

  Dalio: The first reason is the recognized existence.

Anticipation is an integral part of the current situation.

He is a certain type of person with a unique personality.

He is a confrontational leader.

China’s development soon changed from a non-competitive situation to a competitive one. People did not expect that this change would be so fast and China would be so competitive.

China has become richer, stronger, and more competitive in many different areas-in some areas competing directly with the United States.

Of course, China is relatively slow in many aspects. Some of China’s opening to the world has not happened as expected, and its commitment to the World Trade Organization has responded more slowly, coupled with cyber security and other issues.

Together, these events have changed the direction of Sino-US relations.

  ”Finance”: If political leaders with different ideas emerge in the United States, will Sino-US relations return to the previous cooperative relationship?

  Dalio: I think everyone probably knows that the political situation in the United States will be very volatile, so I can’t expect what it will become.

You have to assume that the situation becomes more difficult.

This is particularly difficult for China, as both Democrats and Republicans have challenged China.

If the U.S. leader is replaced by Democrats, Democrats have traditionally pointed out confrontation with China.

It now looks unlikely that Sino-US relations will return to cooperative relations.

  Caijing: Your book Principles was released in China in the early days.

What principles apply to managing US-China relations?

  Dalio: This is the art of dealing with division.

I think there are two types of relationships.

One is a competitive relationship in which each other fully understands each other’s needs and fully negotiates so that each party can ultimately achieve its own needs.

When confrontational relationships arise, there are ways to bypass them. I call them “competitive but cooperative relationships.” The other is an adversarial or warlike relationship. In this relationship, each other can threaten each other.Hurt each other.

  In a competitive relationship, if the starting point is “how can I help you and give you some value”, and vice versa, the two sides exchange their respective needs, then it is a good relationship. Such a relationship makes you influential.
But once in the state of “I will hit you unless you do this,” it is itself a trade war, and the former is trade negotiations.

Trade negotiations and trade wars are very different.

  History has proven that when a rising power challenges a successful power, there are risks. In the foreseeable future, every country can cause harm in different ways, and this harm may eventually become uncontrollable.

This is a dangerous road.

  Caijing: If one country wants to make the United States great again and another country wants to achieve a great revival, how can they achieve cooperation?

  Dalio: Well, the replacement wants to be great.

But the two ways to become great are very different.
This is a comparison of “bottom-up” and “top-down”.
You can say that it is a competition of different systems, but each should focus on the effectiveness of its system.
Every country should rebuild the system to become effective and suitable for its own national conditions.

  Even if there is a competitive relationship between the two, competition has ways to make both parties profit.

This is definitely embedded in a destructive or constructive competitive relationship.

If managed properly, competition can be an effective way to make both parties better.
  Caijing: What advice do you have for Chinese policymakers?

  Dalio: Continue to dedicate the policy of becoming a great country.

  (The first issue here is the “Finance” magazine published on January 21, 2019)