Thursday, July 23, 2015

World's largest hedge fund manager, Ray Dalio, flips out after China's stock market gives back 22% of its 118% gain!

Ray Dalio, founder and manager of the gargantuan, $169 billion Bridgewater Associates hedge fund, is saying "there are no safe places to invest" in China after the market gave back 22% of its 118% gain.

“Our views about China have changed,” Bridgewater’s founder, Ray Dalio, told clients earlier this week, according to The Journal. “There are now no safe places to invest.” Read more.

Is it me or  are these guys really losing focus? Isn't this just a correction after a runnup like that?

Dalio, I believe, was also one of those hedge fund biggies who expected hyperinflation and a dollar collapse (and maybe even spiking rates) from quantitative easing. He wasn't a "John Paulson," i.e. I don't think he ran out and bought gold or at least I don't think he made gold his biggest position, but nonetheless he bought into the same wrong analysis.

Now he's bearish on China.

All these hedge fund guys really think alike. Their big beef with China is that they think there is a credit bubble and they think it's manipulated.

There is no credit bubble because the banks In China are fiscal agents of the government and lend in yuan. If they lose money it's the same as deficit spending. China cannot run out of yuan.

And of course it's manipulated. China will tell you that. Any good economy is manipulated to make markets work for the benefit of all. In the U.S. markets are only made to work for the benefit of a few, but they're all manipulated.

Guys like Dalio and Western economists and analysts just don't get it.


Matt Franko said...

"$169 billion"



Random said...

"(and maybe even spiking rates) from quantitative easing. "
QE and deficit spending flood the system with excess reserves that reduces interest rates. Deficit spending reduces interest rates! That's why bonds are sold to increase the interest rate.

Tom Hickey said...

This is unbelievable. Dalio prides himself on having a handle on the world economy and he's looking at an expected correction in an overheated equities markets as indicative of anything, especially when the known margin level was off the charts and there was probably much more in the shadows? He thought that was "safe"?

Actually, it was a lot safer than it could have been since the authorities stepped in to break the fall and manage the correction. This was the wise thing to do in an emerging market, where volatility is generally elevated over more mature markets.

John said...


According to Wikipedia, the investment management firm BlackRock has $4.77 trillion assets under management! Imagine the fallout if BlackRock repeated the fiasco that befell LTCM!!!

And the likes of Larry Fink at BlackRock are forever babbling on about US debt and all the rest of the austerian nonsense. Truly amazing that Dallio, Fink and all the rest of them can get so far knowing so little. Or is it as Mike says: they're good at raising money and making a fortune from fees but are bad investors.

Unknown said...

I remember last year (6/6/14)the Weekend WSJ did a piece on Ray Dalio, the richest person in Connecticut. He was bragging about his template, a 30 minute videoScribe on his Bridgewater website, that 'explains' the economy. I watched it, it's loaded with the usual 'the fed printing money' fear-mongering, the doomsday myths, and other assorted delusions that as Mike says, all western economists and analysts(and hedge fund 'stars' and bond 'kings')don't get.

Very liberating to know that an understanding of MMT has been nothing short of an economic enlightenment for me (thanx to Mike and all proponents of MMT).

Brian Romanchuk said...

The bulk of BlackRock's assets are index funds, I believe. You hope that they are not attempting to predict what is happening to the economy, as they would stop tracking their indices if they make directional bets. Therefore, they are not a good comparison to Bridgewater (Dalio's shop).

John said...

Brian, thanks for clearing that up, although I imagine there's nothing to stop them making directional bets. Supposing they wanted to make large speculative bets, what or who would constrain their actions? Presumably nothing and nobody.

I don't think I'm alone in being more than a little anxious at a private company with assets under management amounting to more than GDP in the UK or Germany, approximately equal to Japan's GDP and about a third the size of US GDP!

Index funds managed by BlackRock? I wonder what John Bogle makes of BlackRock?

I haven't looked into it, for the excellent reason that I am penniless, but why are people putting their money with BlackRock when there are much cheaper index funds?

Hey Brian, when is the release date book edition of your ebook out?

Brian Romanchuk said...

I could be wrong about how their assets are distributed, but I thought that they bought some other index fund providers.(They may be ETFs, which I lump under index funds.) The funds/ETFs are marketed under the original brands. From what I recall, I think they run some of the index ETF's I own. (How's that for careful due diligence on my part?) They do run actively managed portfolios, but those are relatively smaller (although big in absolute terms).

As for directional bets - they have investment guidelines that they have to stick within. They can take small positions, but they would be relatively small when compared to their overall exposures. If they violate those guidelines, they would be running afoul of securities law. Based on my experience with index funds, you only took risk in order to avoid losing money to people that are trying to anticipate what index funds are going to do. In other words, it was defensive, short-term technical trading,

In any event, it would raise eyebrows if they actually beat their benchmarks, they might actually lose their smarter customers.

As for my ebook - it's out. The links are plastered all over

John said...

"In any event, it would raise eyebrows if they actually beat their benchmarks, they might actually lose their smarter customers."

Aha! That would be the sure fire give away, and BlackRock are probably far more scared losing customers (which could in the right circumstances snowball into Bill Gross like outflows) than anything the financial authorities would chase them for. Thanks for explaining that.

I was unclear. I meant the physical book, not the ebook. I can't quite put my finger on it, but I just can't read ebooks. I've tried but it seems I'll always be a paper and ink kind of guy, something that will doom me to the trash can of history.

Hey Mike, Tom, Matt, Roger, Neil and the rest, come on and give us a review of Brian's book. 122 pages on government finance from a modern money perspective! What an amazing achievement. No one's done that, not even Wray or Mitchell, and certainly not the great Warren Mosler who has decided to further develop his arcane, minimalist finance-speak so that it is comprehensible only to himself. A review on this site would spread the much needed word for Brian's brilliant writing.

Brian Romanchuk said...

John - I have taken a couple vacations since the end of the school year, so I did not really tackle the print version. I am also trying to work on another shorter ebook. I will start looking at that shortly. I probably would want to time the release closer to September.

On my side, a delay is needed between the two versions. I will have to look at the layout in detail again, and I needed a break from looking at the text.