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Thoughts on Dalio and Paradigm shifts

Dalio obviously has a track record of successful financial management.  But some of his views seem unsupported by facts and logic.

1.)  When people claim that QE pushed down interest rates with money printing I think prove they are not intelligent.  The facts are that TSY10 yields increased in each QE period and fell before and between QE periods.   When a person makes a claim that is contradicted by the facts they are not intelligent.   Period.    In science, a person who made such a claim, would be considered a moron.

2.)  The claim that CB actions exacerbate inequality is questionable.   See for instance the papers referenced in this article from The Economist: https://www.economist.com/finance-and-economics/2019/07/11/should-egalitarians-fear-low-interest-rates

3.)  Gold is a weak real asset.  The thermodynamic economic value of Gold is pretty low.  There are few technologies where Gold is important.  This could change of course.  Platinum on the other hand has major real economic value and this is likely to increase in the future.

4.) When someone says "because of the enormous amount of money that has been pumped into the hands of investors by central banks"  I think we can agree the author is an idiot.  To first order, the balance sheet of "investors" is unchanged by CB actions.  It changes the aggregate mix of assets held by the private sector but there is no "money pumping".

5.) There is no data to support the "Bonds are a claim on money and governments are likely to continue printing money to pay their debts with devalued money. " statement.   We haven't been able to keep inflation at the 2% target for a long time.  Where is the "devalued money"?

As a scientist, this article by Dalio would not even make it to peer-review stage.


#1- You are correct.   Had the Fed not purchased $4 Trillion in US Treasuries, investors would have gobbled up those bonds.    Their purchases forced $4 Trillion of investment capital into other asset classes like equities.  Many equity investors are now chasing riskier endeavors like private equity and venture capital.   Therefore QE didn’t suppress Treasury Yields, but it assisted in the compression of risk premiums.

#2 - In a deflationary spiral or depression, levered investors would see their wealth approach zero.  The “haves” would converge with the “have nots” in nominal terms.   In real terms, however, you might actually be correct.   The people with money would have a huge upper hand on the people with nothing.


This is essentially the argument for a credit-based monetary system and against a gold standard.   The credit-based monetary system & negative real interest rates provide an incentive to spend and a disincentive to save or hoard money.    Hoarding puts the people with no job and no money in a desperate position where they would be forced to work harder for less money.

If you believe that this credit-based monetary system is failing and losing credibility, then you would definitely not want to hoard cash.   You would want to hoard gold.    Which is real money.   This is how the wealthiest class of people will be able to protect its position during a transitionary period.    That is the point Dalio is making.   I happen to agree with that stance.




The ca. $3.5T purchased by the Fed is a tiny amount.   World financial assets are ca. $300T.  A change of ca. 1% in financial asset values is not going to have a measurable impact.   As noted the data show that Tsy10 yield increased over every QE period and declined before, between, and after, so there is no signal in the data to support Dalio or other people who claim QE lowered yields.  The facts are the opposite.

If you look at the long smooth curve of Tsy10 from 1987 (or even 1981) it's clear that this doesn't have anything to do with the Fed.  There has been a long, steady, decline in yield, corresponding to the long steady decline in inflation.  The Occams razor argument is over time the market has increasingly viewed low inflation as persistent and so yields have compressed.    There is no data over this long period which suggests the Fed has any impact on longer term securities.

The idea that Gold is real money is, as I pointed out, false.  A  real asset has an intrinsic economic value.  The real value of Gold is pretty small.  It's a metal with relatively low supply and low real economic value.   You can't eat Gold, just like you can't eat dollars.  It's use as a conductor is real but not that important anymore.  It's use as a base for SERS nano-particles (primarily used for currency labeling) is important but takes minuscule amounts of Gold.

Money is never real, whether dollars or Gold.  The value of money is what current and future real capital and labor it can be exchanged for.

Ray Dalio is worth $18.4B.   The median US household earns $60K/year (many of those are dual income households).    This means that Ray’s financial assets can currently be exchanged for well over 300,000 years of labor.

How does the general population feel about this?   How could things change in a way that would have a negative impact on the 300,000 years of labor that Ray is currently ‘entitled’ to?

What should he buy to hedge himself  against that potential loss of purchasing power?

Platinum is a great suggestion, as it is valuable, compact, useful, and storable.

For 40,000+ years humans have defaulted to Gold as the medium for exchange when all else fails.   Maybe this time it will be different.

You are very mislead if you think humans have defaulted to Gold as a medium of exchange for 40,000+ years.   Not just mislead, but not thinking clearly.  For most of history Gold had zero productive economic value.  For most people living in the world over the last 40,000+ years Golds value was derived from its impact on local status, through jewelry or ornamentation, and thus largely localized.  There is little evidence of Gold as a store of money anyplace before a couple thousand years ago and relatively minor at that.  In fact the use of Gold as money has a pretty limited and weak history, for reasons that are straightforward.

The US Dollar, and a good supply of Tsy securities, have led to a huge world expansion in people living above the local poverty level.  The world has never seen an entity with the "moneyness" of a US Dollar.  This derives from multiple factors, some of which we may be losing.

The current value of Gold is set by a positive first derivative function of irrationality.   That's not saying you can't make money trading the Gold market.  It's saying Gold has near zero value in a 10,000 yr portfolio.