The Big Picture

10 Thursday AM Reads

My morning train WFH reads:

Software is Eating the Markets: Welcome to the Consumerization of Investing What happens when technology and finance start to blur, when technology alters finance and consumers play a larger role in shaping the markets? (Not Boring)
• The World’s Best Bureaucrat As Fed chair during the pandemic, Jerome Powell has done something almost unimaginable in Washington: a good job. (New York Magazine)
I Ran the Numbers Again. Stocks Are Not the Economy. Even when using an equal-weight measure for the S&P 500 and not adjusting for inflation, there is no correlation between the market and GDP. (Bloomberg)
Harley-Davidson unveils a gorgeous new electric bike called Serial 1 The motorcycle manufacturer is spinning out its e-bike division as a separate business (The Verge) see also Rad’s Bestselling E-Bike Disrupts America’s Pandemic Commute The Seattle-based company can’t keep up with demand. (Businessweek)
Promise of Private Debt Burns Bright—With a Big If How the burgeoning asset class plans to navigate the risky pandemic economy. (Chief Investment Officer)
China’s Inexorable Rise to Superpower Is History Repeating Itself  The country looks like a latecomer to Americans and other Westerners—but from its own perspective, this is a restoration. (Businessweek)
We’re all guinea pigs for Tesla’s R&D Tesla is beta-testing its latest self-driving technology with a small group of early adopters, a move that alarms experts and makes every road user — including other motorists, pedestrians and cyclists — unwitting subjects in its ongoing safety experiment. (Axios)
The Psychology of Fact-Checking: Fact-checkers aim to get closer to the truth, but their biases can shroud the very truth they seek (Scientific American)
India’s engineers have thrived in Silicon Valley. So has its caste system. Engineers and advocates of the lowest-ranked castes say that tech companies don’t understand caste bias and haven’t explicitly prohibited caste-based discrimination. (Washington Post)
How Do You Track a Murder Hornet? Very carefully. Getting to the nests is tricky: The best bet to find a nest is to let a wasp lead the way with the help of a so-called Judas insect that betrays the location of its kin. Use orange juice and rice wine as bait to capture a hornet, affix a miniature radio transmitter to its waist with dental floss. (Slate)

Be sure to check out our Masters in Business interview this weekend with Mario Giannini, CEO of private equity firm Hamilton Lane. One of the few publicly traded PE shops, the firm oversees more than $500 billion in privately invested assets.


S&P 500’s Past Four Years Signal Politics Only Go So Far

Source: Bloomberg Radio’s Dave Wilson


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Economics & Politics as a Lens on Markets


It’s that time in the electoral calendar cycle where the media turns aggressively towards the economic and political news as their default filter. I have had numerous conversations with folks at various media outlets, about pandemic, the economy, the election, and the markets — including what investors should do now. This isi a written version of various conversations I have had the past week:


Q: How should investors play the election?

BR: They should vote — that is it!

For our clients, with broad holdings across diverse asset classes, their portfolios are indifferent to the outcome of the election. The current “Risk On/Risk Off” binary approach is a risky speculation, not an investment. For typical investors with an investment portfolio and a 401(k)s, It is a pretty silly approach.

Now, if you run a hedge fund or trade specific stocks, the outcome will clearly have different impacts on different sectors. Anything related to alternative energy, low carbon, health care, hospitals and pharmaceuticals will be impacted. But be very careful of leaping to conclusions: Consider for example, Oil and Coal, both championed by President Trump. They have both done very poorly over the past four years. And Technology seems to be doing well, regardless of who has or will be been president.

Q: We see the rise in Covid cases over the weekend and Wall Street reacting to the downside. But you also have the death numbers, which we are still seeing but at a lower rate?

BR: First, try to avoid the narrative fallacy of putting a rational explanation onto the day-to-day randomness of market twists and turns. We are too easily fooled by our own hindsight bias. So my default position on yesterday or today or last week is that the market action is pretty meaningless.

As to Covid: The good news is mortality rates have been falling, as new protocols have been implemented. The medical community has put its hard won experience with the disease to work. (Also, as schools open, younger people are getting infected with higher frequency; they have the best survival rates of any demographic group).

The bad news is the second wave we have been warned about is ramping up. We have opened up more of the economy, but not well or intelligently. Look at how South Korea has handled it for a better example of a large advanced democracy managing it better. Or if you want something culturally/geographically more similar to us, then see Canada to our North — their mortality rate is half of ours in the US.  New Zealand may be small, but they have become the gold standard in how to respond to a pandemic.

As the weather gets colder, people will be are indoors more – and that seems to be a bad vector for transmission.

Q: Does the information about big pharma and potential vaccines still have the same impact?

BR: The change seems very reminiscent of the early days of the Iraq War. The first time a mosque was accidentally bombed or some other horrific war news of collateral damage was released, markets sold off hard in reaction. By the 6th time, traders had become mostly inured to the noise, and markets merely shrugged.

The latest data on the Covid19 vaccines is it won’t be like Measles, Polio, or Smallpox, which run close to a 100% effectiveness rate. Instead, the range is between 50% and 70%. But masks are 95%. The takeaway from that is vaccines won’t be a magic bullet. The combination of Masks and Vaccines will allow us to start getting back to normal. But I suspect we will be dealing with Coronavirus for the next 4-5 years.

I see two investing questions: First, how much of this is already baked into each sector? And second, what edge do you have in selecting any specific company as the Covid Vaccine winner? (I do not believe I posses any unique insight or special edge, so I steer clear of trying to guess which company will win the vaccine lottery).

Q: Then you also have the Presidential election and all of the tension being brought forward… It seems like Wall Street is starting to adjust for the potential of a Biden Presidency, which would most likely include higher taxes and a shift in the economy that we saw the last few years…

At risk of engaging in the sort of narrative fallacy I cautioned about above, let’s discuss three things investors really love: Low rates/low inflation (Monetary Stimulus), Tax Cuts, and Fiscal Stimulus. We already have low rates/ inflation, and a Blue Wave election will likely mean a LOT of fiscal stimulus. Investors will like that short term.

Taxes and Regulations are potentially long-term headwinds — higher corporate tax — 21% going up to 28%, possibly with a AMT rate of 19%. Individuals making more than $400k will see an increase, too. Still lower than prior positive eras for the markets like 1993-2000 or 2009-16.

Modest regulations like CAFE standards and undoing environmental deregulation (e.g., restricting chemical dumping) are not a worry; it is the more aggressive regulations that raise more concerns for some investors. The biggest concern among some traders and investors: a financial transaction tax. That would be potentially “very challenging” according to some; it could be a drag on long term market returns. Even worse, it is invisible to taxpayers, making the temptation to go back repeatedly a substantial risk factor.

Q: Does Wall Street think about the amount of debt that the country has accumulated, especially during this pandemic?

I have been hearing about he dangers of government debt my entire adult life, and at least so far, it has proven to be utter nonsense. It is cudgel used by those out of power to limit the influence those in power. If we have learned anything about Faux Deficit Hawks, it is they are intellectually dishonest and hypocritical frauds. During a recession or crisis, we should not care at all about deficits. Counter-cyclical deficit spending is fine, especially when paired with pro-cyclical deficit reduction.

Q: You mentioned recently on your website that 2 in 3 Europeans have a negative view of the U-S… what impact does that have on our economy?

Look at it in terms of international relations and economically: The impact is on foreign affairs is our diminishing ability to fashion a coalition to respond as a group to an outside threat. Post WW2, America was thew de facto leader of the free world, a bulwark against communist expansion, and a the shining example of the benefits of democracy. We seem to have lost our way in those areas; I am hoping that it is temporary.

Economically, we have an enormous tourist industry catering to overseas visitors; and our entertainment — music, tv, movies, theater, etc — is a global export. We don’t want to see those areas become less viable due to political backlash.


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10 Wednesday AM Reads

My mid-week morning train WFH reads:

As Trump warns of economic disaster, Wall Street grows giddy about Biden Traders in recent weeks have been piling into bets that a “blue wave” election, in which Democrats also seize the Senate, will produce an economy-juicing blast of fresh fiscal stimulus of $3 trillion+ that carries the U.S. past the coronavirus crisis into a more normal environment for markets. (Politico)
The Rust Belt boom that wasn’t: Heartland job growth lagged under Trump  While job and wage growth continued nationally under Trump, extending trends that took root under President Obama, the country’s economic weight also continued shifting south and west. Relative stagnation in economic and social conditions in the Midwest compared with states like Texas or Tennessee where “superstar” cities such as Dallas and Nashville enjoyed more of the spoils of a decade-long U.S. expansion. (Reuters)
Why You Shouldn’t Max Out Your 401(k) Regardless of whether you have a Roth 401(k) or a traditional 401(k), the benefits of contributing beyond the employer match are much smaller than you might have initially imagined. (Of Dollars And Data)
Covid condemns value investing to worst run in two centuries: Sought-after but expensive tech stocks have extended their lead during the pandemic (Financial Times)
Why the future of the office has been put on hold For those who have gone back to the office, not much has really changed (Vox)
How a New Wave of Innovators Is Redefining “Made in China” Made in China became seared into my psyche as a symbol of corruptness. The phrase meant something shoddily crafted, made by people who were mindless drones in a factory bent on gaining profit by cheating foreigners out of an extra cent or two. (Slate)
The messy politics of Nextdoor: Want to see how polarized America is? Look no further than Nextdoor. (Vox)
How ‘Big Is Bad’ Has Become a Big, Big Deal: A primer on legal scholars, such as Timothy Wu and Lina Khan, who supply the ideas for the new approach to anti-monopoly enforcement. (Bloomberg) see also An antitrust case against Google is a good thing, but Trump’s involvement is not Generals and demagogues alike know that the best way to unite people behind you is to identify a common enemy. Such as, for example, Google. (LA Times)
Inside the Mind of an Anti-vaxxer: The majority of Americans will need to take the coming COVID-19 vaccine. Here’s how to persuade those who won’t want to. (The Atlantic)
Kazakhstan, Reversing Itself, Embraces ‘Borat’ as Very Nice After banning the first Sacha Baron Cohen satire, the country has created tourism ads adopting its catchphrase. (New York Times)

Be sure to check out our Masters in Business interview this weekend with Ray Dalio, founder and Chairman of Bridgewater Associates, the world’s largest hedge fund. His latest book, The Changing World Order: Why Nations Succeed and Fail, will be published January 12, 2021.


The 50 Richest Americans Are Worth as Much as the Poorest 165 Million

Source: Bloomberg


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Ray Dalio on Falling Interest Rates and Rising Powers

What happens when increasing debt, expanding wealth gaps, and the rise of a great power combine to challenge the existing hegemony?

We discuss these issues with Ray Dalio, founder and Chairman of Bridgewater Associates, the world’s largest hedge fund. He has done a deep dive into the historical precedents for these issues. They provide insight into what is occurring in the present. The details are in his latest book, The Changing World Order: Why Nations Succeed and Fail, out on January 12, 2021.

We tend to misuse the term “unprecedented” for things that have not occurred in our lifetimes, but as Dalio explains, we should adopt a broader historical view. Many of what we believe to be unique events have occurred before: Money printing and monetization of debt, expanding wealth gaps, the rise of a great power to challenge the existing world order – all have historical parallels that provide insight into the present.

Dalio notes the effects on society, markets, politics, and the economy eventually reach a critical point. He suggests we may be nearing that juncture where the collective decisions made by central banks, governments and key institutions will have enormous ramifications for the future of the global economy.

A list of his favorite books are here; A transcript of our conversation is available here.

You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Overcast, Google, Bloomberg, Stitcher, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.

Be sure to check out our Masters in Business next week with Mario Giannini, CEO of private equity firm Hamilton Lane. One of the few publicly traded PE shops, the firm oversees more than $500 billion in privately invested assets.



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Peak Suburban House Prices?

Home Price Changes, U.S. Cities, 2000-2020
click for interactive graphic

Source: Visual Capitalist



I am a sucker for any sort of interactive graphic that can reveal insights that may not be obvious about broadly owned assets. Play with the Visual Capitalist graphic above for a few minutes and you will see exactly what I mean.

The torturous path of real estate prices in the US epitomizes this idea: House prices are driven by the complex combination of mortgage rates, wages, employment and your local economy. As those have fluctuated in response to both ordinary economic cycles and extraordinary crises, real estate has been on quite the rollercoaster this century as seen here.

The average U.S. home value in 2000 was $126,000. That figure has risen to a record high during the pandemic in 2020 of $259,000. That’s a robust 106% increase over two decades.

My friend and real estate rabbi Jonathan Miller observes: “The initial wave began with “panic buying” and a literal flight to safety. In New York City metro suburbs — Westchester, Fairfield and Nassau counties — bidding wars account for roughly 30% of the sales with listing inventory at or near record lows.” And I agree with his assessment of how we got here, but going forward is a bit of a jump ball.

My contrarian take: Mortgage Rates are as low as they have ever gotten; pandemic driven demand to move from tight apartments with shared lobbies and elevators in urban centers to more spacious suburban homes with yards is at its peak. Recent price gains puts houses in the upper range of affordability.

We may be approaching peak suburban home price soon . . .


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10 Tuesday AM Reads

My Two-for-Tuesday morning train WFH reads:

People Fear a Market Crash More Than They Have in Years Stocks could well rise despite investor worries, the economist Robert Shiller says, but this is a high-risk moment. (New York Times) see also Hedge Fund Giants Lose Their Appeal as Havens in Global Turmoil Largest funds control 90% of industry assets; many are in red; Multi-strategy and some macro funds are exceptions this year (Bloomberg)
Galleries Are Shuttering But the Digital Art Market Is Hot Interest in art is surging as investors look to diversify away from stocks and bonds. (RIA Intel)
Does The Price of Oil Even Matter Anymore? Of all the strange things that have occurred in the markets this year, it feels like the price of oil going to negative $37/barrel is one of the strangest. (A Wealth of Common Sense) see also Energy Fades Into Irrelevance for S&P 500 as Weight Falls: Energy group weight fell to 1.96% of the index — the lowest for oil and gas stocks since at least 1989. (The One Dave)
Exclusive Forbes Survey Of U.S. Billionaires On How They Will Vote For President The nation’s wealthiest are more likely to be Republican than the average American—but just about as likely to be voting for Biden. (Forbes)
You Still Have Time To Hit 401(k) Contribution Limits For 2020 You still have time to take advantage of 2020s higher 401(k) contribution limits. But you’d better hurry. (Investor’s Business Daily) see also  Retire a millionaire: Get the most out of your 401(k) with these strategies Who wants to retire a millionaire? Many of us do, and a 401(k) could be your ticket to achieving that goal – that is, if you manage yours the right way. (USA Today)
The Talk of Montauk: New York State’s Tenant Safe Harbor Act was intended to help those affected by the pandemic. But what if that harbor is on the fancier side? (New York Times)
Coal’s Last Stand Don’t blame liberals and regulations; blame capitalism and technology. (The Big Picture) see also What Caused the Demise of the US Coal Industry? Regulation is often blamed for the industry’s woes. There’s more to it than that. (The Big Picture)
Twitter, Responsibility, and Accountability Last week’s decision by Facebook and Twitter to slow and ban respectively a sketchy story about Vice-President Joe Biden’s son Hunter cannot be understood without looking back to 2016. (Stratechery)
Space Garbage Solutions Could Help Fix Earth’s Plastic Problem Space agencies have had some success managing the growing amount of satellite waste (Bloomberg) see also Space debris by the numbers The latest figures related to space debris, provided by ESA’s Space Debris Office at ESOC, Darmstadt, Germany. (European Space Agency)
Why Bugs Ruin Everything The Earth is almost the best planet ever. It’s stunningly gorgeous, optimally located in space, and it’s perfectly suited for its magnificent array of flora and fauna to live and thrive. Almost the best planet ever. Unfortunately, you can’t be the best planet ever when your clearest defining characteristic is a revolting worldwide bug infestation. (Wait But Why)

Be sure to check out our Masters in Business interview this weekend with Ray Dalio, founder and Chairman of Bridgewater Associates, the world’s largest hedge fund. His latest book, The Changing World Order: Why Nations Succeed and Fail, will be published January 12, 2021.


The Third Wave of COVID-19 in the U.S. Is Officially Worse Than the First Two

Source: Time


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Why Most SPACs Suck

Mediocre SPAC Returns Shouldn’t Be a Surprise
The latest Wall Street craze puts Sturgeon’s Law to the test.
Bloomberg, October 22, 2020



There has been increasing focus on the poor performance of a newly popular Wall Street product called special-purpose acquisition vehicles, or SPACs. My Bloomberg Opinion colleague Nir Kaissar dived into the debate recently, citing research showing the returns of most SPACs are subpar. But here’s a dirty little secret: Most investment products are at best mediocre. They tend to be expensive and underperform versus a simple passive index. And yet, this truism has somehow become controversial.

The vast majority of “products” that can be stuck in a portfolio are mostly not worth the cost relative to the performance they provide.1 Main Street investors have come to this realization, as evidenced by money flows since the financial crisis, with cash moving away from expensive, complicated, under-performing products toward inexpensive, simple, market-performing ones.

It used to be difficult to discern how expensive and underperforming most products2 were. Finance was opaque, with full costs usually hidden from view. Information asymmetry, combined with a – mostly – rising stock market, effectively hid this fact from investors until the scandals and crises of the first decade of this century caused many investors to rethink their approach.

The investing world is as much a victim of Sturgeon’s Law as anything else. Dating back to 1953, this maxim was coined by the science fiction writer Theodore Sturgeon, who, in response to a critique of his genre made the insightful observation that “90 percent of everything is crap.”  The simple reality is that most human attempts at creation fail, many quite spectacularly.3 This not as a curmudgeonly observation, but rather, the joyful celebration of how rare true success is.



The key reason for this is that survivorship bias colors everything. Investors first learned of this through overstated mutual fund returns. Once we account for the funds that were closed (or otherwise removed from the dataset), much of the mutual fund investment outperformance disappeared. The same is true for collectible artwork, fine wine, automobiles, or other alternative asset classes.

The successful products we encounter every day are the result of initial failure. While positive outcomes are all around us, hidden from view is the iterative process of repeated failed attempts that lead to improvement. The world is filled with fantastic products from wildly successful companies, making it easy to overlook the many small gains and occasional big breakthroughs that helped them achieve this success.

This oversight skews our mental models of the universe. The hidden iterative process contributes to our assumptions that what we see is all there is. Hence, the well-established bias towards optimism that can lead to overconfidence. We tend naively believe it is cheaper, easier and less time-consuming to create successful things than it actually is.

Failure is a wonderful teacher. Consider how deeply embedded the study of failure is in the aviation industry, and its continuously improved safety record as a result. The counterpart is how health care is practiced in the U.S., with preventable medical errors being the third largest cause of deaths in America. The study of failure is how “bad” gets replaced with “not bad,” and how “not bad” becomes “excellent.”

The flip side of survivorship bias is that success proves to be a far greater rarity than we realize. Our mental models of the universe are unusually bad at understanding these probabilities. We tend to think in terms of anecdotes rather than statistics. Memorable narratives have far more resonance than dry, boring data. There are a great many more stories about how an executive or product or company succeeded in the marketplace than there are about the countless failures whose fate was to be unceremoniously discarded.

Consider how survivorship bias applies to hedge funds. Short-seller Jim Chanos observed that when he launched Kynikos Associates in the 1980s, there were “100 hedge funds, and 30 of them created alpha.” Today, there are more than 11,000 hedge funds, but according to Chanos, “it’s the same 30 generating most of the alpha.”

The exchange-traded fund is perhaps the most successful financial product of the past 25 years. It was a significant improvement on the mutual fund, which dates back to the 18th century. ETFs eliminated the phantom capital gains tax of mutual funds, while providing intraday liquidity. But mutual funds were a liquid, transparent improvement on blind trusts or investment pools, which date back to Roman grain futures markets.

Since the Dutch East India Company went public in 1602, initial public offerings have followed a similar evolution. The most recent attempts at improving the traditional method of going public include reverse mergers, direct listings and the blank check companies we now call SPACs.

You can give credit – or blame – for the recent enthusiasm for SPACs to one person: Martin Franklin. He has been finding and merging companies using this vehicle since the mid-1990s, He has an outstanding track record, with several deals generating returns of 1,000% and even 5,000%. Imitators have tried to emulate his returns, without much success.

Of course, those imitators have caused the average SPAC to be mediocre, its performance not worth an investors’ money. The simple probabilistic truth of the bell curve explains why this is always so. Ted Sturgeon was a brilliant and award-winning science fiction writer. He would have made an insightful investor as well.


The Hidden World of Failure (October 23, 2020)

90% of Everything is Crap (July 25, 2013)



1. That most products disappoint is not a brilliant new insight. It is mostly understood among the investor class. Out are expensive mutual funds, and in are cheaper ETFs. Active strategies have seen outflows and towards passive. With a few notable exceptions, “2 & 20” hedge fund fees are no more.

2. It is not just products. The data show traditional mutual fund managers mostly underperform, as do the vast majority of hedge funds. Of the best known venture capital funds, most have seen their best days. All of this is consistent with how individual stocks perform, in that most them are losers, and long-term gains come from a mere 1.3% of public companies.

3. This is more than mere anecdote.Today, we quantify more than the revenue a product generates. We can objectively determine its quality rankings, how long it lasts, what sort of warranty repairs it needs and how many defects show up post purchase. User reviews, satisfaction surveys and recommendations have become important in the internet era for this reason.




I originally published this at Bloomberg, October 22, 2020. All of my Bloomberg columns can be found here and here


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10 Monday AM Reads

My back to work morning train WFH reads:

‘Our Recent Performance Sucks.’ Here’s Your $10 Billion Back. A value investor who used to have a great record just called it quits. Maybe that means bargain hunting for stocks is about to make a comeback—but don’t hold your breath. (Wall Street Journal)
Will Avoiding Lattes Make Me Rich? $78 invested each month over 40 years, grown at a rate of 6% a year, could grow to $156,000. And that’s something your future self will definitely thank you for. (Morningstar) but see Buy Yourself a F*^king Latte If spending $5 a day on fancy coffee puts your retirement at risk, you’ve got bigger problems. (TBP)
Renewable Energy and the Fallacy of the Red/Blue Divide: In July 2020, three Republican states (TX, OK, IA) generated more wind & solar electricity generation on a trailing-12-month basis than all 20 Democratic states, plus Washington, D.C. combined (Unhedged)
How the Trade War Was Lost: Cut the US trade deficit? It’s reached historic highs. China to buy more American products?  That hasn’t happened much. Progress on big structural issues that American companies care most about? Its failed (CNN)
What Brexit will do to the City of London: The damage will be noticeable but not disastrous (Economist)
U.S. Businesses Say One Thing on Climate Change, But Their Campaign Giving Says Another For every dollar these corporations gave to one of the most climate-friendly members of Congress during this election cycle, they gave $1.84—nearly twice as much—to an ardent obstructionist of proactive climate policy. (Bloomberg)
Area 51 Has A Huge New Hangar Facility That Points To A Drone Swarm Future The Air Force is accelerating its advanced combat drone development efforts and the facility’s unique attributes seem perfect for supporting them. (The Drive)
The Simpleton Manifesto: Presidents and Radical activists all say it: “The answer is simple!” They are wrong. (Persuasion)
How trolltrace became a real thing Every day it becomes harder to tell the difference between a conventional troll and a weaponised troll. In a case of life imitating parody, fans of South Park highlight that the Trolltrace subplot in 2016 predicted much of this. (FT Alphaville)
12 Cyber Threats That Could Wreak Havoc on the Election From targeted misinformation to manipulated data, these are the cybersecurity concerns election officials worry about most. (Wired)

Be sure to check out our Masters in Business interview this weekend with Ray Dalio, founder and Chairman of Bridgewater Associates, the world’s largest hedge fund. His latest book, The Changing World Order: Why Nations Succeed and Fail, will be published January 12, 2021.


Trump has shifted the country to the left — or at least away from his own views

Source: Washington Post


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Transcript: Ray Dalio



The transcript from this week’s, MiB: Ray Dalio, Bridgewater Associates, is below.

You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Overcast, Google, Bloomberg, Stitcher, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.


VOICE-OVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ: This week on the podcast I have an extra special guest and yes, this week’s extra special guest is extra, extra special. His name is Ray Dalio and he is the founder of Bridgewater Associates. Ray is a fascinating guy we’ve had him on the show a couple of times, one for “Principles,” the second for “Big Debt Crises,” both of the books he’s written previously, as well as Ray did the initial Masters in Business Live,, which we would be doing, but for the pandemic and lockdown we would have continued that into this year.

This is really quite an intriguing conversation. Ray has done a deep dive into the history of the rise and fall of currencies, of great powers, of debt. He really brings an analytical approach, not just the global macro and investing, but how to think about the world, how to think about the variables that we deal with.

I am completely tickled by the idea of Ray at home in Connecticut with the ability to pretty much get whoever he wants on the phone and basically having a podcast of just him and somebody else because he’s interested in a particular subject matter such as currencies or pandemics, or monetary history. And when you’re Ray Dalio, you could pick up the phone and get whoever you want on the other end to basically give you a crash course in that area.

And he’s endlessly curious. He’s one of these people whose intellect is always hungry for figuring out what happens. I’m fascinated by the way he views the world and the economy as this big mechanical contraption that you can understand if only you take the time and effort to dive into it. And pretty much that’s what he’s done, and I find him to be just a really fascinating guy to talk to. I think you’ll find this to be an intriguing conversation.

So with no further ado, my interview with Bridgewater Associates’ Ray Dalio.

VOICE-OVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ: My extra special guest this week is Ray Dalio. He is the founder of the world’s largest hedge fund, Bridgewater. Bridgewater has generated the most amount of profits for its clients of any hedge fund in history. He is the author of several books, including “Principles: Life and Work,” “Big Debt Crises,” and the upcoming, “The Changing World Order: Why Nations Succeed and Fail.” That will be out January 12, 20201.

Ray Dalio, welcome back to Masters in Business.

DALIO: Thank you, Barry. Glad to be here.

RITHOLTZ: Well, I’m glad to have this opportunity to have a conversation with you. I know that you’re a student of history and market cycles, and you’re a big macro guy looking at the world from a — a 30,000-foot perspective. I wanted to talk to you about really what is going on in — in what can only be described as a fairly unique moment in history.

DALIO: Well, it is and it isn’t. You know, the one thing that I learned about early on, particularly, when the dollar in 1971 was broken from gold is that many things that surprised me had never happened in my lifetime before, but they happened many times in history before. And the three things that are happening now that are the big backdrop situation before we had the COVID are first, the death cycle monetary creation of debt and monetizing of debt. The last time that happened was in 1933 when interest rates hit zero, and central banks printed a lot of money, and so on. And that’s a big factor because we’re dealing with the question of the value of money and how that happened, so that’s number one.

The second is the large wealth and political and social gaps that are causing us to be at each other’s throats and also giving very different choices in terms of the left and the right and capitalism and socialism. And the third is the rise of a great power to a challenge — the existing great power — the rise of China to challenge the United States in many areas. And we’re seeing that.

And one has to go back to the 1930 to ‘45 period to look at it. And then when I felt that I needed to understand it better, I went back 500 years because I needed — you know, these cycles, they go on like 100 years. And in order to follow a world order, a rise and a decline of empires and all of those things, one has to go back a number of cycles, so that’s what I did. So we have those as the backdrop.

And then we had COVID. And COVID is the stress test. And the world had COVID and the stress test, and that’s the moments were in. So when we look at today, we have to see it in that — in that light because when we think about where do we get money from, the creation of debt and the printing of money, and where do we get the support when we’re talking about the next bill that might or might not best next (inaudible). It has big implications to the economy, to the markets and so on. And so that’s the setting.

RITHOLTZ: All right. So working within those three big frameworks, let’s start out talking about monetizing debt. So normally, Congress can’t agree on renaming a library. But back at the end of the first quarter, in the midst of the panic, they passed a $3 trillion — trillion with a T — $3 trillion CARES Act, the giant stimulus plan. Was that the right call back then? And what was its impact on the national economy?

DALIO: It was — it was a necessary call, but it’s a reflection of where we are in the cycle, and so it has consequences. It’s a necessary call because if you don’t give money to those that they gave money to — money and credit — we would have had an implosion and we would have probably had a great deal of social problems. But it’s not real money in the sense that the real money would have required taxation or it would have required cutting spending.

Aand so the easiest way to give money — throughout history we’ve seen this — the easiest way to — is to create government debt and have the central bank purchase that government debt, and — and — and provide other loans because it’s not taking money away from anybody and it’s not cutting spending both of which are intolerable. And that move is very much analogous what happened on April 9th — that was the announcement — to the same thing that happened on March 5, 1933. Except then we had an exchange rate, which was tied to the dollar, but they are tied to gold, but they need to — to sever that tie in order to do the same type of policies.

And if you look throughout history, that’s what happened. And then that’s what makes the market go up, OK, the value of money because all investments compete with each other. And so that brought down nominal and real interest rates.

We can talk about multiple — stock multiples and bond multiples, I think, might help to convey the concept. But the decline in real interest rates and the decline in nominal interest rates pushes asset prices higher in and of itself. And the putting of money into loans for companies and so on, they — they drew the line at investment grade, and those that were the fallen angels just past that and — and they would buy those things. Those guarantees or even knowing that those purchases would take place created the financial support.

So we saw an expansion in multiples. When we think of multiples, you know, we — we think of multiples that stocks and bonds compete with each other. But when we look at stocks, we think of multiples — multiple times earnings. And when we look at bonds, we think of yields, and they’re just the inverse of each other. So one could say, you know, what is the multiple on a bond.

And the multiple on a bond now with interest rates being close to zero, low with the United States and below zero in Europe and Japan, is a very high multiple, almost an — you know, an infinite multiple, more than 100 times. And because stocks and bonds compete on yield basis, that also drove up the yield. And so you’re seeing the movement of money out of cash and bonds and moving to asset class. And that has been the main driver.

And it’s been a world phenomenon because the Europeans have done an analogous version of that — the Japanese have — because there is a — a void. The void is for every individual or company or country, there’s a certain amount of revenue that comes, a certain amount of expenses and a certain balance sheet. And if your income is less than your expenses and you don’t have a good balance sheet, and you owe a lot of money, you’re going to have a bankruptcy. You’re going to have a problem unless you get that. And so it was necessary. And — but it changes the value of money.

RITHOLTZ: So let’s talk a little bit about the value of money. Let’s discuss a little bit about America’s exorbitant privilege. We own the reserve currency of the world. What does all this continuing debt modernization mean to the U.S. maintaining that reserve currency status? And what might it look like if the U.S. would’ve lose that reserve currency status?

DALIO: Well, as you point out, that is the greatest power because the United States as a whole, which is just the aggregate of the individuals is buying more from the rest of the world, spending more than it is selling to the rest of the world. We just had another large trade deficit number. And it is doing that by selling credit, by selling our bonds. And so when we look at that dynamic, there’s a certain amount of bonds out there.

And the world always wants to hold a reserve currency because that’s what you save in. If — if you want to save in something, you’re — you know, you’re not going to save — you are saving the world’s reserve currency. And that has been the exorbitant privilege.

However, what were — two things are happening that are threatening that. A bond is a currency or a currency is a bond. What I mean by that is when you own a bond, that is a promise to receive currency. And that when you have a central bank that can print currency without a boundary, that means you have to sell a lot of bonds. So when we run large deficits and we will in the future, no matter who the president is, we will run large deficits. We will have to sell bonds to the rest of the world.

And if you look at the owners of those bonds and, most importantly, I would say it’s a combination of central banks, sovereign wealth funds and, of course, some other investors, but they are overweight in bonds. And they’re going to have to buy more U.S. bonds than they had to buy. And that’s coming at a time when the rewards of those bonds are bad. In other words, there’s now a negative real interest rate of about one percent and no nominal interest rate. And it’s coming at the time when there were large production of debt and large monetization.

So we are testing the limits of how we can — how far we can go in a fiat monetary system, and nobody knows exactly. Over the short run, let’s say over the next year or two and so on, we know that everybody wants buying power and dollars are something that’s received all around the world and you create a squeeze in those, and there’s also a lot of dollar-denominated debt that has to be paid, and that’s supporting because they need dollars to pay those debts. That’s a support. But those supports are — are — are failing, will — will diminish with time. And so we are testing the limits.

Now you asked what would happen. What would happen would be if you don’t own bonds and that’s not only Americans, but foreigners because they might say — pension funds might say bonds don’t do me very much good. And if — and if you started to see their interest rates rise at all, then you’d see bond prices go down and you’d see stock prices go down, which would be intolerable. So if you have that movement, that would require the Federal Reserve to then buy more to fill in that gap, which would be monetization, and that could create a spiral.

But the answer to your question of what would happen is that you would have to then pay your — you have to cut your buying to exceed your earning. You’d have to go to surpluses to pay down your debt or you at least have to go to balances. That would require — that would be tough. And it would also mean that you would have a depreciation in the — in the value of the dollar, which is changes America’s purchasing power in the world.

So when you look at history — you’ve seen throughout history, I’ve gone back a number of years and, by the way, if everybody wants — I wrote this up on LinkedIn, “Changing World Order,” you can see 700 cases of different currencies and the value in current season what — what triggers them. But all currencies, at one time or another, have been devalued or destroyed. And — and so that’s — that is a risk that one has to watch very closely.

RITHOLTZ: So, Ray, let me refer back to something you said earlier. You mentioned in 1933 the government did a lot of fiscal stimulus. They — they basically issued a lot of bonds, of which the Federal Reserve ended up using as a basis for lending. Basically, the Fed was funding the government. That — that sounds an awful lot like modern monetary theory. Is MMT not all that modern?

DALIO: That’s — that’s right. MMT is a version of what I call Monetary Policy 3. So what I mean is Monetary Policy 1 is interest rate policy — cost of funds.

When interest rates hit zero and you can’t use that policy anymore, you go to Monetary Policy 2. Monetary Policy 2 means the central bank essentially prints money and buys financial assets. That causes financial asset prices to go up, but it doesn’t trickle down very much. It widens the wealth gap and it doesn’t get it into the hands of those who need it. It gets it into those who have financial assets. Monetary policy three is when there is a need to get it into specific cans. And the federal government — the central government is the only one who can direct where it goes. So a lot of the spending that we’ve seen in terms of its direction require the Federal Reserve to require the government to borrow the money that Federal Reserve lent the money. And that, as a result, got it to go into the hands of those who needed it the most. And that’s Monetary Policy 3.

So I would say I think you should focus on Monetary Policy 3 rather than the more narrow definition of modern monetary theory because it’s the — but it’s — it’s basically that we are now in a government-controlled capital markets. So the government will allocate resources through fiscal policy that will be monetized, and so it’s going to be a much more government-controlled fiscal and monetary-coordinated monetary policy. And that will affect all the markets. It will affect us in many, many ways.

RITHOLTZ: Let’s talk a little bit about what’s going on with wealth and income inequality. A number of people have made the case that the mostly monetary response to the great financial crisis without a whole lot of accompanying fiscal response led to a lot of widening income and wealth inequality. What’s your view on that, Ray?

DALIO: Well, it’s — it’s certainly true, although the ingredients of the widening wealth gap were on, you know, a number of ingredients. And I — we should talk about the — the widening wealth gap. But yes, the purchases of financial assets helps those who have financial assets more than it helps those who don’t have financial assets. And what we saw, of course, is those purchases cause financial asset prices to rise up and didn’t trickle down in the same way to others, and so it widened it.

Other factors …

RITHOLTZ: Let me — let me interrupt you there for a sec, Ray, and I want to just put some meat on the bones. So about half of Americans don’t own any stocks, and of the Americans that do own stocks, about half of those equities are owned by the top 10 percent of — of the country economically. So when you say stimulus of financial assets doesn’t trickle down, I’m assuming that’s more or less what you’re referring to?

DALIO: Yes, you’ve said it very well. And for a variety of reasons it’s a self-perpetuating cycle because as you have more assets like right now in terms of wealth, the top one tenth of one percent of the population has slightly more than the bottom 90 percent combined in wealth.


DALIO: And when wealth is those assets — those financial assets that the central bank buys, that perpetuates the cycle, and there are other things that relate to that. For example, I — I did a — a breakdown of the economy and the financial positions by quintile, by 20 percent. And I really wanted to look at the bottom 60 percent in relationship to the top 40 percent to see these different economies.

And what I saw, for example, is that on education, those in the top 40 percent on average spend about five times as much money on the children’s education than those in the bottom 60 percent. And it’s a natural cycle that you — you know, when you — we all want to take care of our kids, we want to educate them well and so on, but we see it. I see it here in Connecticut, which has a large wealth gap — we can get into that — but I mean, a total absence of resources and it’s become self-perpetuating because it then becomes better educated people then earn more money and so on.

And that’s becoming more and more true also as technology is playing a greater role. Because as technology is replacing people, including now more and more elements of thinking, you are getting into an environment of those who are designers of the technology and so on doing better and better because it is the process of capitalism to do things most efficiently in pursuit of the profit that then leads to those changes, which means rely less on people, rely more on machines.

So there’s a monetary component to that. There is a technology component to that widening (inaudible). And then, of course, there’s also globalization. It’s more efficient to the whole to have globalization to produce things in where they’re most efficient, of course. And — but what you see is, within countries, you have a widening wealth gap, but between countries, you have a narrowing wealth gap. In other words, those who are less lower income, they learn more and they rose. And so if you happen to be in the country that’s rising less quickly and you happen to be on the bottom end of that, that globalization hurts you in incomes, too.

And so those three things have produced the disparity that we see. And at the same time, that is what has led to the political consequences that we’re experiencing. In other words, the rise in populism across the world but, of course, it would come in the United States, particularly, because of the disparity.

RITHOLTZ: So let’s get into that a little bit. You’ve written about the hollowing out of cities and regions and, indeed, society as a whole. How is that manifesting itself? And what can we, as a nation, do about it?

DALIO: Well, again, I’m describing the mechanics of this. I’m not ideological, I’m just mechanical. There’s a formula — simple formula.

If you have a lot of debt and you have a big wealth gap, and you have an economic downturn, you have a fight over how to divide the pie. That can be dealt with either through printing money or you have to deal with it with — if you don’t print the money to finance the deficits the way we’re talking about, then you have to either raise taxes or cut spending.

Now in states, they don’t get to print money. I mean, the main difference between the federal government and the state governments has to do with this printing of money and monetizing debt thing. So if you’re in a state like Connecticut, New Jersey, Illinois and so on that has large debts, a large wealth gap and, you know, experiences of downturn, then you create a dynamic where either raising taxes or cutting spending makes the place more difficult to be in. Those with income don’t want to experience the tax increases. And when you cut expenses, those expenses are for the — the people who are really the poor people in those states are intolerable.

And so — and they also reduce services and so it makes it a less hospitable place to be. So you’ve seen that hollowing out dynamic like happen in places like Detroit or the Rust Belt places and so on where does move — they moved from one place to another place that’s more hospitable for them, and when they move, those who moved and have the higher income, they bring their taxation — their tax monies with them and it begins a self-perpetuating cycle because then services go down, it becomes a more antagonistic item environment, which creates a motivation.

So I think that when we’re looking ahead, this is going to be — this is going to be a big issue after the election, how those states are going to be dealt with and those deficits.

RITHOLTZ: Quite interesting. I know a number of people have proposed various cures for this. One concept is baby bonds. Everybody gets a small set of bonds at birth or, theoretically, a small account, which could compound over time. I know you’ve studied universal basic income. I was kind of surprised to see what you learned. Tell us a little bit about that.

DALIO: Well, first of all, I think that the basic necessities of educating children well must be done. It’s inexcusable. It’s a great it’s cost to our country and it’s the most unfair not to educate children in some analogous way.

I think the basics of what is needed, also basic health care, basic — certain basics, I was lucky to have a — you know, two parents have cared for me. I went to a public school, and I came out to a world of equal opportunity. And that’s all that anybody needs, but they need those things. And then the question is how to best get that.

They also have to be productive because you can’t just give income. Money has no intrinsic value. And so if you keep giving income and money to people, and you don’t make them be productive, that’s not going to work. What you eat and what you consume is going to be based on what you produce. So you have to make people productive and so on.

So now you deal with the question of how would you bring that about, how would you engineer for that, and what is the role of universal basic income, which has pros and cons? But let’s say, you can’t just — you can’t do everything. So if you go to universal basic income, which can be very expensive, it has the benefits of being efficient. If a parent handles that money well and has the greatest notion of how to best use that money well, you know, that could be very good. You don’t have a bureaucracy to administer it and so on, and that’s the problem.

However, the usage may vary. You know, you put money in the hands of some people, and — and that money may not go to the best uses for their children and — and beyond. And so when you think about does it go at the expense of, let’s say, certain education programs.

I’ll give you an example. In Connecticut, where the wealth gap is large and we’re intimately involved, 22 percent of the high school students — one in five, in other words — are disengaged or disconnected. Disengaged means when they’re attending school they have an absentee rate of 25 percent or more and they’re failing classes. That’s disengaged.

Disconnected means they don’t come to school anymore and they don’t know where they are — 22 percent, one in five. And if you look at the finances of that and how you could change that, they end up in detriments to the society because they — they’re in — at the cost of incarceration. All these things are terrible. So there has to be the — that usage.

And money, I — I would say through our philanthropic efforts, we get windows into some of these things. And they’re so cost-effective to use the money right in programs.

So the question is do you want to — do you want to give checks or do you want to give programs because you can’t do both? And so that’s the real question, I think. I don’t think there’s a question of the need to do take care of children well and educate them well, and — and those types of things even there. You know, so anyway, it’s a priority question.

RITHOLTZ: So we’re going to talk more about your philanthropy a little later, but I just have to ask a very basic question about the role of government. What should Americans expect from their state, and local, and federal governments? What level of service is reasonable in a modern, somewhat civilized society?

DALIO: Well, there are two ways I could answer that question, what a modern civilized society should provide and what you can expect given the structure. There are two different things. I — I think everybody should expect that the — the basics of that I — I dealt with before that I experienced when I was growing up. I was born in 1949 and I went to — and there was the American dream and we are all in it together. And I — well, that was great. I went to a public high school — a public school all through my life, and I have parents who took care of me.

And that — and — and if they have health care — basic health care and so on, that’s pretty much — and then you come out, have an equal opportunity. Everything has shown that that is — that should be expected, that it is if you don’t do that it’s not fair and it’s not productive because you cut off large percentage of the populations of people who could be productive. As you narrow that group that has opportunities, you exclude those who might be the most creative and capable people. And so you suffer in both of those ways. So I would think that basic civility and basic necessity would require those things.

Then when you asked what can you expect, somebody can’t just demand something, we have to understand how the system works and the system works mechanistically. So, you know, let’s say you’re in a state and so you’re going to get money from taxation. Where’s the money come from? You’re going to have taxation and you don’t have enough money literally, and so you can’t just say I’m in the state and I’m expecting it.

You have almost a constitutional challenge to provide that money because, let’s say, it’s education money. For example, by the constitution, education is a state issue. Like in the state of Connecticut, about eight percent of the money comes from the federal government and the rest comes from within the state. And so if — if taxpayers move and states operate that way, you can sit there all you want and say I need these basics, and — and you — and you won’t get those.

And one of the big things is that people actually really don’t have much contact or knowledge of what it’s like to be in each other’s shoes. I live in Greenwich, Connecticut, and — and up the road, you know, it could be 15, 20 minutes away is another world. And I wouldn’t have the exposure to this if it wasn’t for my wife kind of living in that world to be helping — helping this and so on. And I can understand it as — as I walked down Greenwich Avenue and — and so on.

We’re — you know, these are normal people who want to take care of their families and they have that. And the awareness and the — and the acting on that awareness, you know, is a structural — is a structural problem because at the end of the day, you know, everybody is trying to do the best they can, and if so it’s as problem. So those things, what are you going to do? You’re going to say we expected, but it’s sure that (inaudible) case to me that you need to provide those basics.

RITHOLTZ: Makes sense to me. Let’s talk a little bit about some of your recent writings about China. You have discussed the confluence of long-standing economic trends and big shifts in the political environment. How much of a collision course is China and the United States on?

DALIO: Well, there are five main areas of conflict — five or six, and they’re a manifestation of history repeating itself. So just to take a second on that, we began the existing world order in 1945, World War II ended. We began a new monetary system, Bretton Woods monetary system in ‘44 and 1945. We set the rules.

And the United States then accounted half of the world economy. It had 80 percent of the world’s gold stocks and gold stock — in other words, gold. And that — and gold was money, and we built a dollar-denominated system and an American world order, which is why the United Nations, the IMF, the World Bank are all in the United States. And that — that happened.

And then as the cycle happens, if you look at history, China, over the last 2000 years has always been number one or two, one of the most powerful countries. And then starting from 1840’s until 1949 had a collapse, and then it began to emerge in 1949. And then in 1978, Deng Xiaoping came to power, and they — he tapped into capitalism — state capitalism. He created state capitalism.

And since then until now, the average real income has increased by 22 times. It’s been very productive and it’s becoming very capitalist. And it’s — there are billionaires being formed their ideas, their IPOs. There is creativity and there’s that competition.

And so when you get a rising power challenging an existing power, there are different ways of doing that. And so there are five types of — we called them “wars,” conflicts, and they are the trade war, the technology war, the geopolitical war, the capital war. And you could have a military war.

The trade war we know very — we know a lot about, and that’s the most minor of those. It’s really the overall conflict that matters.

The technology war, you see it anything from Huawei, Tiktok and so on, and who’s going to produce what technologies in this world. That’s something we can talk about if you want to.

The geopolitical war is a very important thing. Taiwan, everybody agrees, has been agreed that Taiwan is part of China and there should be peaceful unification. And there’s a region around there that includes Hong Kong, and they have historical meanings because they used to be part of China. Then in the wars they were taken away from China, and then they’ve been promised back and they are big issues. And then there’s influence in the world as they become competitor, and so there’s — that geopolitical war.

Capital war is a very important thing. History has shown that when you get into wars, this is very interesting even before there are wars that the foreign powers cut off the other. They cut them off for capital and they cut them off for needed items. Like in World War II, Japan, when we — when there was the rise of Japan in there, they were cut-off from oil, they were cut-off from rubber, and they were then cut-off from capital.

We could and we did say that we wouldn’t pay their debt. And the United States today could do that with the bonds they owe.

China owns about $1 trillion worth of bonds. And the President unilaterally can say, you know, we’re not going to pay those bonds or cut off capital in different ways. And so you see the development of capital markets and so on.

And then, of course, there’s the military question because, at the end of the day, it’s a test of power. So if you look at the geopolitical part of this in the region, militarily, China has developed what military experts tell me is a military actual superiority in about a 2000-mile (inaudible). I don’t know — but anyway it would be very bad. That includes the Taiwan area and so on.

And because the world doesn’t have a world court to plead your case, it is always testing of each other’s limits and boundaries. And that would have big implications for the United States stature in the world. So those issues are all wrapped up together. In other words, there’s a lot to argue about.

At the end of the day though, the most important determinant of power is how we are with ourselves. I should say, you know, we got these conflicts with China. And those conflicts also mean that we’re having separation. We can get into that. I don’t want to ramble too long, but the decoupling is — is a necessity and would be part of our environment ahead.

RITHOLTZ: Now when we talk about decoupling, over the past 20, 30 years, it feels like we’ve become much more integrated with China’s economy, their manufacturing prowess. I hate to phrase “frenemies,” but we certainly have aligned our interest together in a lot of ways. Our entire supply chain comes very much runs through China. How easily can these two nations decouple? It seems like we’re both fairly dependent on the other.

DALIO: Of course, because we lived in an environment when you have globalization and you took it as an assumption, particularly, the Chinese took it as an assumption that they could build on the American technologies and they’ll be there. Chinese are more vulnerable than Americans are to a technology war at the moment. They know that. And as a result, they’re initiating ways — semiconductor chips and many other ways — so that they can be calm self-sufficient because, you know, classically in a conflict, you’re cut-off. You’re cut-off from capital, you’re cut-off from what you need and it is devastating.

And because it has to exist as a possibility that you can have war, I mean, history has shown when there’s rising power challenging existing power, that’s happened 16 times over the last 500 years. Twelve of them are actually shooting wars. That possibility certainly exists, which means there must be decoupling or said another way, there must be self-sufficiency so that one could not be cut off from what one needs. And that means that there’s a process.

Over the next five years, you’re going to see a lot of decoupling. It’s — it creates inefficiency for the world as a whole. However, you know, it’s not going to change the world. Those efficiencies are almost luxury by comparison to the necessity of surviving. And so you will see that kind of decoupling.

And the — the real question is, you know, what it will look like to systems, how do they operate in parallel, can we have harmony or are we going to get something else? But it’ll — it’s happening and — and it — it’s a pressing thing on both countries to make it happen fast.

RITHOLTZ: So you mentioned there were 16 examples of a rising power challenging the existing order. Give us a few dates and places. Where else have we seen situations similar to the rise of China challenging United States? What’s parallel?

DALIO: Well, I think the — I think the 1930 to ‘45 period is the most analogous period. I touched on, you know, that was the — when interest rates hit zero, when there was a lot of printing of money and changes and so on and so forth, when the wealth gap was the same as it is now and so on. Well, during that period, there was a depression and there the rise of Germany and there was the rise of Japan to challenge the existing world powers and — sort of out of necessity.

And there was a lot of conflict — internal conflict in those cases because during such times people become more extreme. The right becomes more right, the left becomes more left, and they fight with each other more. And when they fight it becomes more disorderly. You know, in that period, there were four countries that were democracies that chose to have autocratic systems. You know, that was Germany, Italy, Japan and Spain in terms of trying to have, you know, autocratic system to bring order to disorder.

And so that period was very analogous. And if you go down to the particulars of Japan, it’s analogous in many ways even because the geography of the place is, in many ways, similar. You know, to get oil, you know, you have to go through the straits of Malacca and you’ve got to — you know, you’ll bring resources from there and you have bonds. And — and, you know, all of those things, in many cases, the evolution that led up to Pearl Harbor when they were cut-off of resources and the idea have been if they cut off of resources, they respond. Those things seem very much analogous. I think the difference this time is that we are dealing with a more powerful country than Germany or Japan relative to the United States.

To put that in perspective, China has a population that’s four times the size — a little bit more than four times the size of the United States. That means if its per capita income is half the United States, then its size will be twice that of the United States. And so it’s an economic power and a gained economic power by following a lot of capitalist policies to create the inventiveness and allocate resources. So it’s a — anyway, it’s analogous, but bigger.

RITHOLTZ: So we have an election coming up, November 3rd, the President gets elected. The new president or I should say whatever new administration comes in, and that particular president picks up the phone and says, “Ray, you’re a China expert and you’re an economic expert, I’m concerned that the United States is slipping in terms of our world leadership.” What sort of advice would you give him?

DALIO: Well, there is internal and there’s external. The most important thing internally, as measured by leading indicators of well-being, are things by what is the education level of the population? What is the financial condition? Are you producing more than you are consuming? And though you have a balance sheet in which you have more assets relative to liabilities, you’ve got to go — so you’ve got to get productivity going. You’ve got to get education going and so on. So you have to have — internally, you’ve got to become interminably also more aligned.

You have to have the population rowing in the same direction rather than fighting with each other. And so I would say, you know, the — the ways of achieving those things, how do you achieve a bipartisan American dream and rowing in the same direction, how would you achieve that, and then make clear about productivity and how — how you would achieve that. It’s a big – it’s a big order. But if you’re going to get strong, those are the things you have to do internally to get strong and protect your financial system.

Externally, there are — there is the realization that we have these issues. And there has to be a plan, a strategic plan. And I think that both parties, I would say, internal people who fight with each other and I wish they can visualize what civil wars have been, like what fighting with each other can be like, this — this could be nothing by comparison with what we could experience. We can’t take this for granted.

So if we — the issue is most importantly, how we are with each other both internally and externally. Externally, I know that the Chinese leadership and — and I and I believe the American leadership realized that if you slip into one of those unacceptable wars, that the ways that we invented for hurting each other are, you know, greater than ever before. World War II cost more lives than any other war before it. And World War III, in its various ways, is so horrible, so one hopes that there’s a fear with that. And so that each would have to find the way of defending the others.

There’s a concept called the “prisoner’s dilemma” and basically, what it means is, if there are two people or two countries and each could kill the other or they could cooperate, what should each do? And the answer to that is to kill the other as fast as they can because if there’s some risk and you don’t know what they’re going to do, it’s an existential risk so you just get rid of the other.

And so the — the only way that you’re going to be able to deal with that is to go to the higher level and say how can you protect each other. The more that it’s done with a tit for tat and, you know, an exchange of hurts, the more problem is. And that problem is going to worsen over time for the United States position because time is on China’s side. It’s growing faster. A lot of things will mean it’ll be more independent five years from now than it is today and so on.

So there has to be the thinking through both domestically and internationally of how you have win-win relationships. And that’s a lot to ask for people who want to fight with each other.

RITHOLTZ: Fascinating stuff. Ray, over the three topics we’ve been discussing, there — there’s one overarching theme and it’s something I — I know you’ve written about extensively and I find obvious and yet so widely ignored by so many people. You have written the most important thing for an investor to do is to confront reality how it is as opposed to wishing it is something else. Explain why that even has to be discussed. Isn’t it just a given that we all have to deal with the world as it is and not how we want it to be?

DALIO: Well, neurologically, I mean, we — one would think that logically, but there are, you know, a couple of impediments. There are subliminal emotional things that enter into our decision-making. You know, like when an investment goes up, one falls in love with it. Investors tend to fall in love with I remember rather than — and think, wow, that was a great investment rather than thinking that’s more expensive. And so there are those kinds of things.

And then there’s also that many of the things that have happened over time have not happened in our lifetime before even though they repeat. So those lessons from history, we each learn them differently. I remember my dad, you know, he went through depression and then war. And then, you know, in the 1950’s, you know, he wanted to save, he wanted to secure that. He didn’t want to go into the stock market and so on and that — but there was another part of that cycle when, you know, booms come after depressions and wars because people don’t want to fight with each other, and they work together. And — and he missed out on the stock market.

And then you have through the full cycle that it’s common knowledge, you know, to borrow and to buy stocks and so on, and these things have cycles to them. So they’re understandable.

Also, the nature of the mechanics of markets lends itself to that. It’s a funny thing, let’s say the concept of long-term security produces short-term volatility. What I mean is the concept of duration. So let’s say I give the absolutely certain return for the next 25 years, like a bond or inflation indexed bond or whatever. That will produce greater near-term volatility because the duration of that asset produces a volatility as the discount rate for that changes. So all those things drive people to those, I think, bad behaviors you’re referring to.

RITHOLTZ: So let’s stick with the concept of bad behaviors. Very low rates have since investors scrambling. And as we soar in the mid-2000’s, there’s a tendency for them to chase yields and assume a lot more risk than perhaps they should. What sort of advice would you give investors who are looking for more yield without having to embrace an exorbitant amount of risk?

DALIO: Right now, the yield differences — we could start with interest rates, but we could also deal with things like earnings yield — are very small in relation to the volatility. So if you look at a bond, you get very little interest rate, less than one percent. Well, it depends what bond you’re getting, but basically, if you have a secure bond, secure of default, you have no — hardly any interest rate or even almost a negative interest rate.

And because all assets compete with each other, that’s true in inflation indexed bonds, it’s true in all asset classes. Some of them don’t let you know what the exact yield are, but because there’s so much liquidity chasing them and they compete, they all, in the future, have low yield. And so those who are looking for yield have to realize that price changes are more important than yield.

OK. One day’s price change is greater than one year’s yield. And so you have to go away from looking for yield. And — and anytime that something yields more than something else, people are not just giving away free money, free yield, there’s always an element of a risk — a default risk or something. Otherwise, the world would arbitrage that and you — you know, you’d make a ton of money by buying the one and selling the other. And then all the people have tried to do that, it’s a problem.

So be careful about yield in terms of those things. And that’s why you have to think of price changes.


DALIO: And then when you think of price changes, I think you — it’s important to think about the value of money. We started to talk about that. And so with interest rates being where they are — think of that as risky. You know, most investors think the safest investment is in cash because cash doesn’t have as much volatility to it. But cash is going to be the worst investment, particularly in this environment because it’s — it’s a tax. It doesn’t have the volatility to it, but what it does is — like now, it’s like a negative two percent a year.

So it’s this non-volatile hidden tax at two percent a year. You look at the compounded effect of one or two or three percent per year on your life and your — and so on, and it is enormous. So cash, you can’t — you — cash, no in this environment. And bonds in this environment, in my opinion, are not sort of good asset classes. And so go away from yield and you have to start to think of what are the other storeholds of wealth.

RITHOLTZ: Give us some example. I’m — I’m going to assume you’re going to talk about gold or you’re going to talk about preferreds or dividend yielding stocks, all of which have different degrees of volatility. So if you don’t want to sit in cash if cash is trash, and if bonds aren’t yielding much of anything, where should a prudent investor put their money?

DALIO: Well, two things I would say. First of all, stocks has always been a beneficiary, so I want to be as a storehold of wealth because if I — back to that March 1933 evaluation or we had one in August 1971 and so on, yes, you saw gold, but you saw stocks. And so — in other words, things — real things, income streams, and so they don’t have to be those — the most stable. They can have growth to them.

I just want to be clear. Multiples go up and so on. And then there are the assets that you refer to. But balance is the most important thing. So you don’t want cash, I think. I don’t think you want bonds, and I do think that you want alternative storeholds of wealth, but diversified wealth. So — and when I say diversification, I mean, diversification not just of stocks and stock sectors, but yes, I want some stocks, so diversification of asset classes, diversification of currencies, and diversification of countries in order to achieve balance.

If you balance well, you don’t give up any return in order to reduce your risk because all assets compete with each other and so on. So I think that my own view would be I don’t want cash, I don’t want much in the way of bonds, I want a diversified portfolio of assets that tend to diversify each other. Those are the ones we mentioned. And I want them in other countries.

And do pay attention to the currency because there is a currency risk. We have gotten used to looking at everything through the lens of our currency. So when we say the dollar, you know, how — how are you doing and you say, well, the stock market — I’m doing great, but the market is, you know, and my portfolio is increased by 10 percent this year because you’re measuring it in a currency. And those currencies that depreciate the most often have not that price rise, but you could lose my money and buying power because you’re not — you’re viewing it through that lens.

It’s a little bit like being in a — in a boat in the water that’s going up and down, and you look at land and you think land is volatile. The asset classes that you’re looking at through that lens is something, so you need currency diversification, too.

RITHOLTZ: Well, let’s stick with that concept because the all-weather portfolio, which — which has a pretty successful track record, has a lot of exposure to fixed income. If you were creating that from scratch in 2020, how might that look different than it has historically?

DALIO: Well, it’s — fixed income exposure has declined a lot as interest rates approached zero because of the mechanics of what zero interest rates means. So maybe it’s worth touching on that. When you get interest rates low enough, not only don’t they provide a return, but they don’t provide a diversification benefit because there’s a limitation of how much interest rates can go down, which means a limitation on how much those assets can rise in price.

And so the way — that’s a problem for the central banks, too. I mentioned that there’s Monetary Policy 1, 2 and 3. Monetary Policy 1, you can’t cut the interest rates. And so historically then what you get is the printing of money, buying of financial assets, buying of government assets and so on, the reflationary type of policies that we have here. And so if you’re seeking diversification when interest rates are close to zero — bond yields are close to zero, you won’t get it in bonds the diversification and the way monetary policy works to produce an easing is to have reflation assets such as that which happened on April 9th when they did fiscal and monetary policy move.

RITHOLTZ: So let’s talk a little bit about goals, which has seen a pretty good run over the past decade, although certainly not as strong as a stocks have seen. What are your thoughts about hard assets like gold? And how important is it to either all-weather or risk parity approaches to asset allocation?

DALIO: Think of gold as an alternative cash next to the dollar and the euro and — and twice as much as the Japanese yen is gold in central bank reserves. And it used to be the world’s money, and it is viewed as money. We – and there are reasons it is. It’s — there’s a limited supply of it. It’s storable, it’s transferable, and it’s universally accepted as a medium of exchange and a storehold of wealth pretty much.

But like cash, it’s not a good return in asset. It — normally over time., Very different. In depth cycles, in the early part of a debt cycle, when there’s not much debt and you get a higher interest rate by holding cash or cash deposits, it pays to own cash instead of gold. But what happens in the debt cycle is that basically debts rise relative to the amount of money there is. Money used to be gold up until 1971, and then there’s the claim. And so late in a debt cycle, you get to have hardly any interest rate, so you don’t get much of an interest rate, a benefit of owning cash relative to gold. They both — the yields are — are not much.

And you’re getting the production of the other kind of money relative to that. And that’s why you see the movement in that direction. You also see as real interest rates decline, which central banks have do by increasing the supply of money. That causes — the real interest rate causes the gold to go up because gold — think of gold as being something that’s steady. And so if — if you’re taking the present value of money out in the future and the discount rate for that, the interest rate that you’re discounting goes down, the real interest rate — it goes up in in value.

So gold, historically, has been an effective diversifier at certain times in history when there’s kind of that break down of the monetary system when you have, you know, the excessive printing of money and so on. So it is a — think of it that way. And it is — and it’s effective diversifier.

So I would say in structuring a portfolio, there’s — it’s important to have a piece into gold. It doesn’t have the big — big piece but, you know, I think almost everybody is pretty much underweighted to that, whether that’s 10 or 15 percent or something, I don’t — I don’t know. But — so that’s part of it.

But there are other storeholds of wealth. Again, I — I would want to sort of break them into, you know, are they liquid? Can you transact? Can you move them as distinct from some other assets, let’s say like real estate, which is very much situational and — and — and not very liquid. You know, you could change the picture — you have, I don’t know, commercial or residential real estate in a location — New York, San Francisco and — or X, Y, Z, London and the circumstances can change. It’s not as effective as — you know, as a form of storehold of wealth.

Liquidity, and diversification, and rebalancing are very important.

RITHOLTZ: So let me ask you a question that I have no idea what your answer is going to be, although you just mentioned liquidity, so maybe that’s a factor. What are your thoughts about cryptocurrencies like Bitcoin?

DALIO: I think that at the end of the day we — it hasn’t — they have a number problems, but — so three big problems. First is, as an alternative currency, a purpose of the currency is a medium of exchange and a storehold of wealth. And number three is it has to be — in order to be viable — not objectionable to the government. Those are the three problems.

You can’t go easily transact with a lot of things with cryptocurrency. You can’t go in and put — put the cryptocurrency on my credit card and buy in the same way. As a storehold of wealth, it has enough — it has its own volatility to that.

Libra was going to be something that would have been more — in other words, a stable value alternative. But as a storehold of wealth, if it has a volatility because it has so much speculation, it’s tough to say I want that as my storehold of wealth, so it has a little bit of a chicken and egg problem.

And then at the end of the day, governments are — if it had any viability or going to object to it and, in one way or another, will make it — you’ll have to be a criminal to use it. In other words, they will outlaw it. They’ll simply say they’ll outlaw it and then you have real problems with it. So I — I don’t think — and — and central banks don’t use it in the same way.

That doesn’t mean digital currencies. In other words, China will have a digital renminbi or yuan. Europe will and we will have digital currencies, but they’re controlled by central banks. They’re not an alternative storehold of wealth that the governments will tolerate.

And history is showing that. You know, why did they outlaw gold around the world and, you know, in the United States and — and so on because they don’t want those alternative currencies digitally. So the medium of exchange even between central banks is not going to be digital.

RITHOLTZ: Quite interesting. Let me change this up on you. I know you’ve been practicing meditation for a long time. How does that factor in to your decision-making process? Does it have any impact on the way you actually allocate capital, analyze companies, think about the world?

DALIO: Meditation has given me and it gives other people and equanimity. What I — what I mean is I feel that I can look at things in a less emotional way. I can accept realities as — as what they are. Basically, mechanically, what happens is you — you go from your conscious brain to your subconscious brain. You repeat a mantra. And now it’s a word that’s a sound basically, and it, therefore, cleans your mind of thoughts. And then when you repeat that sound, it eventually disappear and you’re in a subconscious state pretty much and — that’s very peaceful. But you’re not conscious, you’re not unconscious, you’re in your subconscious mind.

That helps to connect the subconscious and unconscious mind, and it also helps to — people to become more creative because a lot of creativity comes from the subconscious. And it allows me and other people who do it to sort of do things with the calmness accepting the world as it is and thinking the world as a puzzle and you have to solve it. So meditation, you know, has helped me in — in those ways.

And you’ve been — you’ve been practicing this for quite a while, haven’t you?

DALIO: Since 1968.

RITHOLTZ: Wow, that’s quite amazing. So I have to ask you about what’s going on with this election. Depending on the outcome, is there anything that might happen that would force you to rethink your views on the economy or how you would allocate assets or is it really just a temporary blip and things continue on afterwards?

DALIO: No, I think it’s very important. Let’s say, if I was to take both parties we’ll have large deficits and — and monetization. Both parties will have an aggressive China policy, I think. But one party will be more capitalist and let’s say favor asset holders (inaudible). One will be more left and favor the redistribution.

That doesn’t mean — let’s say if you have a Biden election and you look at the particular policies, I think it would look more like the Roosevelt years, and that you will have larger deficits probably, larger spending, larger stimulation and the like, but you will have more of a monetization of that. And that’ll be, quote, “a stimulation for the policy.” But at the same time, you’re going to have the rise of tax rates in, particularly, eliminating the tax changes — the corporate tax changes, changing capital gains, rates and so on. And those — those rate changes will have an impact. And you’ll have specific policies that will stimulate certain areas of the economy.

Like the green policies, you know, it’s roughly targeted to nearly $2 trillion. Anyway, we don’t know how much will come of it exactly, but that will be a very big area. I think you’ll see more infrastructure and so on. And so you’ll see particular areas of the economy benefit and — and other areas of the economy, not benefit. And — and so there’s — you know, you get into the — which sectors and all of that would benefit and — you know, and how much of a discounting. Those will have implications.

I think the most important issue will be whether the country can be brought together. And I’m worried that capitalists know how to increase the size of the pie. They understand the profit system. They understand productivity and so on, but they don’t know how to divide the pie that well. And socialists or those that are more of the left have a problem producing as much the increase in productivity.

And so if — you know, my — my hope, my dream would be that you have an all-encompassing that brings together smart people who understand the mechanics of economics and policy, and — and — but represent different points of view. It can be brought together to get us to be productive and do the right things, whether they’re education and be productive, and all of those things and move in the right direction. Then I think whether that happens or not will be of paramount importance.

It’s a difficult situation to be because of where we are in the cycle. In other words, every day is not a brand new day, so we — whoever inherits the presidency, whatever party, whatever president — will inherit an income statement and a balance sheet that is what it is today and will inherit certain circumstances. And that’s going to be tough.

So the real question is how we’re going to be with each other, I think. And that’s the most paramount important question, I think.

RITHOLTZ: You mentioned the Green Deal that the Biden camp has been talking about. I know that you’ve been very interested in oceans and your Blue Ocean project has been very successful. So let’s use that as an excuse to dive into your philanthropic works. Tell us a little bit about what you’ve been doing in Connecticut with schools and buying computers for kids, and what you’ve been doing in terms of the Dalio Center for Health Justice.

DALIO: You know, I’m very lucky also to have a wife who — who shares my concerns, and she really — we — we live in a state, which is the highest per capita income, has the greatest gap in incomes and owes a lot of money. So it’s a — it’s a terrible thing. But we feel like, you know, this is our community and we see — see those things. And so it’s — you know, it’s bad and basic, so COVID highlights this, but the difference in education.

So we encountered the fact that 60,000 kids in the state of Connecticut didn’t have any computers. Normally, you should have it, and they don’t have connectivity. Not having computers, not having connectivity is — you know, is not — is like not having toilets and not having running water in your house today. And when we had education as an issue, you — you know, what — what are you going to do? You just not educate the kids and the state didn’t have the money.

And so anyway, we — we bought, you know, 60,000 computers and we’re — we’re trying to deal with, you know, the connectivity and partnership with the locals. We — the — the people on the ground really, like the teachers, we have the utmost respect for the teachers who were in these positions. They know the best and we — and my wife, particularly, works with them. And so we try to help in those ways and — and, you know, other ways.

We’re bringing micro finance to here, to the state, and we’re doing other things to try to help in our, you know, small ways. We’re — we’re still, you know, drop in the bucket related to that, and then you’re asking about the health. So education is a — you know, a fundamental right and so on. And I feel with — my wife and I feel very blessed, and so we feel that that’s something we want to do education.

And then this health justice thing, yes, we created with New York Presbyterian. We initiated a health justice center because there’s such a big difference in poverty rates. You know, particularly among black and brown communities, I mean, it’s just so difficult, the poverty, the number of people together in the places, the — the — the rates of contracting COVID, all of these things, and even attention to how the bodies work differently and all of that has been neglected. And I think it must be — it must be very difficult to be in those circumstances and — and not receiving any help. So we — you know, we just made a donation, a $50 million donation to set-up that Center for Health Justice.

You know, we’re lucky philanthropically that, you know, we have those resources and we have a certain perspective because, you know, we’ve come from not having much to having a lot and — and we see these things. So anyway, that’s what we’re lucky enough to do.

RITHOLTZ: And — and I know you’ve done a couple of projects on the oceans with Mike Bloomberg, and you’ve done a number of projects. And I do recall reading you say something about The Giving Pledge. Am I – am I recalling that correctly?

RITHOLTZ: Yeah. My wife and I decided to give away more than we’re going to give away a lot of most of our network. And then Bill Gates asked me about that. And we were delighted to do it. We — we learn from each other. It doesn’t change the amount of money that we’re — we donate, but we — I learned a lot and we learned a lot through that process.

And yes, you know, you touched on ocean exploration, which is also a sort of a passion, which I could get into. But we — we do a number of things.


DALIO: Micro finance. We make it a family activity.

So we have four sons and — and daughters-in-law and so on. And — and so we view the philanthropy as pursuing each other’s philanthropic passions, and that’s how we do it.

RITHOLTZ: Sounds interesting. So I know I only have you for a few minutes more. Let me jump to our speed rounds, our favorite questions we ask all our guests and let’s plow right through these.

So everybody under lockdown these days is streaming a lot of media. Tell us what you’re either watching or listening to these days.

DALIO: Well, by and large, I’m so targeted to try to learn about the things that I want, and I’m very lucky to be able to speak to — almost speak with almost anybody that I can speak with. And so it’s not general media that I’m doing, it’s — it’s what I do — or podcasts and so on, although there are so many fabulous ones that — that I feel I’m missing out on.

But if I can get the person and I can ask them questions and do the research, that’s what I’ve been doing a lot of. And — and because I can do it so easily, I can go from one to the other and anywhere in the world, I’ve been like a kid in a candy store doing that.

RITHOLTZ: Well, everybody is stuck home just waiting for the call from Ray. That’s — that’s pretty funny. Tell us about — tell us about your early — your early mentors. Who helped shape your career?

DALIO: Well, you know, they were — they were — mostly just like individuals who — who cared about me, I remember I started Don Stott. I caddied and I was — and at 12, I bought my first stock. And I would walk around, and this nice man who was a specialist on the New York Stock Exchange floor was just a great guy and talked and — and we talked about markets and things. And his kindness and his insights and so on helped to get me, you know, hooked on the game. And so he had an effect.

You know, I remember, you know, a teacher of mine — a particular teacher, I — I — I remember — and then as I got older, let’s say, Paul Volcker, I — since before 1971 when it was just a breakdown of the monetary system, 1969, ’70, ’71, I — I just first got exposure to Paul Volcker. And then over a period of time, I was lucky enough to get to know him and have him become a good friend of mine. And he was definitely a role model.

And I think role models and heroes, I think we’re in an environment — by the way, I’m digress sing a little bit — in which we’re there’s so much criticism. It’s fashionable to criticize and break down, and we don’t have any agreed upon heroes, but he was a — he was a hero of mine.

And then — and then there — there was a — for my sons, there was a scoutmaster and — well, anyway, I can go on and on of those different people. The personal touch in my life had the biggest effect, but also, you know, seeing what heroic characters were had an effect on my life. And then I would say for markets, it was Don Stott.

RITHOLTZ: Quite fascinating. I know you’re a big reader. Tell us what you’re reading these days and give us some of your all-time favorite books.

DALIO: I don’t read as much as I hunt in books. In other words, I am like I’m going after something. And so I have many books that I then drill into, but I do it in a certain way where I — I can — I almost get to the part of the book that is the part that I need to understand. And so for the last year and a half, I wanted to study the rises and declines of reserve currencies then which led me to the rises and declines of empires. And — and that led me to study, you know, a whole bunch of — of books and then speak to the people.

Paul Kennedy’s Rise and Decline of the Empires — I mean, I can go on and, you know, and list those.

If you’re asking for good books, I would say three good books that I recommend is “Lessons from History” by Will and Ariel Durant, which is like 104-page book, I think. And it’s a summary of these great historians who wrote 5,000 pages on something like 5,000 years of history and sort of distilled the themes down so that I would say Paul Kennedy’s book of Rise and Decline of Great Empires or Great Powers is a great book.

I would say on evolution, I think evolution is very interesting and so it’s humanity and how — and goes beyond humanities, so all the species. I would say I’d really like Richard Dawkins, A River ffrom Eden.

My son gave me Joseph Campbell’s “Hero with a Thousand Faces,” which I think is just — you know, it’s an ark — a life ark and — and very, very practical, very interesting. These are the books I suppose.

I — I think some good books that are just recently came out, Reed Hastings and I believe about organizational culture. Reed Hastings, Netflix founder and running Netflix, and we believe in certain culture things in our organizations. He wrote a good book.

H.R. McMaster’s book that just came out is a very good one. Richard Haass just came out with — I’m sorry I can’t remember the exact names, but it was the History of the World or something. That gave a good overview. Those are a bunch that I all think are — are — are good.

RITHOLTZ: That’ll keep people busy for a couple of days. If a high schooler or a recent college graduate ask you for advice about beginning a career in the world to finance, what would you tell them?

DALIO: You couldn’t have picked a better area to do it. Markets, I love — I love markets because, particularly, global macro because you cover almost everything in the world and you can bet on it and test how good you are. And you could go short or long, and — and so it’s great exposure to the world.

But I would say, you know, play the game and that you don’t know what you’re doing. So be humble, get beat up and learn your lessons. What you will learn, I think, is that what you don’t know and how you deal with not knowing is even more important than anything you know. So the — the power of diversification, the ability to gain humility, it’ll teach you humility and it’ll teach you open-mindedness. And if you’re curious, it’ll be — it’ll be great and it’ll give you a measurement, you know, of every day of how you’re doing. That’s an objective measurement that’s terrific.

And — and you — and it’s — if you get good at it, you know, it’s one of those careers that’s rewarding. I mean, I — I did it because I love to play the game and I just happened to be lucky that it made money. I didn’t — and, you know, I could have been something — an architect or something else, and — and I wouldn’t have been the same, so it’s got those benefits.

But it’s a lifelong journey and it’s — it’s — expect the ride, learn your humility.

I have an expression pain plus reflection equals progress and how you make your mistakes and how you learn from those mistakes, how you learn how reality works, and how to deal with reality, and to then write down your principles that you learn, and learn and build on them that that’s — you know, it’s a great path.

RITHOLTZ: Really good answer. And our final question, what do you know about the world of investing today that you wish you knew 40 years ago or so when you were really ramping up?

DALIO: Well, what I learned over and over again is that — you know, let’s say 40 years ago, I thought I — I just learn from my experiences and I was arrogant enough to think I’m going to go in there and just pick the things. And what I learned along the way was how to systemize, how to convert, look back in time. And the same thing happens over and over, to look at reality as a machine to understand how the machine works, and then to convert that learning into algorithms so that it works in parallel with my brain because my brain is limited in its capacity to juggle a lot of things.

And — and then, you know, to keep learning that humility and finding out, you know, what’s the next new thing that’s going to happen that I might have missed. I missed the pandemic. The pandemic took me by surprise. I figured I didn’t have an edge on the pandemic, and that was stupid because, you know, you read history and you see that these acts of nature could be pandemic, could be anyway — diseases and so on about big impacts.

And so, you know, I guess I — I learn that I, you know, what’s going to hit me in the head to — to worry about that. And so I — which, you know — and that’s something I think I’ve learned in the market, so teach that new young investor that pretty quickly, so I learned it then. I knew more about the things, like I wish I knew more about pandemics before this year. But anyway, that’s kind of my answer.

RITHOLTZ: Thanks, Ray, for being so generous with your time. We have been speaking with Ray Dalio, the Founder, Chairman and co-CIO of Bridgewater Associates.

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I would be remiss if I did not thank the crack staff that helps put these conversations together each week. Michael Batnick is my Head of Research. Michael Boyle is my Producer. Nick Falco is my Audio Engineer. Atika Valbrun is our Project Manager.

I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.



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10 Sunday Reads

Avert your eyes! My Sunday morning look at incompetency, corruption and policy failures:

How Trump Sealed the GOP’s Suicide: It didn’t have to go this way—with the GOP becoming a cult of personality suffused with authoritarianism. (The Bulwark) see also  This is not normal A guide to what the next president will have to unwind (Washington Post)
The Militia That Fox News Built If America descends into civil war, at least we’ll know what channel was on when it began. (The Atlantic)
How the Sturgis Motorcycle Rally may have spread coronavirus across the Upper Midwest Within weeks of the gathering that drew nearly half a million bikers, the Dakotas, along with Wyoming, Minnesota and Montana, were leading the nation in new coronavirus infections per capita. (Washington Post)
Trump Will Have $900 Million Of Loans Coming Due In His Second Term If He’s Reelected: The president would likely have to engage in a series of high-stakes transactions that could produce unfathomable conflicts of interest. (Forbes) see also Trump Records Shed New Light on Chinese Business Pursuits As he raises questions about his opponent’s standing with China, President Trump’s taxes reveal details about his own activities there, including a previously unknown bank account. (New York Times)
How the F.D.A. Stood Up to the President After months of caving to pressures from the White House, Commissioner Stephen Hahn and a band of agency scientists have eked out a few victories. (New York Times)
•  Half of Trump’s supporters think top Democrats are involved in child sex-trafficking: Free of any evidence, the QAnon is a theory that alleges that a group of Satan-worshiping pedophiles, including Democratic politicians, run a global child sex-trafficking ring and is plotting against the president. (YouGov)
• The stunning hypocrisy of the Trump family’s attacks on Hunter Biden If there’s any family that should sit out attacking others for alleged corruption, it’s the Trumps. (Vox)
• Why Do Nonwhite Georgia Voters Have to Wait in Line for Hours? Their Numbers Have Soared, and Their Polling Places Have Dwindled. (ProPublica)
Dying Inside The Hidden Crisis in America’s Jails: Why 4,998 died in U.S. jails without getting their day in court (Reuters)

Be sure to check out our Masters in Business interview this weekend with Ray Dalio, founder and Chairman of Bridgewater Associates, the world’s largest hedge fund. His latest book, The Changing World Order: Why Nations Succeed and Fail, will be published January 12, 2021.


Two in three Europeans have a negative view of the U.S.

Source: Bloomberg


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A Broken Census Can Break Democracy

A Broken Census Can Break Democracy
The census is best known for determining how we the people are represented. But it also quietly defends our democracy from deeper problems.
Bruce Bartlett, The New Republic October, 19 202


As the 2020 census winds down, it’s important to remember why it matters and what’s at stake. Its primary purpose is to allocate seats in the House of Representatives and provide geographical population data for drawing congressional district lines. The latter requirement is the main reason why rough population estimates will not suffice—it’s essential to know precisely where people reside, not just how many people live in a particular state, so that state lawmakers can draw accurate boundaries for House seats.


Source: Congressional Research Service

The Population Reference Bureau estimates that the 2020 census will shift seven congressional seats from states that have lost population relative to those that have gained population since the 2010 census. Gaining states are Arizona (one), Colorado (one), Florida (one), North Carolina (one), Oregon (one), and Texas (two). Losing states are (one each): Illinois, Michigan, Minnesota, New York, Pennsylvania, Rhode Island, and West Virginia. Losing states will concomitantly lose votes in the Electoral College, and gaining states will gain votes, shifting their importance in presidential elections.


Source: Population Reference Bureau

The balance of power in the House and the Electoral College has changed considerably over time. In 1910, the last time the size of the House was increased, the states with the largest House delegations were Illinois (27), Pennsylvania (36), and New York (43). Today, Illinois and Pennsylvania each have just 18 seats and will likely have just 17 after reapportionment. New York has 27 seats today, and that will probably fall to 26. States gaining House seats include California, which went from 11 in 1910 to 53 now, and Florida, which had just four seats in 1910 and now has 27.

The size of the House of Representatives was one of the most hotly debated issues at the Constitutional Convention in Philadelphia in 1787. The delegates initially proposed a figure of 40,000 people per congressional district. But George Washington thought this number was too high; on the only occasion in which he addressed the convention, he asked that it be reduced to 30,000. This change was agreed to, and that is what Article I, Section 2 of the Constitution requires.

The Constitution is oddly silent on the question of whether the House would increase in size as the population of the United States grew. James Madison was among those who worried that the House would not increase in size, leading to increasingly large districts. He warned against the resulting imbalance in popular representation in Federalist 55He therefore proposed that the first amendment to the Constitution be one that guaranteed an increase in the House proportional to rising population. His draft amendment read:

After the first enumeration required by the first article of the Constitution, there shall be one representative for every 30,000, until the number shall amount to 100, after which the proportion shall be so regulated by Congress, that there shall be not less than 100 representatives, nor less than one representative for every 40,000 persons, until the number of representatives shall amount to 200; after which the proportion shall be so regulated by Congress, that there shall not be less than 200 representatives, nor more than one representative for every 50,000 persons.

But this amendment was not ratified along with the others that we call the Bill of Rights. Fortunately, Madison’s fears proved unfounded for more than 100 years. The size of the House was increased, with additional states and rising population, from 65 members in the first Congress to 435 after the 1910 census. But under Madison’s formulation, the House today would have 6,600 members.

After the 1920 census, Congress failed either to increase the size of the House or change its apportionment, even though the country’s population had both substantially increased and significantly changed its geographical distribution. Not only had the relative populations of the various states changed, but the populations within states had also shifted, generally reducing the rural population and increasing the urban one. As a political matter, this was important because rural voters tended to support Prohibition, while those in the cities favored repeal.

By the end of the 1920s, malapportionment was severe, with states that had gained relative population since 1910, such as California, seriously underrepresented in the House, and those that had lost relative population, such as Missouri, overrepresented. There was also a constitutional question of whether the House was in fact legally chartered after it failed to fulfill its constitutional duty to reapportion. And since apportionment affects the Electoral College, there was fear that that malapportionment might call into question the legitimacy of the president.

Another issue that arose during the 1920s apportionment debate was whether Southern states should have their representation reduced because of widespread violation of the voting rights of African Americans, as Section 2 of the Fourteenth Amendment provided for. In 1920, Representative George H. Tinkham, Republican of Massachusetts, suggested that apportionment be based on the actual voting population, rather than the gross population—a move that would have penalized states that encouraged voter disenfranchisement. Some legal scholars believe this is still an important consideration in apportionment.

Unfortunately, there was strong resistance to increasing the size of the House for both philosophical and institutional reasons, such as the need to increase the physical size of the House chamber. Two Speakers of the House, Frederick H. Gillett and Nicholas Longworth, strongly opposed an expanded House. In a 1920 editorial, The New York Times agreed, saying: “The House is too large already. After the next census Congress will have to perform the duty which it now shuns and postpones. For physical reasons, if no other, the growth of the House can’t be allowed to continue indefinitely. The bigger it is, the greater the hindrances to effective work.”

Arguing for a larger House, Representative Edgar Crumpacker of Indiana said: “If we make the ratio [of persons per representative] too large the idea of representation becomes attenuated and less definite. The personal interest of the voter in his representative becomes less important to him, and we may lose something of the vital strength of our representative form of government.”

Eventually, President Herbert Hoover pressured Congress not only to resolve the apportionment standoff but also to do so permanently. This led to passage of the Permanent Apportionment Act of 1929. Not only did this measure fix the size of the House at 435, but it also established a mathematical formula for automatic reapportionment after future decennial censuses.

One problem that continues to fester is malapportionment from the requirement that no state may have fewer than one House member. This means that small states such as Wyoming, Vermont, and North Dakota are overrepresented in the House, while more populous states are underrepresented. This is a violation of the principle of one person one vote established by the Supreme Court in the 1964 case of Reynolds v. Sims. (In 2009, some activists brought suit in federal court challenging the constitutionality of the law freezing the number of House members at 435. But it was rejected by a Federal District Court in 2010, which said the question was a political one for Congress to decide, and the Supreme Court refused to review the case.)

According to the Inter-Parliamentary Union, many countries much smaller than the U.S. have considerably more members in the lower house of their national legislature, including the United Kingdom (650), Italy (630), Germany (598), France (577), and Japan (465).

This means that the population per legislative district is much lower in most other countries than it is here. Japan has 273,000 people per district; Australia has 153,000; Germany has 135,000; France has 116,000; Canada has 106,000; the U.K. has 102,000; Italy has 98,000; and Switzerland has just 40,000. In the U.S., it is 760,000.

The population per lower house legislative seat varies a great deal among the states, according to the National Conference of State Legislatures. The population per district in the five largest states is 121,000 in Arizona; 130,000 in New York; 179,000 in Florida; 193,000 in Texas; and a huge 494,000 in California. In the five smallest states, the population per district is 9,600 in Wyoming; 8,900 in Maine; 8,100 in North Dakota; 4,200 in Vermont; and a minuscule 3,400 in New Hampshire. In the U.S. as a whole, there is an average of 43,500 people per lower house seat. (Of course, the voting population in each district would be lower still.)

The NCSL has said that there are important benefits for having larger legislatures: One political party can more easily dominate a smaller-sized legislature. Smaller-sized legislatures also may increase regional rivalries, particularly between rural and urban areas. A larger number of members allows for a more effective division of labor and specialization. And the oversight of administrative agencies is greater among larger legislatures.

On the other hand, Jonathan Bernstein, writing in The New Republic in 2010, asserted that above a certain threshold, it doesn’t really matter how big a legislative district is. “The problem here is that even with an extreme reform—tripling the size of the House—we’re still not going to get fewer than 250,000 people per representative,” he said. “In practical terms, there just isn’t really much of a difference between sharing a member with that many people and sharing her with several millions; in any district larger than, say, one hundred thousand, it’s hard to believe that anyone is going to feel he has the undivided attention of his member of Congress.”

I have always thought that an important consideration arising from acute malapportionment is the cost of running for office. With large congressional districts, those running for office have little choice but to use expensive mass methods to reach voters, such as television advertising. This in turn requires them to raise vast amounts of money, which is largely a waste of time, corrupts the election process, and empowers lobbyists. Smaller districts would allow for more one-on-one contact between candidates and voters and make cheaper electoral methods, such as door-to-door canvassing and phone banks, more effective.

It’s unlikely at this point that the House will ever vote to greatly increase its size because it would dilute the power of each individual member, as well as requiring a new House office building. But it is increasingly undemocratic to have the size of House seats continue to grow without limit. However, reform of the Electoral College is a highly salient issue among many Democrats, and its time may have come. (Intriguingly, a 2003 article in the journal PS: Political Science and Politics argued that had the House increased in size to 500 before the 2000 election, Al Gore would have won, owing to more precise apportionment and, therefore, electoral votes in his favor.) Perhaps the surest way to remedy malapportionment of the House is to confront the malapportionment of the presidency.



Bruce Bartlett is a former Republican who served as a domestic policy adviser to Ronald Reagan and as a Treasury official under George H. W. Bush. A longtime observer and commenter on economic and political affairs in Washington, D.C., he has written for The New York Times, The Washington Post, The Wall Street Journal, USA Today, Politico, and many others. A bestselling author, his latest book is The Truth Matters: A Citizen’s Guide to Separating Facts From Lies and Stopping Fake News in Its Tracks.

View my academic research on SSRN:

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MiB: Ray Dalio, Bridgewater Associates

This week, we speak with Ray Dalio, founder and Chairman of Bridgewater Associates, the world’s largest hedge fund. Dalio is known for his practical yet unconventional understanding of economics, which he spells out in his video “How the Economic Machine Works.” He’s also of several macro books on investing, economics and philosophy. His latest latest book, The Changing World Order: Why Nations Succeed and Fail, is a deep dive into history and will be published January 12, 2021.

We tend to misuse the term “unprecedented” for things that have not occurred in our lifetimes, but as Dalio explains, we should adopt a broader historical view. Many of what we believe to be unique events have historical correlations and in fact have occurred before: Money printing and monetization of debt, expanding, wealth gaps, the rise of a great power to challenge the existing hegemony — all have historical parallels that provide insight into the present.

He describes the “mechanics” of what happens when rising debt, increasing wealth gaps, and economic downturn all occur simultaneously. Dalio notes the effects society, markets, politics,  and the economy eventually reach a critical point, and we are nearing that juncture where the collective decisions made by central banks, governments and key institutions will have enormous ramifications for the future of the global and US economies.

Dalio explains the basic “opportunity” that led to his success: parents who took care of him, access to health care and a good public school education. This was the “American Dream,” and he uses his philanthropies to bring those same opportunities to as many people in his home state of Connecticut as he can (among other charitable interests).

A list of his favorite books are here; A transcript of our conversation is available here Monday.

You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Overcast, Google, Bloomberg, Stitcher, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.

Be sure to check out our Masters in Business next week with Mario Giannini, CEO of private equity firm Hamilton Lane. One of the few publicly traded PE shops, the firm oversees more than $500 billion in privately invested assets.





Ray Dalio’s Authored Books

Principles: Life and Work

Big Debt Crises

The Changing World Order: Why Nations Succeed and Fail (January 12, 2021)


Ray Dalio’s Favorite Books

The Hero with a Thousand Faces (The Collected Works of Joseph Campbell) by Joseph Campbell

The Lessons of History by Will Durant

River Out of Eden: A Darwinian View of Life by Richard Dawkins


Ray Dalio’s Current Reading

The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000 by Paul Kennedy

No Rules Rules: Netflix and the Culture of Reinvention by Reed Hastings and Erin Meyer

Battlegrounds: The Fight to Defend the Free World by H.R. McMaster

The World: A Brief Introduction by Richard Haass

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10 Weekend Reads

The weekend is here! Pour yourself a mug of Le Mans coffee, grab a seat where you can see the leaves turn, and get ready for our longer form weekend reads:

Psychology, Behavior & Markets “Human nature is the last arbitrage.” Despite all the facts, figures, and statistics, much of the stock market comes down to human behavior (Investor Amnesia)
Robinhood’s Addictive App Made Trading a Pandemic Pastime Now the platform has to make money from its devoted fans. (Businessweek)
The World Henry Ford Made A new history charts the global legacy of Fordist mass production, tracing its appeal to political formations on both the left and the right. (Boston Review)
Peak Gas Is Coming to the U.S. Sooner Than Anyone Expected The American fracking boom had made the fuel superabundant and cheap. Now there are flashing signs that the U.S. power sector is approaching peak gas, with demand topping out decades ahead of schedule. (Bloomberg)
String of Firms That Imploded Have Something in Common: Ernst & Young Audited Them Big Four accounting concern reviewed the books of several companies where investors lost billions when scandals emerged. The firm says it uncovered some of the problems at its clients.(Wall Street Journal)
Staying Home: How the Coronavirus Changed Consumer Behaviors and Company Valuations What consumer trends during the pandemic have meant, and will mean, for companies in technology, hospitality, and e-commerce (Morningstar) see also The Genius of Supermarkets: A short history of the stores that—even now—keep us supplied with an abundance of choices. (The Atlantic)
The 8th Wonder of the World*  (*wonder not guaranteed) In 2017, President Donald Trump and the Wisconsin GOP struck a deal with Foxconn that promised to turn Southeastern Wisconsin into a tech manufacturing powerhouse. Inside Foxconn’s empty buildings, empty factories, and empty promises in Wisconsin.  (The Verge)
Here’s How Much You Would Pay Under Biden’s and Trump’s Tax Plans: Former Vice President Biden has a detailed proposal that involves raising taxes on people with taxable income of more than $400,000—essentially targeting the top 1%. President Trump wants to keep the tax cuts that went into effect in 2018, which largely benefited top earners. (Barron’s)
Audio’s Opportunity and Who Will Capture It As most of the major media categories — music, video and video games — have existed for decades, we tend to forget that media is technology.  (Matthew Ball)
An Ocean Separated Them. A Surfboard Connected Them. See: 2020 Has a Happy Story After All An unlikely tale about an Ohio mechanic who lost his cherished board on one side of the Pacific and a teacher from the Philippines who found it on the other. (Sports Illustrated)

Be sure to check out our Masters in Business interview this weekend with Ray Dalio, founder and Chairman of Bridgewater Associates, the world’s largest hedge fund. His latest book, The Changing World Order: Why Nations Succeed and Fail, will be published January 12, 2021.


The Worst Virus Outbreaks in the U.S. Are Now in Rural Areas

Source: New York Times


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Whole Lotta Love

Small Faces You need lovin

Willie Dixon was not credited for the song until he sued Led Zeppelin in 1985.. It is also generally assumed that Led Zeppelin were inspired by the Small Faces’ “You Need Loving”, which was itself based on Muddy Waters “You Need Love”.

Release date: 22nd October 1969


Luca Stricagnoli

2 Cellists

Prince Live

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Succinct Summation of Week’s Events 10.23.20

Succinct Summations for the week ending October 23rd, 2020


1.  Markets find their footing as stimulus talks continue;
2. Jobless claims fell 55k w/o/w from 842k to 787k.
3. Housing market index stands at 85 for October, above expectations.
4. Existing home sales came in at 6.540M in September, above expectations.
5. PMI Composite stands at 55.5 for October, above expectations.


1. National infection Covid-19 rate is spiking, especially in rural areas.
2. Home mortgage apps fell 2.0% w/o/w, the fourth straight weekly decline.
3. Housing starts came in at 1.415M for September, below expectations.
4. Index of leading indicators rose 0.7% m/o/m, previous increase.

Thanks, Matt!


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The Hidden World of Failure



Yesterday’s column, Mediocre SPAC Returns Shouldn’t Be a Surprise, was ostensibly about special-purpose acquisition vehicles. But really, it could have been on anything. Not-so-hidden within the financial discussion are two related themes that I have been fascinated by for quite some time.

The first is simply the title of this post: Everything is Survivorship Bias. As I noted yesterday:

“The key reason for this is that survivorship bias colors everything. Investors first learned of this through overstated mutual fund returns. Once we account for the funds that were closed (or otherwise removed from the dataset), much of the mutual fund investment outperformance disappeared. The same is true for collectible artwork, fine wine, automobiles, or other alternative asset classes.”

The fascinating aspect of this is how truly hidden it is. The successful products we use every day are the result of initial failure and subsequent improvement. The iterative process consists of repeated failed attempts that are hidden from view. You probably don’t think about all the little parts that make up any product, nor how each has slowly evolved over time. Your mobile phone, car, house, sneakers — really any product you use goes through this process.

Book publishing is instructive: I am currently reading Salt, Fat, Acid, Heat: Mastering the Elements of Good Cooking. Its one of 100 New York Times bestsellers for 2018. But consider the odds this book faced: Each year, US publishers release about 300,000 books. But that is just from publishing houses; include self-published books and you can triple that number (900,000 total). That is in the US; expand your geography to include the entire world and the number rises to 2.1 million books. This is to say nothing of rejected manuscripts, unpublished works, and half finished books that never see the light of day. The probability that any attempt at writing a book that makes it to the best seller list is far more daunting than it appears.

You can do the same exercise for athletes, mutual funds, tech start ups, restaurants, apps, video games, broadway plays, really everything that is created. All successful products are built upon an unseen legacy of the competitive products that failed. But another hidden graveyard contains the various iterations, drafts, edits, and prior versions of products before they resulted in success.

This hidden world of failure helps to create a deeply flawed understanding of the universe. By not seeing failure, we misunderstand the elements of success.

Which brings us to our second idea, the other side of Survivorship Bias: It is that success is a rare and delicate thing. It is far rarer than most of us realize in our day to day lives. Not only that, our faulty mental models believe achieving  is faster, cheaper and easier than it really is.

This is because our mental models of the universe are unusually bad at understanding probabilities. They do an excellent job of keeping us alive long enough to procreate and pass genes on to the next generation. But when it comes to calculating odds on the fly, we just were not built for that.

The entire gaming and casino industries are built upon this flaw.

Sports leagues crown champions every year; some fund managers outperform; hey, someone is gonna win the lottery. But we underestimate how rare these occurrences are, and how difficult it is to create a successful item of lasting value.

Why else would anyone ever open a restaurant or invest in a Broadway play if they truly understood how much the odds are stacked against them?

Everything is the result of survivorship bias. It is hidden and easily overlooked. That is why success is so much rarer, more difficult and fragile than it appears to be.



Mediocre SPAC Returns Shouldn’t Be a Surprise (October 22, 2020)

Survivorship Bias (& Compounding) in The Art World (May 16, 2019)

Survivorship Bias on Wheels (August 14, 2018)

90% of Everything is Crap (July 25, 2013)


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10 Friday AM Reads

My end of week morning train WFH reads:

Stocks Typically Climb, Regardless of Who’s in the White House Nonetheless, some analysts are drawing comparisons to 2000 when a contested election led to a selloff (Wall Street Journal)
Why Own Bonds When Rates are So Low? With 10-Year U.S. Treasury Bonds currently yielding less than 1% annually, the question on so many investors’ minds is: Why should I own bonds at all? (Of Dollars And Data)
FOMO is every investor’s worst enemy. Here’s how to fight it Face the fear of missing out so you don’t miss new opportunities (Marketwatch)
Mediocre SPAC Returns Shouldn’t Be a Surprise The latest Wall Street craze puts Sturgeon’s Law to the test. (Bloomberg)
The American Pickup: As far as most consumers and producers are concerned, a pickup isn’t a pickup unless it’s big. (N+1) see also Spread of Electric Cars Sparks Fights for Control Over Charging States across U.S. weigh what role electric utilities should play in building new networks for powering vehicles (Wall Street Journal)
During the Great Financial Crisis, Overly Optimistic Ratings Helped Kill the Market. Could It Be Happening Again? An academic report found a major difference between ratings for tranches and their underlying securities that could indicate CLOs are riskier than investors think. (CIO)
What Al Fresco Dining May Look Like When It’s Cold In some neighborhoods, rows of heat lamps may become a defining feature of Covid winter sidewalks. But costly heaters aren’t the only or best option for many restaurants. (Bloomberg)
Are We Trading Our Happiness for Modern Comforts? As society gets richer, people chase the wrong things. (The Atlantic)
David Letterman Isn’t Here to Cheer You Up This Time The veteran TV host is back with more episodes of his Netflix interview series and a perspective that has been altered by the coronavirus pandemic. (New York Times)
‘Letter to You’ by Bruce Springsteen: A Memo From The Boss Bruce Springsteen’s 20th studio LP is an album tailored to longtime fans that explores aging, loss and the meaning found in music. (Wall Street Journal)

Be sure to check out our Masters in Business interview this weekend with Ray Dalio, founder and Chairman of Bridgewater Associates, the world’s largest hedge fund. His latest book, The Changing World Order: Why Nations Succeed and Fail, will be published January 12, 2021.


Diminished impact of 3rd parties in 2020 vs 2016

Source: @MorningConsult via @bpmehlman


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2018 Mercedes-AMG GT R

I’ve had an old SL, and a newish SLK, and have almost purchased other cabriolet’s from Mercedes Benz. The CLS was an intriguing sedan, the new S Coupe is quite lovely, and the GLE was test driven and briefly considered (we ended up with the BMW X4). And of course, the 300SL Gullwing is on my fantasy garage list.

Recently, I have become intrigued by the various flavors of the AMG GT coupe. Its a mid-engine,* highly-tuned supercar from the folks in Stuttgart. It is reasonably priced, at least as far as supercars go, especially when compared to Ferraris, Lamborghini, and Aston Martin  performance cars.

Consider the base car — previously called the AMG GTS, the line up has been reorganized as  GT, GT-C and GT-R. The base version of the GT used to be the S, which lacked some details I really like (Seats, Grill, HP etc.) 2017 saw many of those details standardized across the line, and a facelift across the entire line.

The base version now goes by the nomenclature AMG GT, and at $115,900, it is a relative bargain for a 469 hp car that does 0-60 mph 3.9 seconds. It is prettier than the Porsche 911, and seems more luxurious than the classic rear engine Porsche in the same price range.

Step up to the C, and the price rises to $150,900, adds several options as standard, gets you 550 hp, and sprints to 60 mph in 3.6 seconds. This seems to be the sweet spot in the line up, a nice balance of price, performance and comfort. Its the model I would be shopping for, unless a perfect R version in that ridiculously delightful green showed up at a bargain price.

The top of the line, pictured below at $162,900, gets you 577hp, a fixed wing, and a 0-60 time of 3.5 seconds. It also gives you a $9900 option to add a specific color: AMG Green Hell Magno. My initial reaction when seeing it in photos was to recoil in disgust, but after seeing it in person, I have done a 180 — I am now completely enamored with it, its utterly delightful. If I were ordering a brand new C, designo Cardinal Red metallic or AMG Solarbeam Yellow metallic would be my choices, or even designo Brilliant Blue Magno but that Green Hell Magno makes for the case for stepping up to the R.

The M6 was purchased off of lease for less than half of new (I flew to Indianapolis to test drive, buy and drive it home). I have looked at a variety of 911s, R8s, and Bentley GTs — all 4-8 years, with big depreciation making them reasonably priced at half of new. If these see similar depreciation, then 2022 is when you can start finding these 2017 AMG supercars at bargain prices.



Source: CNET



Source: Motor Trend
See Also: Mercedes-AMG GT R Coupé, Mercedes, Longhorn Racing Academy




* Mid-engine does not always mean behind the driver — this is a front mid-engine / rear-wheel drive (FMR) design. The powerplant sits ahead of the cabin, but pushed back far enough that it sits in the center between the axles, making it a mid-engined car.

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