Author Topic: Changing World Order and the Depression Begins Now? Get Ready For A Long Read  (Read 3250 times)

cool7hand

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Is anyone else following Ray Dalio's work on the Changing World Order? In both of the below, Dalio states his belief that we are at the start of the next depression. I don't think that changes much other than reframing your mind to prepare for the long haul.

Thoughts?

https://www.ted.com/talks/ray_dalio_what_coronavirus_means_for_the_global_economy
https://www.principles.com/the-changing-world-order/

magnet18

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Looks like he expects things to be down for 3-5 years then a recovery with more tech.  Meh. 

I do hope this really kicks the work from home movement into gear.  I hope people realize we don't have to climb into cars and waste 5 hours a week on the highway just to sit at a computer and get pestered by co-workers.

Even assuming I believe his crystal ball, it doesn't scare me in the slightest, the 00 crash took till 03 to start making gains again too

It's whatever happened from 1965-1980 that scares me,
Inflation adjusted s&p500 returns were 0% for 17 years straight. 

Wrenchturner

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Looks like he expects things to be down for 3-5 years then a recovery with more tech.  Meh. 

I do hope this really kicks the work from home movement into gear.  I hope people realize we don't have to climb into cars and waste 5 hours a week on the highway just to sit at a computer and get pestered by co-workers.

Even assuming I believe his crystal ball, it doesn't scare me in the slightest, the 00 crash took till 03 to start making gains again too

It's whatever happened from 1965-1980 that scares me,
Inflation adjusted s&p500 returns were 0% for 17 years straight.

I wonder what impact WFH will have on the employee dynamics?  There's something to be said for developing a rapport with the people you work with, especially when the going gets tough or driven. 

VaCPA

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Looks like he expects things to be down for 3-5 years then a recovery with more tech.  Meh. 

I do hope this really kicks the work from home movement into gear.  I hope people realize we don't have to climb into cars and waste 5 hours a week on the highway just to sit at a computer and get pestered by co-workers.

Even assuming I believe his crystal ball, it doesn't scare me in the slightest, the 00 crash took till 03 to start making gains again too

It's whatever happened from 1965-1980 that scares me,
Inflation adjusted s&p500 returns were 0% for 17 years straight.

I wonder what impact WFH will have on the employee dynamics?  There's something to be said for developing a rapport with the people you work with, especially when the going gets tough or driven.
I agree with you. I believe with everything, balance and moderation is key. It's great to leverage technology to WFH and make everyone's lives a little easier but I think something is lost without any face to face interactions.

But then I look at my wife, who works for Accenture which is one of the biggest consulting firms in the world and works on internal projects so she works from home every day. She seems to collaborate fine with all her coworkers located in different states and countries. I do think she misses being able to step out of the office with a coworker and get a coffee to break up the day but she also loves the flexibility and never commuting.

bthewalls

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It’s really hard to ignore Dalio....he called downturn early 2020. But covid did catch him...

I believe it....economic crash.....Few years to sort covid....another few years to get big economies back in gear....Another few years to deal with unemployment....etc etc..

Yeah, global depression....why couldn’t it happen

Baz

Cabaka

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Looks like he expects things to be down for 3-5 years then a recovery with more tech.  Meh. 

I do hope this really kicks the work from home movement into gear.  I hope people realize we don't have to climb into cars and waste 5 hours a week on the highway just to sit at a computer and get pestered by co-workers.

Even assuming I believe his crystal ball, it doesn't scare me in the slightest, the 00 crash took till 03 to start making gains again too

It's whatever happened from 1965-1980 that scares me,
Inflation adjusted s&p500 returns were 0% for 17 years straight.

 i wouldn't say 3-5 years, but whole industries will change. retail will not be the same travel will shrink with less options, wages will be depressed as a result and the world piled on more debt to make growth and recovering even more difficult. the market may hit new highs this year given 6 trillion more is supporting it; but it may take years to get much higher again with the economic fallout that has yet to come.

fattest_foot

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It's whatever happened from 1965-1980 that scares me,
Inflation adjusted s&p500 returns were 0% for 17 years straight.

This is getting more and more likely, especially as the government just prints trillions more to keep us all at home. It "solves" a short term problem, but it's going to really cripple the country for decades.

Buffaloski Boris

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Depression? Well, yeah.  Of course.  Do we really think a country can shut down it's economy for months, have 20% unemployment and not end up with a depression? 

Ray Dalio is a smart guy.  Made several billion. He has some really good things to say.   


Captain Cactus

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Holy cow... I'm half way through the video and it's terrifying...primarily because I don't know what he means when he says there will be a new world order.  We'll see if things are clearer when I get through the rest of the video...

Buffaloski Boris

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Holy cow... I'm half way through the video and it's terrifying...primarily because I don't know what he means when he says there will be a new world order.  We'll see if things are clearer when I get through the rest of the video...

To me it just means a shake-up of the status quo.  New winners, new losers. Empires rise, empires fall. 

He makes a lot of comparisons to 1930-1945.  The 1930's sure could have ended up a lot better, but they didn't. So it looks like we might get a replay whether we like it or not.  Having seen history, do we learn from it? He's 60/40 pessimistic.  I'm an optimist so I tend to see great opportunity.

Captain Cactus

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Ok, just finished it.  Very interesting...not as terrifying as I initially thought... Once this all shakes out, I wonder if the "new order" will in fact grow the pie and slice it into more pieces, or simply give the billionaires another pie.  Would be nice to see all humans enjoying a baseline of services, ie housing, food, healthcare, education, social justice, etc... not sure how the COVID-19 recession/depression will ultimately result in that, but time will tell. 

Buffaloski Boris

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Ok, just finished it.  Very interesting...not as terrifying as I initially thought... Once this all shakes out, I wonder if the "new order" will in fact grow the pie and slice it into more pieces, or simply give the billionaires another pie.  Would be nice to see all humans enjoying a baseline of services, ie housing, food, healthcare, education, social justice, etc... not sure how the COVID-19 recession/depression will ultimately result in that, but time will tell.
By nature I’m an optimist so I see plenty of good coming out of it. If we’re smart about it.

What I think will be very interesting is how the hourly workers who have been laid off, but in many cases are actually earning more on unemployment, react to this. Will they even be interested in returning to work? The 1930s were something of a heyday for organizing labor.

hodedofome

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I believe Dalio’s predictions have been less accurate once he stopped running his hedge fund day to day. Now that he’s retired, I think he’s lost some of his edge.

And he mostly made good returns in his fund from quantitative means, not global macro predictions like George Soros.

ChpBstrd

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Even assuming I believe his crystal ball, it doesn't scare me in the slightest, the 00 crash took till 03 to start making gains again too

It's whatever happened from 1965-1980 that scares me,
Inflation adjusted s&p500 returns were 0% for 17 years straight.

I'm more worried about what happened in 1990-2020 in Japan. A graying population means falling demand, slowing monetary velocity, and disinflationary undertow. Budgets that assume low to moderate growth prove optimistic and government debts balloon as the country bounces from crisis to deflationary crisis, unable to escape what is fundamentally a demographic problem. Two or more "lost decades" result for investors.

https://www.pacificbridgemedical.com/publication/the-expanding-home-healthcare-market-in-asia/

The US aging curve isn't as steep as Japan's, but the pension and medical payment system is not as reliable in the US. That could force many retirees to hoard every bit of cash they acquire. Add to this the finding that 69% of people in the US have less than $1,000 (and 45% have zero) and you have a recipe for retirees who must be very frugal because they're living off of Social Security alone. If enough people are frugal, you have falling demand, low interest rates, and disinflation.

Kyle Schuant

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A graying population means falling demand, slowing monetary velocity, and disinflationary undertow. Budgets that assume low to moderate growth prove optimistic and government debts balloon as the country bounces from crisis to deflationary crisis, unable to escape what is fundamentally a demographic problem. Two or more "lost decades" result for investors.
The world's population is greying.

vand

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I have great respect for Dalio and I can well imagine that it might take 3-5 years for employment to recover and the scars of Covid19 to heal, but I don't believe that we'll see economic contraction for anywhere near that period of time, which is what technically defines the recession/depression period.

I do agree that many new trends may will form in that time period that are more associated with periods of economic turmoil: weakening USD, higher gold prices, inflation becoming more of a factor, higher taxes, and increasing political uncertainty, but that doesn't mean that a 1930's style downturn. The world has had relatively smooth sailing in the last decade, and perhaps we have some more turbulent waters to navigate in the next few years than we have become accustomed to, but human ingenuity will continue to drive us forward despite the problems we will face.

Dalio is a evidently a great student of history.. but as one of my favourite bloggers has written, history is only interesting because none of what passes for the record must have happened. Everything that unfolded could have taken a different path if different decisions had been taken. We marvel at history only because it highlights how different things were in the past than they are today.
« Last Edit: April 25, 2020, 07:55:33 AM by vand »

Buffaloski Boris

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I have great respect for Dalio and I can well imagine that it might take 3-5 years for employment to recover and the scars of Covid19 to heal, but I don't believe that we'll see economic contraction for anywhere near that period of time, which is what technically defines the recession/depression period.

I do agree that many new trends may will form in that time period that are more associated with periods of economic turmoil: weakening USD, higher gold prices, inflation becoming more of a factor, higher taxes, and increasing political uncertainty, but that doesn't mean that a 1930's style downturn. The world has had relatively smooth sailing in the last decade, and perhaps we have some more turbulent waters to navigate in the next few years than we have become accustomed to, but human ingenuity will continue to drive us forward despite the problems we will face.

Dalio is a evidently a great student of history.. but as one of my favourite bloggers has written, history is only interesting because none of what passes for the record must have happened. Everything that unfolded could have taken a different path if different decisions had been taken. We marvel at history only because it highlights how different things were in the past than they are today.

I think Dalio faces a challenge in relating what we're seeing into terms some of us might understand.  A saying I like: history doesn't repeat, but it sure rhymes. And I think there is plenty of this that is similar to the 1930s.  My read of the chicken innards is that what we're seeing on the front end is more like the 1930's, but it's likely to pivot.  From there I see 2 paths.  One similar to something more like the 1970's. All that E-Z Fed money sloshing around is going to end up somewhere and might end up causing significant inflation. The other path being that of Japan of the last 30 or so years. If I had to gamble, I'd say the second path is more likely due to aging populations across the developed world (including the US) and very minimal pensions in the US.  People will be hoarding cash because they have to. In the end, I think Dalio is right in that the best plan for investors is to diversify well. 

MaaS

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I find the depression topic challenging to discuss because the definitions vary so widely. Do I think we'll see a period of economic contraction beyond a year? Yes. Do I think we'll see a downturn as prolonged as the Great Depression? No.

With that said, I do think this is going to be much worse for the average person than the GFC. The optimism of a "v-shaped" recovery where all these jobs magically reappear is really surprising. While I claim no special insight, I do think it's very possible that even after the "reopening" we're still looking at longer-term low double-digit unemployment.

Heck, Google, a company with over $100 billion in cash, has frozen hiring and cut its marketing budget by half. Imagine what the debt-laden businesses are doing. This type of spending pullback is going to have economic repercussions.

Does that mean we'll see new lows in the market? I have no idea.

Paper Chaser

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I have great respect for Dalio and I can well imagine that it might take 3-5 years for employment to recover and the scars of Covid19 to heal, but I don't believe that we'll see economic contraction for anywhere near that period of time, which is what technically defines the recession/depression period.

The number of full time workers in the US didn't recover from the 2009 GFC until 2015 and the damage from this is more severe than the GFC. All of the jobs gained since then have now evaporated, and the number of actual unemployed is greater than the official "unemployment" numbers show since many states still have backlogs in claims to process, small business owners aren't often eligible for benefits and companies continue to layoff employees or close completely.

The number of people in the US that are currently receiving unemployment benefits from the government now exceeds the entire population of Australia by over a million people. And we'll probably tack on 7-10 million more in the next couple of weeks.

I think 3-5 years for jobs recovery is optimistic.

And companies and even state/local governments are already cutting pay as well, so the jobs that still exist pay less than they did 2 months ago, and any new jobs are likely to have lower wages too. So you'll have less money coming in and a population that's unwilling or unable to spend as freely for quite some time until wages recover.

MustacheAndaHalf

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On March 19, Ray Dalio said the coronavirus outbreak will cost U.S. corporations up to $4 trillion.  At the end of 2019, the U.S. stock market had a total market cap of $37.6 trillion.  If Ray Dalio meant cost U.S. companies market cap, his prediction is only a -10.6% drop from that figure.  But at the time he made the comment, the U.S. market was already down -26.6% year to date.  I'm curious where he meant the $4 trillion cost is incurred.
https://www.cnbc.com/2020/03/19/investor-ray-dalio-estimates-the-corporate-losses-in-the-us-from-coronavirus-will-top-4-trillion.html

ChpBstrd

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On March 19, Ray Dalio said the coronavirus outbreak will cost U.S. corporations up to $4 trillion.  At the end of 2019, the U.S. stock market had a total market cap of $37.6 trillion.  If Ray Dalio meant cost U.S. companies market cap, his prediction is only a -10.6% drop from that figure.  But at the time he made the comment, the U.S. market was already down -26.6% year to date.  I'm curious where he meant the $4 trillion cost is incurred.
https://www.cnbc.com/2020/03/19/investor-ray-dalio-estimates-the-corporate-losses-in-the-us-from-coronavirus-will-top-4-trillion.html

If he meant $4T in earnings, that would bring us back to 2008 in nominal terms. If prices followed earnings, that would be about a 70% decline.

https://fred.stlouisfed.org/series/A446RC1Q027SBEA#

If he meant revenue, and corporate margins remain around 12%, then that's only $480B in earnings, an 8% drop. I've not heard of any permabulls being that bullish. So I'd say he's talking earnings.

Side note: Being mysterious and unclear in one's comments will cause one to be more talked about than being clear and concise. It also allows for easier backtracking. These are important considerations for hedge fund managers seeking to capitalize on free media publicity as an advertising strategy. It's the same if one is founding a religion.

Buffaloski Boris

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On March 19, Ray Dalio said the coronavirus outbreak will cost U.S. corporations up to $4 trillion.  At the end of 2019, the U.S. stock market had a total market cap of $37.6 trillion.  If Ray Dalio meant cost U.S. companies market cap, his prediction is only a -10.6% drop from that figure.  But at the time he made the comment, the U.S. market was already down -26.6% year to date.  I'm curious where he meant the $4 trillion cost is incurred.
https://www.cnbc.com/2020/03/19/investor-ray-dalio-estimates-the-corporate-losses-in-the-us-from-coronavirus-will-top-4-trillion.html

If he meant $4T in earnings, that would bring us back to 2008 in nominal terms. If prices followed earnings, that would be about a 70% decline.

https://fred.stlouisfed.org/series/A446RC1Q027SBEA#

If he meant revenue, and corporate margins remain around 12%, then that's only $480B in earnings, an 8% drop. I've not heard of any permabulls being that bullish. So I'd say he's talking earnings.

Side note: Being mysterious and unclear in one's comments will cause one to be more talked about than being clear and concise. It also allows for easier backtracking. These are important considerations for hedge fund managers seeking to capitalize on free media publicity as an advertising strategy. It's the same if one is founding a religion.

IF prices followed earnings. I just saw some info indicating that the forward PE ratio for the S&P 5+495 was about 19.7. If I read the chart correctly, then that's the highest it's been seen the dot com era. Wow.  Too rich for my blood.   

MaaS

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On March 19, Ray Dalio said the coronavirus outbreak will cost U.S. corporations up to $4 trillion.  At the end of 2019, the U.S. stock market had a total market cap of $37.6 trillion.  If Ray Dalio meant cost U.S. companies market cap, his prediction is only a -10.6% drop from that figure.  But at the time he made the comment, the U.S. market was already down -26.6% year to date.  I'm curious where he meant the $4 trillion cost is incurred.
https://www.cnbc.com/2020/03/19/investor-ray-dalio-estimates-the-corporate-losses-in-the-us-from-coronavirus-will-top-4-trillion.html

If he meant $4T in earnings, that would bring us back to 2008 in nominal terms. If prices followed earnings, that would be about a 70% decline.

https://fred.stlouisfed.org/series/A446RC1Q027SBEA#

If he meant revenue, and corporate margins remain around 12%, then that's only $480B in earnings, an 8% drop. I've not heard of any permabulls being that bullish. So I'd say he's talking earnings.

Side note: Being mysterious and unclear in one's comments will cause one to be more talked about than being clear and concise. It also allows for easier backtracking. These are important considerations for hedge fund managers seeking to capitalize on free media publicity as an advertising strategy. It's the same if one is founding a religion.

IF prices followed earnings. I just saw some info indicating that the forward PE ratio for the S&P 5+495 was about 19.7. If I read the chart correctly, then that's the highest it's been seen the dot com era. Wow.  Too rich for my blood.

With an unemployment rate flirting with 25%. Wild stuff.

Another consideration is just buyback-driven the last half of this bull market was. SP500 earnings really haven't risen that much since 2014: https://www.multpl.com/s-p-500-earnings/table/by-year

Especially when you factor in how much of the earnings increase was tax cuts rather than growth.


ChpBstrd

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On March 19, Ray Dalio said the coronavirus outbreak will cost U.S. corporations up to $4 trillion.  At the end of 2019, the U.S. stock market had a total market cap of $37.6 trillion.  If Ray Dalio meant cost U.S. companies market cap, his prediction is only a -10.6% drop from that figure.  But at the time he made the comment, the U.S. market was already down -26.6% year to date.  I'm curious where he meant the $4 trillion cost is incurred.
https://www.cnbc.com/2020/03/19/investor-ray-dalio-estimates-the-corporate-losses-in-the-us-from-coronavirus-will-top-4-trillion.html

If he meant $4T in earnings, that would bring us back to 2008 in nominal terms. If prices followed earnings, that would be about a 70% decline.

https://fred.stlouisfed.org/series/A446RC1Q027SBEA#

If he meant revenue, and corporate margins remain around 12%, then that's only $480B in earnings, an 8% drop. I've not heard of any permabulls being that bullish. So I'd say he's talking earnings.

Side note: Being mysterious and unclear in one's comments will cause one to be more talked about than being clear and concise. It also allows for easier backtracking. These are important considerations for hedge fund managers seeking to capitalize on free media publicity as an advertising strategy. It's the same if one is founding a religion.

IF prices followed earnings. I just saw some info indicating that the forward PE ratio for the S&P 5+495 was about 19.7. If I read the chart correctly, then that's the highest it's been seen the dot com era. Wow.  Too rich for my blood.

With an unemployment rate flirting with 25%. Wild stuff.

Another consideration is just buyback-driven the last half of this bull market was. SP500 earnings really haven't risen that much since 2014: https://www.multpl.com/s-p-500-earnings/table/by-year

Especially when you factor in how much of the earnings increase was tax cuts rather than growth.

Good point, @MaaS. At what point does hundreds of billions in government stimulus outweigh the loss of hundreds of billions in buybacks?

https://www.forbes.com/sites/simonconstable/2020/04/08/how-covid-19-killed-the-stock-buyback-program/#67ef68aa2715

The market seems to be thinking the stimulus outweighs the loss of buyback capital.


kenmoremmm

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i woke up in the middle of the night thinking about the changing world order as it relates to china vs US.

the US is fortunate in that we have the world's reserve currency, but man, i don't see how china doesn't just leapfrog over us in so many economic measures.

we have states fighting states. deeply divided politics and belief in facts. we have no manufacturing base to jumpstart our economy (good luck with consumerism). we have a horrible savings rate. lazy americans. severe health issues. a dramatic divide between have and have nots. a bunch of gun nuts. and incredible inefficiency in all govt agencies.

our nation's agenda flips every presidential term. china stays on course and crushes all in it's path. china has the advantage of stealing technology shortening its learning curve dramatically. we have so many headwinds in the US, i cannot see our stock market and overall business health projecting out well for the future.

ChpBstrd

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i woke up in the middle of the night thinking about the changing world order as it relates to china vs US.

the US is fortunate in that we have the world's reserve currency, but man, i don't see how china doesn't just leapfrog over us in so many economic measures.

we have states fighting states. deeply divided politics and belief in facts. we have no manufacturing base to jumpstart our economy (good luck with consumerism). we have a horrible savings rate. lazy americans. severe health issues. a dramatic divide between have and have nots. a bunch of gun nuts. and incredible inefficiency in all govt agencies.

our nation's agenda flips every presidential term. china stays on course and crushes all in it's path. china has the advantage of stealing technology shortening its learning curve dramatically. we have so many headwinds in the US, i cannot see our stock market and overall business health projecting out well for the future.

People made fun of and criticized China for erecting the Great Firewall, but in hindsight perhaps this was the only way to maintain an empire in the early 21st century. Here in the U.S. we have people making anti-vaxxer videos so they can maybe earn a hundred bucks off YouTube or blog ads, then a few thousand people decide they believe it because they saw it on the internet, then thousands of people start getting measles and mumps again. In the US, internet based conspiracy theories run amok, and so we've lacked a consensus about the causes and possible solutions to problems. In the U.S. our leader selection process can be affected by intelligence agencies from foreign countries who would like to see us flounder. Meanwhile, the dopamine economy keeps us glued to our screens for 2-8 hours per day, consuming more both in terms of purchases and false information, with the whole population becoming poorer and more foolish simultaneously.

China has sealed itself off from the destructive power of the internet, while reaping its commercial benefits. Yes, it's an authoritarian dictatorship, but there they are thriving - their latest cooperative success being the conquest of the C19 pandemic amid an environment of national unity.

The really scary thought is that the internet could make it impossible for open societies to succeed. There is this constant headwind of propaganda, misinformation, and productivity loss corroding open societies more than closed societies. For example, here we are in an emergency with an incompetent president who was elected due to online interference from a foreign enemy of the US, with 30% of Americans believing internet conspiracy theories about the virus being a Chinese bioweapon, with other large majorities wanting to ignore public health experts because they listened to a podcast or foxnews.com, and 70% of us having less than $1k in savings but damn sure we have iPhones with data plans. China is sidestepping all this and advancing.

MustacheAndaHalf

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On March 19, Ray Dalio said the coronavirus outbreak will cost U.S. corporations up to $4 trillion.
...
I'm curious where he meant the $4 trillion cost is incurred.
If he meant $4T in earnings, that would bring us back to 2008 in nominal terms. If prices followed earnings, that would be about a 70% decline.
Thank you, that makes a lot more sense.  And you're right (in comments I didn't quote) that he's very vague, which lets him apply a $4 trillion cost any number of places, at any number of times.

I wonder if both a "V" shaped recovery and big drops in stock prices are possible - just on different time frames.  Maybe a "V" shaped recovery, like a V-V day (virus victory) of higher stocks, followed by an economic mess that takes time to sort out.  Normally companies that can't compete go bankrupt, but a number of those companies are being supported by the same COVID-19 loans being provided to all companies.  It's not wrong to save the economy first, but those companies will at some point need to face competition again, and likely fail.  Maybe a short-lived recovery is followed by sorting out all the damage incurred over the epidemic.

In searching on Amazon, I notice I bought the e-book "Big Debt Crisis" by Ray Dalio in Jan 2019 on sale for $1 (hopefully I've done the same with some of my stock picks!).  I think I'll read that to get a sense of his views from before the current crisis - it's also his book with the best customer review scores.

MustacheAndaHalf

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... 30% of Americans believing internet conspiracy theories about the virus being a Chinese bioweapon, with other large majorities wanting to ignore public health experts because they listened to a podcast or foxnews.com, and 70% of us having less than $1k in savings but damn sure we have iPhones with data plans. China is sidestepping all this and advancing.
Another fact I wish I hadn't verified... "sad!"
"Nearly three-in-ten Americans believe COVID-19 was made in a lab"
https://www.pewresearch.org/fact-tank/2020/04/08/nearly-three-in-ten-americans-believe-covid-19-was-made-in-a-lab/

Something I think Ray Dalio misses about America and China: if education is vital to competition, and U.S. education was already behind for years, how is it the U.S. is still competitive?  I bring it up because I have a perspective that Dalio might have missed: we imported them.

Look at Vanguard's S&P 500 to see the 5 largest companies in the U.S.:
Microsoft, Apple, Amazon, Facebook, Google (Alphabet).
All of these vital software companies rely on hiring software engineers from China and India!  The U.S. simply hasn't been graduating enough Americans in software engineering to keep up with the needs of the biggest tech companies.

I would also split U.S. education into college and K-12, because I think the U.S. retains an advantage at the college level, even as K-12 has fallen behind other countries.  I might also have taken away a misunderstanding of Dalio's view after a quick read.  But with what I read, I would disagree with Dalio by saying America imports needed software engineers, many of whom are trained at U.S. colleges that still keep up with international competition.

Buffaloski Boris

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i woke up in the middle of the night thinking about the changing world order as it relates to china vs US.

the US is fortunate in that we have the world's reserve currency, but man, i don't see how china doesn't just leapfrog over us in so many economic measures.

we have states fighting states. deeply divided politics and belief in facts. we have no manufacturing base to jumpstart our economy (good luck with consumerism). we have a horrible savings rate. lazy americans. severe health issues. a dramatic divide between have and have nots. a bunch of gun nuts. and incredible inefficiency in all govt agencies.

our nation's agenda flips every presidential term. china stays on course and crushes all in it's path. china has the advantage of stealing technology shortening its learning curve dramatically. we have so many headwinds in the US, i cannot see our stock market and overall business health projecting out well for the future.

I’m an optimist and I see a great deal of potential for the future for the US. As regards the stock market, I think it’s overbought. The stock market is I think less and less related to the “real” economy than we would want to believe. I’m not a fan of the Efficient Markets Hypothesis at least in the short term, so I tend to discount what we see in the short term as mostly noise, conjecture, and the market just being its typical bat**** crazy self.

The bigger economy is really much more dynamic and dare I say rational? If what we’re concerned about is China and our ability to compete, then I believe we need to be more realistic about how we approach that. The US does not do top-down very well. Nor do we do obedience well. If we are looking to compete with other countries on those terms, then we fail. We just don’t have the history or culture for it. Planning to be China v2.0 is a plan for failure.

Our culture is much more amenable to innovation and creativity. And up until about 20 years ago, resiliency. So to me the trick is to play to our strengths and play down our weaknesses. And further realize that any movement towards that sort of strategy is most likely not going to come from the government. Which if you think about it is a good thing. Can you imagine the leadership of either of our political factions successfully leading an economic or cultural renaissance?  The good thing is that unlike China, our culture and economy doesn’t rely so much on state governance (although that seems to be quickly changing). We have the raw ability and resources to leave China and anyone else in the dust.

TLDR: The US should stop trying to be China. It won’t work.




GuitarStv

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A graying population means falling demand, slowing monetary velocity, and disinflationary undertow. Budgets that assume low to moderate growth prove optimistic and government debts balloon as the country bounces from crisis to deflationary crisis, unable to escape what is fundamentally a demographic problem. Two or more "lost decades" result for investors.
The world's population is greying.

Covid-19 appears to be solving that.

ChpBstrd

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Something I think Ray Dalio misses about America and China: if education is vital to competition, and U.S. education was already behind for years, how is it the U.S. is still competitive?  I bring it up because I have a perspective that Dalio might have missed: we imported them.

Look at Vanguard's S&P 500 to see the 5 largest companies in the U.S.:
Microsoft, Apple, Amazon, Facebook, Google (Alphabet).
All of these vital software companies rely on hiring software engineers from China and India!  The U.S. simply hasn't been graduating enough Americans in software engineering to keep up with the needs of the biggest tech companies.

I would also split U.S. education into college and K-12, because I think the U.S. retains an advantage at the college level, even as K-12 has fallen behind other countries.  I might also have taken away a misunderstanding of Dalio's view after a quick read.  But with what I read, I would disagree with Dalio by saying America imports needed software engineers, many of whom are trained at U.S. colleges that still keep up with international competition.

My read of Dalio is that countries past their prime and in decline can coast for decades by borrowing money, relying on old infrastructure that is not being replaced, getting preferential deals due to having a reserve currency, etc. Culturally, such countries feel they can de-emphasize education, maintain value-losing colonies, fight costly wars over resources, and entertain counterproductive societal norms such as incivility, low work ethic, or mass addiction. The fat and lazy heirs of fortunes are still rich, just not for long.

It's kind of like the story of Sears department stores. At the height of their hubris in the late 60's, they built Sears tower in Chicago. Then they failed to change as discount retailers ate their market share in the 70's and 80's. By the 90's and 00's they were larded up with debt in an attempt to maintain ROE, and remained reliant upon infrastructure, equipment, and supply lines built decades ago. By the 2010's their room for maneuvering had narrowed and in 2019 the empire was over. This is basically the story of the U.S. We're a very long way from the nation that put astronauts on the moon using only slide rulers and tens of thousands of cooperating nerd brains. Clayton Christensen examined this phenomenon from a corporate angle in "The Innovator's Dilemma", but I think his observations apply to nations as well.

Your example of the US having to import knowledge workers because we have de-emphasized education so much (or because our reserve currency is still so valued that it can pay to import workers) is a perfect example of a country maintaining economic growth by consuming its underlying assets. Again, imagine the lazy heirs of a dead businessman hiring foreign workers to clean their house and manicure their lawn, spending down their wealth for the sake of luxury (a few modern sitcoms come to mind). There is a reason wealth and empires rarely survive three or four generations from their peaks. It's human nature to spend down assets instead of working. Ironic to say that here, isn't it?

Jamese20

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i woke up in the middle of the night thinking about the changing world order as it relates to china vs US.

the US is fortunate in that we have the world's reserve currency, but man, i don't see how china doesn't just leapfrog over us in so many economic measures.

we have states fighting states. deeply divided politics and belief in facts. we have no manufacturing base to jumpstart our economy (good luck with consumerism). we have a horrible savings rate. lazy americans. severe health issues. a dramatic divide between have and have nots. a bunch of gun nuts. and incredible inefficiency in all govt agencies.

our nation's agenda flips every presidential term. china stays on course and crushes all in it's path. china has the advantage of stealing technology shortening its learning curve dramatically. we have so many headwinds in the US, i cannot see our stock market and overall business health projecting out well for the future.

People made fun of and criticized China for erecting the Great Firewall, but in hindsight perhaps this was the only way to maintain an empire in the early 21st century. Here in the U.S. we have people making anti-vaxxer videos so they can maybe earn a hundred bucks off YouTube or blog ads, then a few thousand people decide they believe it because they saw it on the internet, then thousands of people start getting measles and mumps again. In the US, internet based conspiracy theories run amok, and so we've lacked a consensus about the causes and possible solutions to problems. In the U.S. our leader selection process can be affected by intelligence agencies from foreign countries who would like to see us flounder. Meanwhile, the dopamine economy keeps us glued to our screens for 2-8 hours per day, consuming more both in terms of purchases and false information, with the whole population becoming poorer and more foolish simultaneously.

China has sealed itself off from the destructive power of the internet, while reaping its commercial benefits. Yes, it's an authoritarian dictatorship, but there they are thriving - their latest cooperative success being the conquest of the C19 pandemic amid an environment of national unity.

The really scary thought is that the internet could make it impossible for open societies to succeed. There is this constant headwind of propaganda, misinformation, and productivity loss corroding open societies more than closed societies. For example, here we are in an emergency with an incompetent president who was elected due to online interference from a foreign enemy of the US, with 30% of Americans believing internet conspiracy theories about the virus being a Chinese bioweapon, with other large majorities wanting to ignore public health experts because they listened to a podcast or foxnews.com, and 70% of us having less than $1k in savings but damn sure we have iPhones with data plans. China is sidestepping all this and advancing.

thriving? they are very poor country in reality... extremely poor.. china isnt shanghai and beijing

Kyle Schuant

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Covid-19 appears to be solving that.
I don't think it'll change the overall trajectory of the world's demographics. If you look at charts of world population and demographics, even looking around the WWII period or the Great Leap forward, you have to squint to see even a slight dip. Each year we get around 140 million births and a bit short of 60 million deaths. The world has about 620 million people over 65.

A death toll which changed the demographics significantly would be more horrendous than anything before in history, in lives lost, including the Black Death. There are just a lot of us humans.

The world's population is greying. This means consumption of goods and services is going to drop, overall, in the coming decades. But since resources are becoming more scarce and pollution is growing (both from absolute growth in resource use, and in accessing marginal resources like shale oil), our consumption was going to drop anyway, whatever our demographics.

Most of Australia's economic growth, to take an example I know well - in the last decades it's been from immigration. Economic growth is passing. Unfortunately this means that living the retiree rentier class lifestyle is also passing.

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I am not sure if there is universal agreement on the definition of an economic depression, but using this definition:

https://www.investopedia.com/terms/d/depression.asp

I would think GDP will drop 10% and if that is the case it would technically make this a depression.   

In terms of length, I hope and think it won't be as long as the great depression of the late 20s and 30s.  It took nearly 30 years for the stock market to re-reach the highs of the late 20s, but I don't think that will be the case this time.

There are many things happening now that haven't happened since pre world war II which makes comparisons to the great depression reasonable.   

Let's hope for the best and do our individual parts to help.

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ChpBstrd - The top 5 U.S. companies are all headquartered in two states: California and Washington State.  Perhaps technology hubs are competitive while other areas of the U.S. suffer declines.  I think there's two things pushing software engineers to immigrate: in China and India, I believe salaries are lower than in Silicon Valley.  Years ago (not sure now) India only allowed the top 2% of high school students to go into Engineering (top 1% could be doctors).  Many people outside that 2% went to U.S. schools to learn software engineering, and then got hired in the U.S.  I suppose Dalio might compare this to Ancient Rome hiring mercenaries?


Buffaloski Boris - I was going to question if private innovation can fix internet connectivity, but in looking it up I was in for a surprise:

https://data.worldbank.org/indicator/IT.NET.USER.ZS?most_recent_value_desc=true
"Individuals using the Internet (% of population)", data as of 2017:
United States 87%
China 54%
India 34%

Parts of each country may be better connected or have higher internet usage, but overall the U.S. is far ahead of India and China.  So maybe internet infrastructure is more of China and India's problem.

Buffaloski Boris

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Buffaloski Boris - I was going to question if private innovation can fix internet connectivity, but in looking it up I was in for a surprise:

https://data.worldbank.org/indicator/IT.NET.USER.ZS?most_recent_value_desc=true
"Individuals using the Internet (% of population)", data as of 2017:
United States 87%
China 54%
India 34%

Parts of each country may be better connected or have higher internet usage, but overall the U.S. is far ahead of India and China.  So maybe internet infrastructure is more of China and India's problem.

The infrastructure in the developing world really stinks. We have a great head start there as compared to China and India. Further, our culture is plainly different and in some ways downright crazy. A lot of folks here and elsewhere lament the crazy. I have a different spin on it: the innovation and the crazy are in some ways two sides of the same coin.  We see it in our cuisine, in our tech, in finance, art, culture, politics, living arrangements, etc. What kind of loon puts chocolate and peanut butter in a porter? An American loon. And it’s my fave beer. What kind of loon takes a cell phone prototype and tosses it in an aquarium to inspire his engineers to make it smaller? An American loon. I happen to like my iPhone. And so on. Why does that internet infrastructure even exist?  Americans do innovation and crazy very well. Other societies will try to emulate the innovation, but they’re going to have a hard time because they’re not willing to tolerate the eccentricity that goes with it.

ctuser1

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The infrastructure in the developing world really stinks. We have a great head start there as compared to China and India. Further, our culture is plainly different and in some ways downright crazy. A lot of folks here and elsewhere lament the crazy. I have a different spin on it: the innovation and the crazy are in some ways two sides of the same coin.  We see it in our cuisine, in our tech, in finance, art, culture, politics, living arrangements, etc. What kind of loon puts chocolate and peanut butter in a porter? An American loon. And it’s my fave beer. What kind of loon takes a cell phone prototype and tosses it in an aquarium to inspire his engineers to make it smaller? An American loon. I happen to like my iPhone. And so on. Why does that internet infrastructure even exist?  Americans do innovation and crazy very well. Other societies will try to emulate the innovation, but they’re going to have a hard time because they’re not willing to tolerate the eccentricity that goes with it.

Couldn't agree more.

You need the American Crazy for the innovation that comes with it.

You need to be careful, however, that the crazy does not turn too much on to itself. America has walked that balance for hundreds of years. I'm hopeful it will continue to, even with the "amplifying the stupid crazy" effect of the social media.

How?

My sixth grade daughter is growing up with the mis-informaton all the time. In fact, her school are even teaching all middle schoolers some very useful details on how to identify misinformation online. When she grows up, I bet she won't even need the conscious effort I have to put in for this. So I am quite hopeful that the country will be back to normal by the time her contemporaries are in charge.


Buffaloski Boris

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The infrastructure in the developing world really stinks. We have a great head start there as compared to China and India. Further, our culture is plainly different and in some ways downright crazy. A lot of folks here and elsewhere lament the crazy. I have a different spin on it: the innovation and the crazy are in some ways two sides of the same coin.  We see it in our cuisine, in our tech, in finance, art, culture, politics, living arrangements, etc. What kind of loon puts chocolate and peanut butter in a porter? An American loon. And it’s my fave beer. What kind of loon takes a cell phone prototype and tosses it in an aquarium to inspire his engineers to make it smaller? An American loon. I happen to like my iPhone. And so on. Why does that internet infrastructure even exist?  Americans do innovation and crazy very well. Other societies will try to emulate the innovation, but they’re going to have a hard time because they’re not willing to tolerate the eccentricity that goes with it.

Couldn't agree more.

You need the American Crazy for the innovation that comes with it.

You need to be careful, however, that the crazy does not turn too much on to itself. America has walked that balance for hundreds of years. I'm hopeful it will continue to, even with the "amplifying the stupid crazy" effect of the social media.

How?

My sixth grade daughter is growing up with the mis-informaton all the time. In fact, her school are even teaching all middle schoolers some very useful details on how to identify misinformation online. When she grows up, I bet she won't even need the conscious effort I have to put in for this. So I am quite hopeful that the country will be back to normal by the time her contemporaries are in charge.

Funny you mention kids.  It seems that every generation wants to lament the sorry state of youth.  I happen to really like the kids I see these days.  They're a hoot.  And they understand stuff like trolling or mis-information almost as second nature.  The future is really bright.