Ray Dalio: Is it 1937 all over again?

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CULater
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Ray Dalio: Is it 1937 all over again?

Post by CULater » Sat Jul 28, 2018 10:30 am

Back in 2015, Ray Dalio, the billionaire founder of hedge-fund giant Bridgewater Associates, compared the economic climate at the time to the one Americans grappled with some 80 years ago
The correlation between the S&P 500 over the past four years (black and white candles in the chart below) and the four years leading up to the 1937 top (blue candles) is roughly 94%. As I have suggested in the past, price analogs are not very valuable on their own but when the fundamentals also parallel closely they become far more interesting.
Image

https://www.marketwatch.com/story/if-ra ... 2018-07-26
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Ray Dalio: Is it 1937 all over again?

Post by livesoft » Sat Jul 28, 2018 10:48 am

Please tell me the point of this post and what YOU (CULater) are changing for yourself based on what you read. Thanks!

(That is, add the personal touch to it.)
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Re: Ray Dalio: Is it 1937 all over again?

Post by Grt2bOutdoors » Sat Jul 28, 2018 10:52 am

Born in 1949, how would he know? :confused
I find when folks have nothing to say, they tend to babble. There is tons of babbling going on, might that be because hedge funds really have NOT performed that well? :confused
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Re: Ray Dalio: Is it 1937 all over again?

Post by KlangFool » Sat Jul 28, 2018 10:57 am

OP,

If you are worry enough about this, what have you done to prepare for this? If it is not important enough to worry you, why post this in the first place? It must be pure noise.

KlangFool

P.S.: I am buying more gold jewelry.

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Re: Ray Dalio: Is it 1937 all over again?

Post by gmaynardkrebs » Sat Jul 28, 2018 11:05 am

Has Bridgewater been short the market since 2015? If not, I'd like to ask Dalio why.

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JoMoney
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Re: Ray Dalio: Is it 1937 all over again?

Post by JoMoney » Sat Jul 28, 2018 11:26 am

On a log scale, inflation adjusted, 'Total Return' basis... I can find other time periods with return sequences that look a lot closer than 1937.
Image
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Ray Dalio: Is it 1937 all over again?

Post by gmaynardkrebs » Sat Jul 28, 2018 11:41 am

JoMoney wrote:
Sat Jul 28, 2018 11:26 am
On a log scale, inflation adjusted, 'Total Return' basis... I can find other time periods with return sequences that look a lot closer than 1937.
I'm not sure I get this. Was the investor at the peak of 1929 fully recovered by roughly 1936/7?

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JoMoney
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Re: Ray Dalio: Is it 1937 all over again?

Post by JoMoney » Sat Jul 28, 2018 11:45 am

gmaynardkrebs wrote:
Sat Jul 28, 2018 11:41 am
JoMoney wrote:
Sat Jul 28, 2018 11:26 am
On a log scale, inflation adjusted, 'Total Return' basis... I can find other time periods with return sequences that look a lot closer than 1937.
I'm not sure I get this. Was the investor at the peak of 1929 fully recovered by roughly 1936/7?
Yes, On an inflation adjusted basis, total returns (including dividends), $10,000 on 09/01/1929 was 10,327.61 on 03/31/1937

Note: There was rampant DEFLATION ... without that adjustment, there was a loss of dollar value $10,000 became $8,477.01 on a non-inflation adjusted basis.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Ray Dalio: Is it 1937 all over again?

Post by Blueskies123 » Sat Jul 28, 2018 11:59 am

Here is Ray's current portfolio, he appears to staying the course.

https://finbox.io/ideas/ray-dalio

argest holdings as of the most recent Form 13F filing. Analysis limited to top 150 holdings.
Ticker Name Holding ($mil) % Of Portfolio
VWO
VANGUARD INTL EQUITY INDEX F
2,423.7 23.1%
SPY
SPDR S&P 500 ETF TR
2,349.4 22.4%
EEM
ISHARES TR
554.8 5.3%
IEMG
ISHARES INC
522.3 5.0%
GLD
SPDR GOLD TRUST
491.7 4.7%
EWZ
ISHARES INC
374.9 3.6%
LQD
ISHARES TR

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zaboomafoozarg
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Re: Ray Dalio: Is it 1937 all over again?

Post by zaboomafoozarg » Sat Jul 28, 2018 12:16 pm

Blueskies123 wrote:
Sat Jul 28, 2018 11:59 am
Here is Ray's current portfolio, he appears to staying the course.
Interesting, no developed international markets, only emerging with a tilt to Brazil.

2015
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Re: Ray Dalio: Is it 1937 all over again?

Post by 2015 » Sat Jul 28, 2018 3:01 pm

My, my, my, another pretty little chart from Marketwatch (note the name). As in the case of all such noise, the answer is...maybe, maybe not. Actionable? Hardly.

CULater
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Re: Ray Dalio: Is it 1937 all over again?

Post by CULater » Sat Jul 28, 2018 4:00 pm

Always good to remind ourselves of possibilities in the stock market and set allocations accordingly, especially after the big runup in recent years. Not many investors are prepared for a repeat of this:

Image
Although the current time frame doesn’t match up perfectly with what was going on in the 1930s, it does make sense for investors to heed Roth’s advice — an education in the possibilities of the stock market is a good way to prepare for a wide range of scenarios.
http://awealthofcommonsense.com/2017/11 ... scenario/
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

minimalistmarc
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Re: Ray Dalio: Is it 1937 all over again?

Post by minimalistmarc » Sat Jul 28, 2018 4:08 pm

CULater wrote:
Sat Jul 28, 2018 4:00 pm
Always good to remind ourselves of possibilities in the stock market and set allocations accordingly, especially after the big runup in recent years. Not many investors are prepared for a repeat of this:

Image
Although the current time frame doesn’t match up perfectly with what was going on in the 1930s, it does make sense for investors to heed Roth’s advice — an education in the possibilities of the stock market is a good way to prepare for a wide range of scenarios.
http://awealthofcommonsense.com/2017/11 ... scenario/
If it happens it happens.

If you hang on to your job then amazing buying opportunity

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Re: Ray Dalio: Is it 1937 all over again?

Post by azanon » Sat Jul 28, 2018 4:10 pm

CULater wrote:
Sat Jul 28, 2018 4:00 pm
Always good to remind ourselves of possibilities in the stock market and set allocations accordingly, especially after the big runup in recent years. Not many investors are prepared for a repeat of this:
That's right, and the statistics bear that out. Average returns of the typical investor is some 3% or more lower than the average returns of their current portfolio. And it's because maybe 2 in 10 people actually have the stomach to sit through that with 70% or more equities. Yes, I just said about 2 in 10 people actually have the risk tolerance long term for a mostly all stock portfolio. And 9 out of 10 people think they're the 2 in 10.

Everyone's a fan of stocks until it all turns south, then panic ensues.

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Re: Ray Dalio: Is it 1937 all over again?

Post by MJW » Sat Jul 28, 2018 4:32 pm

azanon wrote:
Sat Jul 28, 2018 4:10 pm
And it's because maybe 2 in 10 people actually have the stomach to sit through that with 70% or more equities. Yes, I just said about 2 in 10 people actually have the risk tolerance long term for a mostly all stock portfolio. And 9 out of 10 people think they're the 2 in 10.
Really? I get the idea, but it seems drastic. I could see it as more of a concern with larger portfolios, but younger accumulators with relatively small portfolios are selling themselves short by being 70% equities, in my humble and perhaps misguided opinion. Hopefully I'm not one of those 9 out of 10 you reference. 8-)

Then again, I'm heavy on cash (what most people would call an emergency fund) being self-employed at the moment, so more willing to let my equity portfolio ride. Maybe my version of mental accounting is just different.

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Re: Ray Dalio: Is it 1937 all over again?

Post by KlangFool » Sat Jul 28, 2018 5:04 pm

CULater wrote:
Sat Jul 28, 2018 4:00 pm
Always good to remind ourselves of possibilities in the stock market and set allocations accordingly, especially after the big runup in recent years. Not many investors are prepared for a repeat of this:

Image
Although the current time frame doesn’t match up perfectly with what was going on in the 1930s, it does make sense for investors to heed Roth’s advice — an education in the possibilities of the stock market is a good way to prepare for a wide range of scenarios.
http://awealthofcommonsense.com/2017/11 ... scenario/
CULater,

<<Not many investors are prepared for a repeat of this:>>

I disagreed.

A) What they are not prepared for is not a market downturn. What they are not prepared for is a market downturn plus unemployment long enough to wipe out their emergency fund. A market downturn without unemployment is just a good opportunity to buy more stock.

B) With short-term unemployment to wipe out the emergency fund, it won't matter whether the investor has the stomach. He/she will have to sell their investment to feed their family. I had seen enough families destroyed financially through the past recessions/economy crisis.

KlangFool

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Re: Ray Dalio: Is it 1937 all over again?

Post by KlangFool » Sat Jul 28, 2018 5:07 pm

minimalistmarc wrote:
Sat Jul 28, 2018 4:08 pm
CULater wrote:
Sat Jul 28, 2018 4:00 pm
Always good to remind ourselves of possibilities in the stock market and set allocations accordingly, especially after the big runup in recent years. Not many investors are prepared for a repeat of this:

Image
Although the current time frame doesn’t match up perfectly with what was going on in the 1930s, it does make sense for investors to heed Roth’s advice — an education in the possibilities of the stock market is a good way to prepare for a wide range of scenarios.
http://awealthofcommonsense.com/2017/11 ... scenario/
If it happens it happens.

If you hang on to your job then amazing buying opportunity
minimalistmarc,

1) What if the person is unemployed at the same time, how long can the person last?

2) I am prepared for 5 years of market downturn plus unemployment.

KlangFool

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Re: Ray Dalio: Is it 1937 all over again?

Post by david1082b » Sat Jul 28, 2018 5:20 pm

From the less-famous Sandy Jadeja:

March 2013:
Markets Showing 'Extreme Similarities' With 1929 Crash: Pro https://www.cnbc.com/id/100567928
2016:
The man who accurately predicted 4 market crashes told us 3 more dates to worry about this year. 'We are in for some big bumps on the road to 2018'

So what's his secret? The spot-on track record https://www.independent.co.uk/news/busi ... 17111.html
March 2017:
Crash guru warns the Dow could plunge to 14,800 — a sign could come this week https://www.marketwatch.com/story/crash ... 2017-03-13
Predicting crashes and comparing everything to the great depression is nothing new. There was the 1987 comparison a few years ago as well.

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Re: Ray Dalio: Is it 1937 all over again?

Post by david1082b » Sat Jul 28, 2018 5:27 pm

Blueskies123 wrote:
Sat Jul 28, 2018 11:59 am
Here is Ray's current portfolio, he appears to staying the course.

https://finbox.io/ideas/ray-dalio

argest holdings as of the most recent Form 13F filing. Analysis limited to top 150 holdings.
Ticker Name Holding ($mil) % Of Portfolio
VWO
VANGUARD INTL EQUITY INDEX F
2,423.7 23.1%
SPY
SPDR S&P 500 ETF TR
2,349.4 22.4%
EEM
ISHARES TR
554.8 5.3%
IEMG
ISHARES INC
522.3 5.0%
GLD
SPDR GOLD TRUST
491.7 4.7%
EWZ
ISHARES INC
374.9 3.6%
LQD
ISHARES TR
I've seen some ugly-looking portfolio data in my time but that one takes the cake. I think it's Google Finance that bizarrely changes loads of iShares ETF names to "iShares Inc" or "iShares TR". VWO is emerging equity but here it is called "VANGUARD INTL EQUITY INDEX". The tickers are more useful and as someone already said it's an emerging market bias with Brazil emphasis (EWZ). LQD is Investment Grade Corporate bond apparently.

gmaynardkrebs
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Re: Ray Dalio: Is it 1937 all over again?

Post by gmaynardkrebs » Sat Jul 28, 2018 6:37 pm

david1082b wrote:
Sat Jul 28, 2018 5:27 pm
Blueskies123 wrote:
Sat Jul 28, 2018 11:59 am
Here is Ray's current portfolio, he appears to staying the course.

https://finbox.io/ideas/ray-dalio

argest holdings as of the most recent Form 13F filing. Analysis limited to top 150 holdings.
Ticker Name Holding ($mil) % Of Portfolio
VWO
VANGUARD INTL EQUITY INDEX F
2,423.7 23.1%
SPY
SPDR S&P 500 ETF TR
2,349.4 22.4%
EEM
ISHARES TR
554.8 5.3%
IEMG
ISHARES INC
522.3 5.0%
GLD
SPDR GOLD TRUST
491.7 4.7%
EWZ
ISHARES INC
374.9 3.6%
LQD
ISHARES TR
I've seen some ugly-looking portfolio data in my time but that one takes the cake. I think it's Google Finance that bizarrely changes loads of iShares ETF names to "iShares Inc" or "iShares TR". VWO is emerging equity but here it is called "VANGUARD INTL EQUITY INDEX". The tickers are more useful and as someone already said it's an emerging market bias with Brazil emphasis (EWZ). LQD is Investment Grade Corporate bond apparently.
They pay him how much to buy ETFs?

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willthrill81
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Re: Ray Dalio: Is it 1937 all over again?

Post by willthrill81 » Sat Jul 28, 2018 9:34 pm

Correlation ≠ Causation
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Ray Dalio: Is it 1937 all over again?

Post by gmaynardkrebs » Sat Jul 28, 2018 10:39 pm

willthrill81 wrote:
Sat Jul 28, 2018 9:34 pm
Correlation ≠ Causation
True, but the OP's article was not arguing that. Perhaps you meant past is not prologue?

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Re: Ray Dalio: Is it 1937 all over again?

Post by willthrill81 » Sat Jul 28, 2018 11:05 pm

gmaynardkrebs wrote:
Sat Jul 28, 2018 10:39 pm
willthrill81 wrote:
Sat Jul 28, 2018 9:34 pm
Correlation ≠ Causation
True, but the OP's article was not arguing that. Perhaps you meant past is not prologue?
It explicitly examined the correlation between then and now.

And yes, past is not prologue.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Ray Dalio: Is it 1937 all over again?

Post by typical.investor » Sat Jul 28, 2018 11:14 pm

CULater wrote:
Sat Jul 28, 2018 10:30 am
Back in 2015, Ray Dalio, the billionaire founder of hedge-fund giant Bridgewater Associates, compared the economic climate at the time to the one Americans grappled with some 80 years ago
The correlation between the S&P 500 over the past four years (black and white candles in the chart below) and the four years leading up to the 1937 top (blue candles) is roughly 94%. As I have suggested in the past, price analogs are not very valuable on their own but when the fundamentals also parallel closely they become far more interesting.
Image

https://www.marketwatch.com/story/if-ra ... 2018-07-26
I say no it's not 1937.

My understanding is that the USD was re-pegged to gold in 1935. Since the US experience gold inflows this was expansionary in terms of money supply. Gold at that time accounted for 80%+ of the monetary base if my understanding is correct.

Fearing inflation the Treasury Department changed gold inflow policy in December 1936 to an inactive account. Since the Federal Reserve was no longer holding inflows, the monetary base was basically frozen. The policy mistake was undone in February 1938.

So while upping rates today might be premature inflation fighting and have a similar effect as freezing the monetary base to slow the economy, I think the Fed. is watching the possibility and at any rate hiking rates won't have the same effect as removing gold inflows from the monetary supply did.

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Re: Ray Dalio: Is it 1937 all over again?

Post by CULater » Sun Jul 29, 2018 10:45 am

1) What if the person is unemployed at the same time, how long can the person last?

2) I am prepared for 5 years of market downturn plus unemployment.
Then what happens?
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Ray Dalio: Is it 1937 all over again?

Post by KlangFool » Sun Jul 29, 2018 11:02 am

CULater wrote:
Sun Jul 29, 2018 10:45 am
1) What if the person is unemployed at the same time, how long can the person last?

2) I am prepared for 5 years of market downturn plus unemployment.
Then what happens?
CULater,

I will trigger my plan D in year 3. Both my kids will be graduated in 2 years. I no longer need to be physically in this location. So, what is your plan? Are you worried enough to plan for this?

KlangFool

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Re: Ray Dalio: Is it 1937 all over again?

Post by Pajamas » Sun Jul 29, 2018 11:03 am

There certainly are some similarities. It's a good reminder to investors that the markets don't always go up.

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Re: Ray Dalio: Is it 1937 all over again?

Post by columbia » Sun Jul 29, 2018 11:41 am

Using that chart to predict doom seems excessive. Having said, there are certainly indicators out there, which could be used to forecast a crash. I’m not a seer, however. :)

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Re: Ray Dalio: Is it 1937 all over again?

Post by nedsaid » Sun Jul 29, 2018 12:01 pm

No it is not 1937 again. The economy is so much different than it was back then. I don't see any similarities. Maybe technical indicators in the stock market might be similar but the technical analysts have a poor track record for predicting much of anything. I would respect Ray Dalio's opinion but he is human like the rest of us.
A fool and his money are good for business.

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Re: Ray Dalio: Is it 1937 all over again?

Post by jalbert » Sun Jul 29, 2018 12:30 pm

In 1937, the govt raised taxes and cut spending in response to the effects of New Deal spending on the budget and national debt. The economy was still too fragile to tolerate it, and a double-dip depression occurred.

In 2018, the govt lowered taxes. Many economists, including Ben Bernanke, think the economy is already doing well, and that it is the wrong time to cut taxes. Outcome is TBD.
Risk is not a guarantor of return.

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Re: Ray Dalio: Is it 1937 all over again?

Post by tesuzuki2002 » Sun Jul 29, 2018 12:36 pm

CULater wrote:
Sat Jul 28, 2018 10:30 am
Back in 2015, Ray Dalio, the billionaire founder of hedge-fund giant Bridgewater Associates, compared the economic climate at the time to the one Americans grappled with some 80 years ago
The correlation between the S&P 500 over the past four years (black and white candles in the chart below) and the four years leading up to the 1937 top (blue candles) is roughly 94%. As I have suggested in the past, price analogs are not very valuable on their own but when the fundamentals also parallel closely they become far more interesting.
Image

https://www.marketwatch.com/story/if-ra ... 2018-07-26
So is it time to go all out and get into cash??

gmaynardkrebs
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Re: Ray Dalio: Is it 1937 all over again?

Post by gmaynardkrebs » Sun Jul 29, 2018 12:52 pm

tesuzuki2002 wrote:
Sun Jul 29, 2018 12:36 pm
CULater wrote:
Sat Jul 28, 2018 10:30 am
Back in 2015, Ray Dalio, the billionaire founder of hedge-fund giant Bridgewater Associates, compared the economic climate at the time to the one Americans grappled with some 80 years ago
The correlation between the S&P 500 over the past four years (black and white candles in the chart below) and the four years leading up to the 1937 top (blue candles) is roughly 94%. As I have suggested in the past, price analogs are not very valuable on their own but when the fundamentals also parallel closely they become far more interesting.
Image

https://www.marketwatch.com/story/if-ra ... 2018-07-26
So is it time to go all out and get into cash??
If Germany annexes the Czech Republic, yes.

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Re: Ray Dalio: Is it 1937 all over again?

Post by nisiprius » Sun Jul 29, 2018 1:30 pm

The article isn't about what Ray Dalio is saying, it's about what one Jesse Felder is saying.

Who is he? The article identifies him as "Jesse Felder of the popular Felder Report blog." So the words of some "popular" blogger are being wrapped in the mantle of a much more famous authority. Boo.

Has Dalio himself said anything about how his statements in 2015 look to him now, in 2018?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Ray Dalio: Is it 1937 all over again?

Post by CULater » Sun Jul 29, 2018 4:20 pm

nisiprius wrote:
Sun Jul 29, 2018 1:30 pm
The article isn't about what Ray Dalio is saying, it's about what one Jesse Felder is saying.

Who is he? The article identifies him as "Jesse Felder of the popular Felder Report blog." So the words of some "popular" blogger are being wrapped in the mantle of a much more famous authority. Boo.

Has Dalio himself said anything about how his statements in 2015 look to him now, in 2018?
Well, at least as of a year ago he was saying the same thing.

https://www.youtube.com/watch?v=hFcnu_54zl8

And as of June 2018 Bridgewater was saying this:
Bridgewater Associates, the world’s largest hedge fund, is sounding the alarm on nearly every financial asset.

“We are bearish on almost all financial assets,” the firm said in a note to clients last week that was seen by Business Insider and first reported by ZeroHedge. “Markets are still pricing in Goldilocks conditions, compounding the risks.”

“2019 is setting up to be a dangerous period for the economy, as the fiscal stimulus rolls off while the impact of the Fed’s tightening well be peaking,” the firm continued. “And since asset markets lead the economy, for investors the danger is already here.”
https://www.businessinsider.com.au/brid ... ing-2018-6
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Ray Dalio: Is it 1937 all over again?

Post by nisiprius » Sun Jul 29, 2018 4:34 pm

CULater wrote:
Sun Jul 29, 2018 4:20 pm
nisiprius wrote:
Sun Jul 29, 2018 1:30 pm
...The article isn't about what Ray Dalio is saying, it's about what one Jesse Felder is saying....Has Dalio himself said anything about how his statements in 2015 look to him now, in 2018?
...Well, at least as of a year ago he was saying the same thing.
https://www.youtube.com/watch?v=hFcnu_54zl8
...And as of June 2018 Bridgewater was saying [these bearing things]:
https://www.businessinsider.com.au/brid ... ing-2018-6
Yes, but, in 2018, or 2019, does he:
  • ...display a chart comparing S&P 500 price movements for the last four year to the four years leading up to 1937?
  • ...say anything about a "roughly 94% correlation" in those price movements?
  • ...say that he regards that correlation as having any importance at all?
I get it that Ray Dalio has been consistently bearish for four years, but the price chart and the "94% correlation" do not seem to be Dalio's.

I do see this from among the thirty-odd charts in Dalio's 2015 "daily observations" paper (as uploaded by Jesse Felder). They don't look as similar to me as they do when Jesse Felder plots them.

Image
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

CULater
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Re: Ray Dalio: Is it 1937 all over again?

Post by CULater » Sun Jul 29, 2018 6:56 pm

I guess one can make their own judgments about what Dalio had to say in 2015 from this:

http://im.ft-static.com/content/images/ ... eab7de.pdf

I gather that since that time, things have been unfolding along the lines he discussed and similar to the 1935-1937 period which led to a severe market downdraft beginning in 1937.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Ray Dalio: Is it 1937 all over again?

Post by azanon » Mon Jul 30, 2018 9:20 am

MJW wrote:
Sat Jul 28, 2018 4:32 pm
azanon wrote:
Sat Jul 28, 2018 4:10 pm
And it's because maybe 2 in 10 people actually have the stomach to sit through that with 70% or more equities. Yes, I just said about 2 in 10 people actually have the risk tolerance long term for a mostly all stock portfolio. And 9 out of 10 people think they're the 2 in 10.
Really? I get the idea, but it seems drastic. I could see it as more of a concern with larger portfolios, but younger accumulators with relatively small portfolios are selling themselves short by being 70% equities, in my humble and perhaps misguided opinion. Hopefully I'm not one of those 9 out of 10 you reference. 8-)

Then again, I'm heavy on cash (what most people would call an emergency fund) being self-employed at the moment, so more willing to let my equity portfolio ride. Maybe my version of mental accounting is just different.
The problem is humanity or behavioral finance. Yes I would agree, mathematically, younger people are selling themselves short not being almost exclusively equities, but in practice and on average, many people regardless of age are actually underperforming portfolios that are probably using far less equities, simply because the latter is easier to hold during all economic scenarios. Not a perfect analogy by any means, but essentially the turtle beats the hare.

The wise will consider one's risk tolerance, and that's not necessarily going to be very high simply because someone is young. If anything, an older human is probably more well equipped to watch half or more of a portfolio (of an size) evaporate.

I don't know the best way to access risk tolerance, and I'm not sure anyone does. Are you one of the 9? How could you know for sure. At least consider if you lost half or more of your portfolio from market movements, do you think there's any chance that it would cause you to alter your portfolio? I think if you think that chance is greater than zero, I'd probably lower your stock level if it were me. There's charts around the net that estimate maximum drawdowns based on whatever percent stock you have. So I'd pick the stock level/drawdown level where you thought there's zero chance that you'd sell.

aristotelian
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Re: Ray Dalio: Is it 1937 all over again?

Post by aristotelian » Mon Jul 30, 2018 10:23 am

I agree we should do our best to prepare for unanticipated events, but even I am not concerned with reversal of the space-time continuum.

MJW
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Re: Ray Dalio: Is it 1937 all over again?

Post by MJW » Mon Jul 30, 2018 12:45 pm

azanon wrote:
Mon Jul 30, 2018 9:20 am
I don't know the best way to access risk tolerance, and I'm not sure anyone does. Are you one of the 9? How could you know for sure. At least consider if you lost half or more of your portfolio from market movements, do you think there's any chance that it would cause you to alter your portfolio? I think if you think that chance is greater than zero, I'd probably lower your stock level if it were me. There's charts around the net that estimate maximum drawdowns based on whatever percent stock you have. So I'd pick the stock level/drawdown level where you thought there's zero chance that you'd sell.
I agree about the difficulty of assessing one’s risk tolerance. If you ask me how I would feel if my portfolio were cut in half…well, I’d probably feel bad. But feeling bad doesn’t necessarily translate to “…and therefore I am going to freak out and make a rash decision.” Logically, there isn’t much to be done. Obviously, some have more on the line than others, and other factors that tend to accompany a market drop could very well exacerbate the stress of it.

But I also look at it a bit differently, which I think helps in my case. If we revisit the question of how I would feel if my portfolio were cut in half, I would ask how large my portfolio would be for this hypothetical scenario. In other words, how would I feel if a portfolio of $______ was cut in half? I’m in my mid thirties, and if my portfolio is still quite modest, what is the point in worrying about it? When it grows to the point where I would be more nervous about big drops I take some money off the table. How big must the portfolio get before I start feeling uneasy? I don’t know, but I suspect it’s one of those “I’ll know it when I see it” situations. There’s obviously got to be some math involved in terms of estimated living expenses * how many years’ worth at whatever age I happen to be. I will certainly feel differently about it 15 to 20 years from now, but if I’m meeting my savings goals then I’ve also taken steps to mitigate risk along the way.

So why get all bent out of shape about it in this stage of the game?

david1082b
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Re: Ray Dalio: Is it 1937 all over again?

Post by david1082b » Mon Jul 30, 2018 12:56 pm

CULater wrote:
Sun Jul 29, 2018 6:56 pm
I guess one can make their own judgments about what Dalio had to say in 2015 from this:

http://im.ft-static.com/content/images/ ... eab7de.pdf

I gather that since that time, things have been unfolding along the lines he discussed and similar to the 1935-1937 period which led to a severe market downdraft beginning in 1937.
Page 10 mentions tax increases and fiscal tightening by the government in 1937, with the deficit going from 4% of GDP to zero. This is not what is happening, the deficit is being blown out by tax cuts. Stocks are always risky and can crash at any time even without tightening. Stocks can also not crash when tightening occurs. People who can't take the idea of stock crashes need to avoid stocks entirely and save their money in things that can't go down in price, like CDs and government savings bonds.

azanon
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Re: Ray Dalio: Is it 1937 all over again?

Post by azanon » Mon Jul 30, 2018 2:09 pm

MJW wrote:
Mon Jul 30, 2018 12:45 pm
azanon wrote:
Mon Jul 30, 2018 9:20 am
I don't know the best way to access risk tolerance, and I'm not sure anyone does. Are you one of the 9? How could you know for sure. At least consider if you lost half or more of your portfolio from market movements, do you think there's any chance that it would cause you to alter your portfolio? I think if you think that chance is greater than zero, I'd probably lower your stock level if it were me. There's charts around the net that estimate maximum drawdowns based on whatever percent stock you have. So I'd pick the stock level/drawdown level where you thought there's zero chance that you'd sell.
I agree about the difficulty of assessing one’s risk tolerance. If you ask me how I would feel if my portfolio were cut in half…well, I’d probably feel bad. ..........................

So why get all bent out of shape about it in this stage of the game?
I specifically asked you if you'd alter your portfolio. I already know you're going to feel bad. :happy

My main point has been that human's aren't as logical about that decision as a computer would be. You're talking to the crowd, if you're referring to the mathematics of it; that its better to ignore the drops. I'm looking at it from a standpoint of a realist, and based upon known studies that people on average underperform by several percentages points because they can't hold that volatile a portfolio.

So then, mathematically, if you can't know exactly for sure how you'd react, then why assume you're in a small minority and stick with the high equity allocation?

It reminds me of another similar study where some 80% of drivers that were polled think they are a better than average driver. When I first heard that, I chuckled, then realized how unsurprised I was by that result.

One human trait I'm pretty convinced of is that we are, on average, a pretty proud species.

UpperNwGuy
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Re: Ray Dalio: Is it 1937 all over again?

Post by UpperNwGuy » Mon Jul 30, 2018 2:22 pm

livesoft wrote:
Sat Jul 28, 2018 10:48 am
Please tell me the point of this post and what YOU (CULater) are changing for yourself based on what you read. Thanks!

(That is, add the personal touch to it.)
Did OP ever respond to this question?

malabargold
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Re: Ray Dalio: Is it 1937 all over again?

Post by malabargold » Mon Jul 30, 2018 2:24 pm

Isn’t part of a hedge fund manager’s sworn duty to make pronouncements that arise fear and/or jealousy in the public
at large so they come running to them to handle their assets?

Tell me the next time you see a lot of talking heads on CNBC
own up to a litany of mistakes and underperformance.

JoeRetire
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Re: Ray Dalio: Is it 1937 all over again?

Post by JoeRetire » Mon Jul 30, 2018 2:26 pm

It's definitely not 1937.

MJW
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Re: Ray Dalio: Is it 1937 all over again?

Post by MJW » Mon Jul 30, 2018 4:51 pm

azanon wrote:
Mon Jul 30, 2018 2:09 pm
I specifically asked you if you'd alter your portfolio. I already know you're going to feel bad. :happy
My point was that I didn't think I would alter it. Perhaps I'm grossly overestimating my risk tolerance, but I just don't think I have enough right now to be so bothered by a downturn that it would overrule my logic to the point I would do something drastic. And if I did have an amount that would bother me to lose, I would hope I would have already taken some of that risk off the table. It's difficult to paint in broad strokes here.

And if I'm an outlier it wouldn't be the first time I've been called one. :|

azanon
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Re: Ray Dalio: Is it 1937 all over again?

Post by azanon » Mon Jul 30, 2018 7:01 pm

MJW wrote:
Mon Jul 30, 2018 4:51 pm
azanon wrote:
Mon Jul 30, 2018 2:09 pm
I specifically asked you if you'd alter your portfolio. I already know you're going to feel bad. :happy
My point was that I didn't think I would alter it. Perhaps I'm grossly overestimating my risk tolerance, but I just don't think I have enough right now to be so bothered by a downturn that it would overrule my logic to the point I would do something drastic. And if I did have an amount that would bother me to lose, I would hope I would have already taken some of that risk off the table. It's difficult to paint in broad strokes here.

And if I'm an outlier it wouldn't be the first time I've been called one. :|
Ok I believe you. But yeah, statistically speaking, if you stick out a nasty bear market with a heavy stock portfolio, you will easily be in the minority. Maybe use that fact as an incentive when (not if) the next bear market happens by bragging to yourself that most are going to cave in.

I'm mainly just trying to be a voice for what's happening widespread, which is advisors and robos are putting everyone, particularly young people, in these heavy stock portfolios either knowing or not knowing that most are not going to be able to handle a nasty bear market. The robos in particular I can't wait to see how that turns out in the next bear market since they weren't around in the 07-09 one, and most all of them are advocating as a default very heavy stock portfolios.

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