Bridgewater Founder - Ray Dalio

Ray Dalio

Bridgewater Hedge Fund Founder

The second article following is a well written, in depth article on Dalio from the New Yorker

comments from CR website on Dalio Discussion
  1. doothedew  10/24/2011 09:55 AM Report
  2. John Gelles, You Are the Man.

    The only problem is, the young wipper-snappers running the show now, have their heads Too far up their asses to learn anything from someone with the likes of you. Even what you say would fly over the head of the likes of a one, tom brokaw, who tries to commercialize his air-headed anchorman, admiration of your 'greatest generation', would be rendered to a gaseous brain freeze if confronted with the 'global challenges' (to use his words) that "plague", "our times" .

  3. JohnGelles  10/24/2011 09:08 AM Report

    The problem facing advanced industrial nations on Earth is to change from their vulnerable position of basing wealth on future "profit" to basing wealth on future production of the immense list they have of necessary items of "supply".

    To be sure the list changes every day and is not published anywhere. But it exists and can be recorded for systematic management. The invisible hand that is relied on instead of an effective list (and system) does not exist. Reliance on a promise of self-correction that does not exist, leaves nations (and economic empires) on their way to slow or fast decline.

    Today's rules, that call for profit on investment and secure debt as backing for money, have left banks and businesses with too little room for adding people to their payrolls and production to their plans.

    Assuming our Chief Executive, Barack Obama, had the nerve to order his departments to contract for our greatest unmet needs in energy, health, education, infrastructure, affordable housing, etc., and ordered the Treasury to work with the Federal Reserve to be sure to have the money to pay its bills on time, we would be back where we were in 1944, where production was the goal and profit was set at cost plus a necessary percentage of cost.

    The President would face impeachment. But that would be a small risk to take. Before impeachment proceedings had any effect, the President could initiate reform of regulations, taxes and government communications to put into plain English all that must be there if the general public is to understand what he is doing.

    Thereafter, economic things would never be the same. The power of debt to "imprison" production would be crushed. We would be well on the way to energy independence -- or leaders standing in the way would be, like Sewell Avery was in 1944, removed from authority to wreck the nation.

    The Army would back the President and the President would face an impeachment trial if Congress did not ratify his actions.

    Assuming our current President does not want to go this far, he can still make all the changes called for by current events, by talking sense to the American people,

  4. doothedew  10/24/2011 08:18 AM Report

    excuse me, jose; I 'pruned' My EGO last night.

  5. doothedew  10/24/2011 08:11 AM Report

    ... but the problem with 'Professors' is sometimes they are so focused and specialized that they miss things and are lose in interpretation, similar but not the same as bureaucrats, who are cut-off and padded from the reality; similar but different than the rich, who know nothing different; they don't comprehend some of the common sense intangibles associated with the reality of money and commerce that people who have suffered and struggled bring to the Value instilled within the currency. It's a real problem of society and human nature.

    Why not eliminate, the organized crime aspect of 'government'? Why not level the political playing field of both parties, so more people have a say and more of a real choice?! That's all 'Buddy Roemer' wants to change. The time is Right for this. If not done now, then when?! It'll get worse, and probably bloody

  6. josephtbrophy  10/24/2011 08:09 AM Report

    CR at its best; thank you CR and Ray Dalio

    I had to watch the discussion for a second and third time in the wee hours of the morn to make sure I watched the same program as many of commentators below professed to have watched.

    did anyone notice Dalio's embouchure? a mark of achievement! I looked him up on Wiki and sure'nuf his dad was a jazz musician.

    an embouchure takes lots of practice and patience and feedback; identifying what works and what doesn't work. Surely Dalio brings this practical management mindset to Bridgewater everyday. No wonder Bridgewater is he envy of Wall Street.

    I seems to me that Dalio is a highly focused simple man with a simple vision. he avoids the clutter of egos and ideological boxes and snares.

    I would trust Dalio in a heartbeat over Summers and Klugman (sic).

    I would recommend that CR entertain a group session with Dalio and the commentators below with the hope that these learned and opinionated commentators might have an opportunity to have their egos pruned.

  7. doothedew  10/24/2011 07:37 AM Report

    More Good Points Mr. JG. If the economy (reality) works like a machine as this very successful HedgeFundManager-WorldManipulatorVirtuoso proclaims. Then, like a pump/organ/carburetor in a machine, the economy has to be 'primed'. And then once the machine is up and running, the 'priming' Must cease so it (the machine/economy) can function on it's own.

    According to Krugman and Summers (who I assume have crunched the numbers and done the calculating, have likened the 'stimulus' as a spit in the bucket that wouldn't motivate a jackass to fart. And quite frankly, I would Trust those two 'Engineers' of the machine/economy then any of the Bozo 'politicians' (and their '$ugarDaddy make-up artist$) who are basicly just the Clowns of the "street theater" that you speak of.

    I support the faction of the WSO that wants real and true Capitalism; and that won't happen until people start Listening AND Understanding what 'Buddy Roemer' is Saying.

  8. JohnGelles  10/24/2011 06:23 AM Report

    Important Correction:

    The current political campaign in America, and street theater associated with inequality, ought to focus on immediate employment, income and homestead protection, as well as, total repeal of income tax and ridiculous laws and regulations.

    The original sentence was stupid.

  9. JohnGelles  10/24/2011 06:10 AM Report

    By chance on Sunday night (23 October on PBS in Southern California,) I was listening to Booknotes Lamb/Friedman interview in 1994. Milton Friedman was explaining his being an admirer of Hayek and The Road to Serfdom.

    You may watch the whole program at

    In that program Friedman explains his own belief in the negative income tax as the best way to move money to where it is needed to prevent poverty, and by implication, prevent the kind of jobs and mortgage crises we have at this very moment.

    Friedman's main beef with government is its record of failure to prevent legalese and rigidity (in lawmaking and administration of its programs and projects) that an ideal free enterprise system is often able to achieve.

    In this he is right, in my opinion.

    My main beef with Friedman, and his notion of the invisible hand "system" for preventing gross error outside of government and inside markets as they have evolved.

    There is no invisible hand. There is only deductive reasoning from a metaphysical belief in ideal markets.

    Galbraith, Keynes, Lerner and Gelles (this last person no more than an ordinary observer of our times,) limit deductive reasoning to conclusions that can be confirmed by experience via inductive scientific reasoning.

    We four confirm the excessive legalese and rigidity often found in government products and operations -- but see these offenses as inherent in Republican government as well as in Democratic government.

    The issue is therefore results, not more than that.

    Capitalism has come a cropper because its money supply is subject to contraction just when expansion is required. This is easily fixed with output-based money created to supplement debt-based money for as long as necessary.

    The risk of hyperinflation, inherent in monetary schemes, must be met by the intention to dry-up any flood of money via forced savings, taxes or similar method, until motivation returns to any economy, and difficult work is accomplished as effectively as it would be if life itself depends on it: because life does depend on the output of work -- not on the ownership of currency or balances in books of account.

    The negative income tax, which is the same as a positive minimum income, remains a sensible plan to back up other schemes to overcome business contraction and prevent the disasters we expect from deflation.

    Milton Friedman and I have often disagreed. I once wrote him a letter at the Hoover institute -- when Gorbachev first came to power. I suggested the West could trust this man. He disagreed strongly with me. I threw his reply in the garbage. How foolish of me. His note would have been worth a few dollars today. Tant pis.

    The current political campaign in America, and street theater associated with inequality, ought to focus on total repeal of income tax and ridiculous laws and regulations.

    In their place we can put simplified rules with sufficient opportunity to rapidly appeal adverse decision by backup authority educated and experienced in blending compromise, an open mind, risk and objectives in proper proportion to merit our trust.

  10. JohnGelles  10/23/2011 02:19 PM Report

    Paul Krugman nailed it when he said the Occupy Wall Street actions in the West, mimicking in their way the Arab Spring in North Africa, may not produce new answers -- but it has produced some common sense in ordinary people who want sufficient yet fundamental change in Crony Casino Consumer Crazy Capitalism to guarantee full employment, full supply, full demand, and maximum morality in and under the monetary system of production we have been designing from WW I until today.

    In that period of time Hayek has come to symbolize fear that government acting alone (if not constrained by private property and some respect for competition) will kill democracy and Keynes has come to symbolize belief that government can finance economic growth and democratic outcomes with money when events conspire with nature and human nature to defeat our systems of production with one perfect storm or another.

    At the moment crime, corruption and terrorism have surfaced because economic security has evaporated. We have failed to tenure educational, health, and scientific institutions in favor of pointless profit when well distributed wealth was what we needed.

    It is not immense wealth at and near the top that is the problem. Most of it supports the system itself -- not its worst parts, but all its parts.

    It is the mismatch between our potential to enrich the very bottom at the base of our gigantic pyramid and our actual delivery to that base of sufficient money to demand the full potential now in sight.

    Think of what we would do if the threat to our civilization were recognized for what it is: it is real, and it will turn us all into banana republics -- when we deserve what Washington and Jefferson and millions of other great examples wished for us and all our neighbors.

    Many will answer the above with the notion that money is not as short as the good ideas I say are there. They will believe supply creates its own demand. They believe government can no more manage money than it can manage law.

    They have a point. We will have to add as much equity to law as we add debt-free money to debt-based money in circulation.

    We will have to add savings sufficient to make misers of many born to spend. In fact the day after we recognize the need to raise demand we will still have to improve every facet of our knowledge base that fights disease, disaster, narcissism, and unbounded complexity in challenges to human happiness from sources far from law and economics.

    But this sort of reason to know there is no end to history is itself no reason to stop short of goals within easy reach that our parents handed to us. Bury the stake in the skeptics heart and put us all to work with money geared to product not money chained to debt.

  11. 100percent  10/23/2011 01:54 PM Report

    I wonder, would everyone be taking shots at Ray Dalio if he were their relative? We wouldn't be proud of him? We wouldn't be saying some form of "My relative got a great education, worked his way up in finance and does extremely well for the people he invests on behalf of, oh and he tries to promote a culture at work that puts the raw truth of the matter in front of individual ego. He's one version of the American dream."? No? We'd be the one loan standout in the family saying how he has "no connection to reality" right? Give me a break. I'm an unemployed father and this guy makes more sense to me than anyone who buys into the fact that their vitriol means something and will make a difference. The way I see it he's extraordinary at what he does, I'm sure the teachers in PA and other such pensions have no problem with him, and he seems to, until otherwise proven so as that's how it works here in America, operate under the law. So what's the real problem? We don't like he makes so much money? He only makes that money if he makes money for his investors. We don't like the amount of influence that a large hedge fund can have on making and driving markets? Pressure your representatives to change legislation. We'll see then if he truly minds or not, he says he wouldn't. We don't like how out of touch he is? He seems to be in touch with anyone at his company. How in touch are you? How in touch is your boss? Are we doing everything we can to help our fellow Americans get an education or a job? It's as though no one wants to look into a mirror and see how we, yes even the 99%, me included, had some part in this crisis and now want no part in chipping in to get us out of it. Its basis is a denial for any part in this economic situation whatsoever and a desire to simply blame the government and the "one percent" and be done with it. We didn't have any problems when things were good, we were employed, over borrowing and over spending for houses and other items that if we truly were honest with ourselves we would have said "I can't afford this", but no, it was all the predatory lenders, banks and credit card companies fault, I take no responsibility whatsoever. It's an easy thing to do, not take responsibility. Why? In general terms, apathy. Roughly 71% of the voting population is registered to vote, and only about 61% voted in the 2008 and 2010 elections. Roughly 1/3rd of our voting population doesn't even want to take responsibility for who our elected representatives are! And the sad part is that the 99%, the ones who feel as though they've been taken so advantage of are the ones that aren't voting! I know it's easier to get upset, yell at someone, write a scathing blog, camp out somewhere and hold up a sign than it is to try to become as educated as possible about all the issues and then use this information to inform your vote and just maybe try to help others in your community do the same. It's hard work. I just don't see how we think we can get out of this mess without putting in that type of work, and it comes from being productive, being proactive and taking an interest in the real ways we can effect and affect change. Or we can just keep logging on to sites and throw an occasional stone at a guy like Ray Dalio, who has at the bare minimum at least engaged in the conversation. I just don't see anything in history that suggests that will achieve anything lasting or great. We might as well shoot an aircraft carrier with a bb gun.

  12. kisho73  10/23/2011 01:27 PM Report

    Re WhereAreWeNow's comments: While PBS certainly can reflect our discourse and can even help us to broaden our minds and shape our opinions, we need an accessible and inclusive platform or vehicle to put these opinions into action. OWS is "barging in" on a dialogue that has excluded the voices of the majority for far too long.

  13. zevkirsh  10/23/2011 12:13 PM Report

    this man either has Parkinson or some other diskenisia. his head is very subtly shaking and he is losing fine motor control-----

    He speaks in half truths, which is at least better than when charlie rose brings on Lloyd Blankenship and is ilk to apologize and cover up for their crimes on what used to be a public television show and is now a financial syndicated 'interview' program.

  14. doothedew  10/23/2011 08:41 AM Report

    ... maybe the Rich people can make a Big Cake and put All the Surplus people in it, and then eat it?

    I don't know, I'm just trying to give something back for the money I take.

  15. doothedew  10/23/2011 08:38 AM Report

    ... but I suspect that would work as well as 'Prohibition' (thanks PBS)

  16. doothedew  10/23/2011 08:30 AM Report

    @WhereAreWeNow 10/23/2011 08:02 AM

    why, we are all registered repugnantcans 'Now'. 'Now' let the dialogue of the ideologue continue.

    What needs to be done with the Surplus of People in the World? To bring costs down and pay up to a 'Fair' pay; an equilibrium and constant steady temperature and moisture content in harmony with Nature; or do we pick a year in time and adopt the technology of that time, as do the Amish, or is that going back too far? Maybe if we can go back (Technology wise) to 1962.? We'll have to give up our personal computers but we won't have give up our cars (no horse and buggy) to get the technology in sync with the population so we don't have to deal with the surplus people interfering with jobs/prices/costs 'equal'ibrium of the 'Free Market'.

  17. doothedew  10/23/2011 08:11 AM Report

    WOW, JohnGelles. I just read that post/Sermon. Your Brain is firing on all cylinders today.

  18. WhereAreWeNow  10/23/2011 08:02 AM Report

    Wow, I feel like I watched a different interview than some of you. Maybe the parts when he said it was the "obligation" of his employees to challenge his thought process was part of it. I'm sorry nobody was "invited to the table", I thought PBS did that.

    Oh wait, I forgot you OWS people are trying to barge in on any form of decent dialogue.

    Carry on.

  19. doothedew  10/23/2011 08:00 AM Report

    ... TORA! TORA! TORA!

  20. JohnGelles  10/23/2011 07:48 AM Report

    We have survived Germany's Hitler and Russia's Stalin and all the dire consequences democracy's defeat by black or red totalitarianism held in store for the human race.

    Yet we are now confronted with a need to defeat our own ignorance -- as we face shortages of good water, necessary food, and safe energy, etc., and surpluses of populations, waste, hate, weapons, etc,. and ambition to dominate only slightly less than those of the defeated German and Russian empires.

    Our ignorance appears to be equal to the ignorance of our partners in Europe, Asia and the rest of the world. We, as good people, want the best for this planet -- but we must overcome our own ignorance and the evil intention and power to destroy still held by bad people (whom we outnumber by a substantial margin).

    We have fair intelligence to combat the bad ones. But we have weak intelligence to combat our own ignorance. That is why we need a National Economic Security Agency and a National Logistical Planning Agency to bring science and technology to our political system before it is too late.

    Our legislative branch of government has been lost to the money power. The money power is leaderless and lives in a pointless state of fear of the very market mechanisms it has made its God.

    We today have had experience with brains trusts; think tanks; graduate schools of military, government, and market sciences, etc.; but we still depend on the vast literature individual visionaries for ideas on what to do. That literature is not enough. It is a cloud of thought without the focusing apparatus to break the power of money and superstition to dominate the politics of the era.

    Charlie Rose tries to bring focus to our thought and revenue to his enterprise. He may be the best we have. But he is certainly insufficient for the task.

    The very richest on the planet are aware of the problem. The very smartest are also just as much aware. It is the solution that is out of reach. In the street we see and hear the pain of frustration that the Second Bill of Rights foresaw. The jobs, homes and material satisfactions that bundle of economic rights promises is due for payment NOW.

    But with or without such outward poof of progress, we remain powerless in the face an infantile political understanding of the interface between science and narcissism -- people and the forces of nature that created them and it.

    We have established profit as our master not our servant. We have elevated opulence for the few over insight for the voters whose random prejudices are our compass. We are missing vital institutions and an economy to protect them that is itself more coherent than the market or the mob.

    That economy is waiting in the wings tonight.

  21. kisho73  10/23/2011 12:50 AM Report

    Dalio's obviously an expert at what he does and I congratulate him for not minding to make himself vulnerable to criticism if that means he can get the right answers. However, he's totally oblivious when it comes to the financial and social position of the everyman. Laughingly so. He wants to have a rational dialogue? We haven't been invited to the table, that's why we're protesting in the streets.

  22. doothedew  10/22/2011 11:20 PM Report

    ... right into His back pocket... Which is What makes Him Right and Everybody else Wrong (including John McLaughlin)... Now, peons, who wants to play poker? With the Fastest Gun in the Wall Street.

  23. doothedew  10/22/2011 11:12 PM Report

    ... The Wizard of Oz is a Kamikaze Pilot flying straight into the hearts and minds of millions (of Dollars, that is)

  24. goldindawn  10/22/2011 09:31 PM Report

    It felt great to see one of the richer men in the world, Ray Dalio in a sweat on the air with Charlie.

    I felt Ray Dalio’s world view was very illuminating yet in his universe of discourse what he seems to talk about is narrowly focused in the world order of things. For example, he talks about the world from a elite citizen’s national perspective when in fact the corporate economy has no borders and operates world wide. He would not dare to mention that corporate business practice has no patriotism nor fealty to any country.

    Yet, more importantly he misses the ‘message is the method’ of the OWS crowd. The dire economic circumstances of the 99% are a result of corrupt decision makers operating in the 1% vacuum with no connection to reality whatsoever. This is more a clash of values centered on “We are all in this together” ... the true “culture” which he does not seem to be able to recognize. Moreover, the morality of the masses has been shifting markedly. No wonder Ray sweats so profusely! The common suffering citizen feels ripped off from the grand scheme of things in which he has been blissfully ignorant in his complicity.

    I do heartily agree with Ray that a discussion needs to be made about how things really work in the world and I am so glad that he is ready to be wrong if necessary. I wonder if growth might be an obsolete standard to measure economic success when the survival of most life systems on our planet is at stake ? I wonder if post modern capitalists view the Islamic world and it’s Sharia system based on community good will as a threat to the unrestrained growth model. My understanding of Sharia is that instead of usury, the blessings of borrowed money are passed forward to the community and culture in which business is supported.

    By the way, what ever happened to the idea of good will on a business balance sheet? But really what do I know? Like Ray I’d rather be wrong that sad. Tough as that might be, at least I would be learning something.

  25. doothedew  10/22/2011 09:28 PM Report

    Hedge Funds, the New Gold... of the Old World... Order, of Disorder... Gold going up... Houses coming Down... Real Estate Agent Banker is a Clown

  26. hari  10/22/2011 01:29 PM Report

    I had to see it twice to understand why CR was not listening adequately to what Dalio was actually saying and trying to get across this fabulous discourse.

    Dalio is NOT your daily part of your CR program. It's possible that CR lost a bit of his normal audience because of the intuitive intelligence of Dalio and his mental gymnastics...seems his mind is working far ahead of the problems he's trying to (re)solve.

    What he said about EU debt contagion and its resolution is rihght on target. And, if you follow the Summit in Brussels, you'll notice the results will more or less reflect Dalio's perception of the real crisis in confidence in Euro Project.

    NB. CR show needs more of this type of personality who cannot be boxed into an ideological framework or for lack of intellectual gumption to think outside of the box. I know it's demanding to do interviews with such intellectual

    minds who're open to argument and thought process. American political scene right now is declining and falling off a precipiece!

  27. josephtbrophy  10/22/2011 08:09 AM Report

    As Dalio hints, we should WONDER whether we can suspend the laws of gravity for a bit to allow johngelles an opportunity to implement his keynesian consensus.

  28. JohnGelles  10/22/2011 05:54 AM Report

    Perhaps I should have mentioned that TAXING income, property or wealth is the REVERSE of monetizing debt.

    Signed: JG

  29. JohnGelles  10/22/2011 05:40 AM Report

    exterline1860 ~

    Thank you for best comments of the year.

    It is unfortunate that we look to economists, who know too little to find a Keynesian consensus, for solution to our current crises. We obviously need to direct cash flows to people in need and thereafter recruit and train all the labor and automation necessary to supply the goods and services such cash will demand.

    To accomplish the obvious need above, we need a national economic security agency with the computing power of the NSA or more. This will allow Keynesian money to reach people in need without overflowing in ways that would otherwise raise prices far too high for prosperity to be achieved.

    All the price control (even wage control and rationing) tools of WW II may also be required (i.e., in addition to a NESA).

    All the above is predicated on sufficient quantitative easing to ween our economy away from debt-based money and on to output-based money.

    Of course the IR Code must be replaced by simplified systems for money whose management makes taxes totally unnecessary to pay the bills of governments. That code has crippled our middle class and will cripple our national defense if it is not soon abandoned.

    Occupy Wall Street (OWS) may be our best chance to protect us from conservative Hayekian Thatcherian hatred of government solutions. Government solutions are often twisted and false to our democratic ideals. But they can be reformed to defeat those who oppose the Second Bill of Rights (and those who do not even know of it).

    I wrote last night on Ray Dalio on the CR Show page for Catch 22. And tonight I have just watched CR talk jobs and global economic performance with American, Turkish and Indian business people whose purpose is prosperity for all of us as well as all of "them": "they" being the rich and "us" being the rest.

    I am still reading Sylvia Nasser's "Grand Pursuit [of Happiness -- via economic literature of sorts]. The emotional barriers to common sense are immense when it come to money and ideas in circulation. Money is a language all by itself; and so are economic (and business) ideas. This CR Show archive is a p--s poor place to gain knowledge. But exterline1860 is an exception. I hope he stays long enough to be a counter weight to the Austrians here who pollute the thought we need to employ all people and supply all needs.

    As to Dalio being out of touch, I would modify that thought. He is in touch with our real practices that effect the price of bonds and money. If he is really betting on gold, that is important for us to know. Gold may hold value in the world I know we need that would replace debt with cash on the ordinary person's balance sheet. This sort of change in our system works well for some very rich persons in periods when the risk free rate of return approaches zero.

    I believe we need to see a system that can monetize debt and do the reverse, as needed, to match supply to need and demand to supply -- and that such a new system might be something like alternating current theory compared to direct current. We need a Nicholas Tesla to explain how this fluctuation would accommodate continuous economic growth and prosperity to match our natural need to eat and drink all the time. Elon Musk is today's Nicholas Tesla.

    ..... Maybe before he takes off for Mars he will spend some time in Kansas City (with Wray and Forstater at the Univ. of Missouri KC) to explain to the Thomas Edison's of Austria that AC electricity and DC electricity both work well when used in their proper application.

  30. josephtbrophy  10/22/2011 04:59 AM Report

    ray dalio is a clear thinker and well organized. he could have worked harder at keeping charlie rose in synch with his think. i believe that charlie rose had difficulty staying with ray dalio. rose's reality is political ideologies; whereas dalio was establishing a framework for 'value discussions." thank you both for a great discussion.

    exeterline 1860 must have dozed off during the discussion.

  31. OlivierFere  10/22/2011 03:27 AM Report

    @exeterline1860: You clearly did not watch the interview or did not pay much attention.

  32. exeterline1860  10/22/2011 02:50 AM Report

    I'm really sorry to have to write this post, but this man seemed so confused and out of touch with what's going on in mainstream America. He seemed like he wanted to talk with people to find out, so here it is:

    To solve Ray Dalio’s conundrum: Cutting expenditures by 3% and raising taxes by 3% sounds like a good idea - unless you’ve already given up 50% of your income and benefits to the rich.

    Many people who had well-paying professional jobs, middle management jobs, skilled/semi-skilled industrial jobs, or low-level manufacturing jobs have lost them. Each group has lost jobs at a different rate - the lower level jobs have disappeared at the highest rate. Some, but only some, of these unemployed workers have been very lucky to find a new job as a part-time/temp worker in a retail establishment, or flipping burgers at McDonalds. Their new salaries (let’s say $17,000 - $27,000 per year) are now 30% to 50% of their prior salaries (let’s say $35,000 - $75,000 per year). Someone who used to make $75,000 considers himself damn lucky to get a job at Walmart for $27,000 because even those jobs are damn scarce.

    In addition to being forced out of their jobs, they are now being told to buy their own health insurance, which costs $7,000 - $15,000 per year (depending on how many people in your family), out of their lowered salaries that border the poverty level. Of course, they can’t afford to pay for insurance on those incomes. They then find themselves in bankruptcy if anyone in the family gets sick because a trip to the emergency room can cost $5,000 to $100,000 depending on what’s wrong with you. Diagnostic radiology tests can cost $5,000 - $20,000 each. That doesn’t include secondary tests, treatment, or advice. Why bother getting medical advice in the first place if you can’t afford any semblance of treatment? I heard monitoring for a heart attack in the ER was $80,000 five years ago. Who knows what it is today. If that individual has to have a bypass, balloon, or other treatment, that cost can soar to $300,000 easily, if not more. Joint replacement, which you can go without unless there is an infection, costs $150,000 - $200,000, if uncomplicated. Dying of cancer in the hospital can cost $2,000,000.

    Ray Dalio must have no idea why so many people’s homes go into foreclosure. If he can follow what is above, it should start to make some sense to him.

    When people lose jobs, it’s often because the jobs went overseas. The money the company saved by doing that goes to the 1%. Employers usually don’t offer health insurance to their workers today. The money the company saves by not offering health insurance is also going to the 1%.

    Young people went to college and took on massive student loan debt. Many of them are working in part-time, temp, or retail jobs. Again, they’re at McDonalds, the local bar, or a warehouse earning poverty level income. They still have to pay all that money back. They can’t marry or buy a home. The profit from all that interest on their loans is going to the 1%. The good jobs are overseas. Again, the 1% are saving money by employing foreigners instead of their own college graduates.

    Every time we attempt to get policies to address the growing despair in America, the politicians reject it because they are owned by Wall Street. The public has waited years for something positive to come in their direction to stabilize their losses, but the bleeding continues and is met with massive arrogance from the GOP and their followers.

    What is it that Ray Dalio doesn’t understand? Why does the 1% want the little people to give up even more than they already have to pay for the national debt? Ironically, despite their losses, the little people are even still willing to give up something like Ray’s 3% in expenditures, but the 1% won’t budge and pay 3% more in taxes. They want the little people to give up another 20% of their poverty income before they’ll contribute a dime, if they contribute anything at all. During all of this, the 1% keep trying to extract windfall after windfall from the government. Isn’t the 50% of our income and benefits that we’ve already given enough for those greedy creeps?

    We are not mad because we aren’t rich. We are mad because we’re losing every bit of what we’ve built up over the years. It’s as if we’re being skinned alive. We’re losing our homes, our savings, our jobs, our healthcare, our hope. We’re not jealous, for Gods sake. We’re being forced into the gutter with the garbage by the thousands daily. For a lot of us, it’s only a matter of time before we’re homeless – really, really, really HOMELESS. People are literally sleeping the woods, their cars, the alley, etc., and going to soup kitchens for food – real people that used to be middle class wage earners.

    This is why people are protesting on Wall Street and other cities across America. The 99% have already given our share. Unfortunately for Uncle Sam, what we’ve given was transferred to the 1%, not to the national treasury. We have given, and given, and given, and given, and given. We have nothing left to give, but the 1% still want more. I’m very surprised the protests haven’t escalated to riots. If the 1% doesn’t start to make gestures toward fixing the inequality, I’ll bet it does. It should make sense to Ray, except that he is apparently completely isolated from real people.

    I can’t say if Ray did anything wrong, but may have to pay more taxes simply because he is rich. I am not rich, but I may not benefit from any program established to help the poor. In either case, whatever adjustments are to be made will be made on an aggregate basis. Some will win, some will lose, but most will have to pay more anyway regardless of what they get out of it.

  33. noswalcr  10/21/2011 03:58 PM Report

    If we had more Ray Dalios in the government we would be in much better financial shape than we are now. Where are these guys when we need them?

  34. anne4444  10/21/2011 03:22 PM Report

    He is a very smart man. Thank you for sharing.

  35. REMant  10/21/2011 11:58 AM Report

    Or rather I don't blame hedging for our predicament, but I do blame the funds for their part in the leveraging.

  36. REMant  10/21/2011 11:50 AM Report

    Mr Dalio seems to be one of those who has trouble putting thoughts into words. He ought to know that although we rarely have perfect knowledge- indeed, many think we can never have perfect knowledge - we must nevertheless make decisions, for I am certain he does just that every day. It would be odd for a hedge fund manager in particular to think otherwise. Some people use "I feel" to describe that uncertainty, others, "I think." It is not necessarily an egotism.

    Hedge funds generally look to profit from other's mistakes, esp those of misguided central banks, basically using credit to gamble on price movements, something long in abeyance after 1929. The thought is that the greater risk can be "hedged" and the result more profitable than ordinary investment, at least in the short run. There are varying ideas of the real value of this, tho I do not think they are to blame for our predicament. His fund, however, I understand has at the present time shorted the dollar and Euro and bought gold.

    Nevertheless, I do, of course, agree with his basic understanding of the present situation, although not especially with the idea that the 3rd world is entirely behind the absence of jobs, and I'm sure he didn't really mean to say that, but rather that it is because the 1st world can't easily let wages and prices fall to 3rd world levels, since our price levels reflect our indebtedness. We can either liquidate the debt in order to lower prices, which will mean many people will get more than a trim, or we can increase physical productivity, but we'll get nowhere by printing money.

    Saving is the only real means to wealth, and attempts to effectively increase its value through fractional reserve banking, or "leveraging" generally, ultimately serves to upset the necessary balance between saving and consumption by encouraging the latter, and speculation. We have in this way been drawing on past savings for many years, and increasing talk about lower taxes is merely an indication of our increasing poverty. We are at a point where we can no longer even service the debt, and this is compounded by the loss of jobs overseas as wages and prices have risen here, made more difficult still by the fact that saving necessarily requires austerity in order to supply the means to greater productivity.

    This is why classical economists call for a 100% reserve, i.e., forcing banks and other such financial institutions to either keep deposits on hand or lend only what has been deposited for the purpose of investment. Some will undoubtedly want to go only far enough to reflate what is essentially, in the absence of convertibility to some commodity, a pyramid scheme, but how successful this would be depends on the comparative value of 1st world goods and services, so that we can resume foisting some of our inflation off onto the 3rd, without putting them under as well.

    People interested in Mr Dalio will want to consult an article in the July 25 New Yorker (

Mastering the Machine

How Ray Dalio built the world’s richest and strangest hedge fund.

by July 25, 2011

Ray Dalio has an uncanny ability to anticipate economic trends. Critics say that he runs a cult. Photograph by Platon.

Ray Dalio has an uncanny ability to anticipate economic trends. Critics say that he runs a cult. Photograph by Platon.

Ray Dalio, the sixty-one-year-old founder of Bridgewater Associates, the world’s biggest hedge fund, is tall and somewhat gaunt, with an expressive, lined face, gray-blue eyes, and longish gray hair that he parts on the left side. When I met him earlier this year at his office, on the outskirts of Westport, Connecticut, he was wearing an open-necked blue shirt, gray corduroy pants, and black leather boots. He looked a bit like an aging member of a British progressive-rock group. After a few pleasantries, he grabbed a thick briefing book and shepherded me into a large conference room, where his firm was holding what he described as its weekly “What’s going on in the world?” meeting.

Of the fifty or so people present, most were clean-cut men in their twenties or thirties. Dalio sat down near the front of the room. A colleague began describing how the European Central Bank had just bought some Greek bonds from investors at a discount to their face value—a move that the speaker described as a possible precursor to an over-all restructuring of Greece’s vast debts. Dalio interrupted him. He said, “Here’s where you are being imprecise,” and then explained at length what a proper debt restructuring would entail, dismissing the E.C.B.’s move as an exercise in “kicking it down the road.”

Dalio is a “macro” investor, which means that he bets mainly on economic trends, such as changes in exchange rates, inflation, and G.D.P. growth. In search of profitable opportunities, Bridgewater buys and sells more than a hundred different financial instruments around the world—from Japanese bonds to copper futures traded in London to Brazilian currency contracts—which explains why it keeps a close eye on Greece. In 2007, Dalio predicted that the housing-and-lending boom would end badly. Later that year, he warned the Bush Administration that many of the world’s largest banks were on the verge of insolvency. In 2008, a disastrous year for many of Bridgewater’s rivals, the firm’s flagship Pure Alpha fund rose in value by nine and a half per cent after accounting for fees. Last year, the Pure Alpha fund rose forty-five per cent, the highest return of any big hedge fund. This year, it is again doing very well.

The discussion in the conference room moved on to Spain, the United Kingdom, and China, where, during the previous week, the central bank had raised interest rates in an attempt to slow inflation. Dalio said that the Chinese economy was in danger of overheating, and somebody asked how a Chinese slowdown would affect the price of oil and other commodities. Greg Jensen, Bridgewater’s co-chief executive and co-chief investment officer, who is thirty-six, said he thought that even a stuttering China would still grow fast enough to push world commodity prices upward.

Dalio asked for another opinion. From the back of the room, a young man dressed in a black sweatshirt started saying that a Chinese slowdown could have a big effect on global supply and demand. Dalio cut him off: “Are you going to answer me knowledgeably or are you going to give me a guess?” The young man, whom I will call Jack, said he would hazard an educated guess. “Don’t do that,” Dalio said. He went on, “You have a tendency to do this. . . . We’ve talked about this before.” After an awkward silence, Jack tried to defend himself, saying that he thought he had been asked to give his views. Dalio didn’t let up. Eventually, the young employee said that he would go away and do some careful calculations.

After the meeting, Dalio told me that the exchange had been typical for Bridgewater, where he encourages people to challenge one another’s views, regardless of rank, in what he calls a culture of “radical transparency.” Dalio had no qualms about upbraiding a junior employee in front of me and dozens of his colleagues. When confusions arise, he said, it is important to discuss them openly, even if that involves publicly pointing out people’s mistakes—a process he referred to as “getting in synch.” He added, “I believe that the biggest problem that humanity faces is an ego sensitivity to finding out whether one is right or wrong and identifying what one’s strengths and weaknesses are.”

Dalio is rich—preposterously rich. Last year alone, he earned between two and three billion dollars, and reached No. 55 on the Forbes 400 list. But what distinguishes him more from other hedge-fund managers is the depth of his economic analysis and the pretensions of his intellectual ambition. He is very keen to be seen as something more than a billionaire trader. Indeed, like his sometime rival George Soros, he appears to aspire to the role of worldly philosopher. In October, 2008, at the height of the financial crisis, he circulated a twenty-page essay immodestly titled “A Template for Understanding What’s Going On,” which said the economy faced not just a common recession but a “deleveraging”—a period in which people cut back on borrowing and rebuild their savings—the impact of which would be felt for a generation. This line of analysis wasn’t unique to Dalio, but almost three years later, with economic growth stagnating again, it does not seem off the mark.

Many hedge-fund managers stay pinned to their computer screens day and night monitoring movements in the markets. Dalio is different. He spends most of his time trying to figure out how economic and financial events fit together in a coherent framework. “Almost everything is like a machine,” he told me one day when he was rambling on, as he often does. “Nature is a machine. The family is a machine. The life cycle is like a machine.” His constant goal, he said, was to understand how the economic machine works. “And then everything else I basically view as just a case at hand. So how does the machine work that you have a financial crisis? How does deleveraging work—what is the nature of that machine? And what is human nature, and how do you raise a community of people to run a business?”

Dalio is serenely convinced that the precepts he relies on in the markets can be applied to other aspects of life, such as career development and management. And he has enough regard for his own views on these subjects to have collected them in print. Before our meeting, he sent me a copy of his “Principles,” a hundred-page text that is required reading for Bridgewater’s new hires. It turned out to be partly a self-help book, partly a management manual, and partly a treatise on the principles of natural selection as they apply to business. “I believe that all successful people operate by principles that help them be successful,” a passage on the second page said. The text was organized into three sections: “5 Steps to Personal Evolution,” “10 Steps to Personal Decision-Making,” and “Management Principles.” The last of the two hundred and seventy-seven management principles was: “Constantly worry about what you are missing. Even if you acknowledge you are a ‘dumb shit’ and are following the principles and are designing around your weaknesses, understand that you might still be missing things. You will be better and be safer this way.”

Dalio’s philosophy has created a workplace that some call creepy. Last year, Deal breaker, a Wall Street Web site, picked up a copy of the Principles and made fun of a section in which Dalio appeared to compare Bridgewater to a pack of hyenas feeding on a young wildebeest. In March, AR, a magazine that covers hedge funds, quoted a former colleague of Dalio’s saying, “Bridgewater is a cult. It’s isolated, it has a charismatic leader and it has its own dogma.” The authors of the article noted that Dalio’s “emphasis on tearing down an individual’s ego hints at the so-called struggle groups of Maoism,” while his search for “human perfection devoid of emotion resembles the fantasy world in Ayn Rand’s ‘The Fountainhead.’”

Dalio doesn’t pretend that Bridgewater is a typical workplace, but he is sensitive to criticism. The recent media attention irked him, because, in his view, it misrepresented and trivialized Bridgewater’s culture, which he insists is central to the firm’s success. “It is why we made money for our clients during the financial crisis when most others went over the cliff,” he wrote to me in an e-mail. “Our greatest power is that we know that we don’t know and we are open to being wrong and learning.”

After the “What’s going on in the world?” meeting, he walked back to his office, an airy but modest-sized corner space that overlooks the Saugatuck River and is lined with pictures of his wife and four sons. He sat down behind his desk and showed me a book he had been reading—“Einstein’s Mistakes: The Human Failings of Genius,” by Hans C. Ohanian. “Here was the greatest mind of the twentieth century, and he made lots of mistakes,” Dalio said. In his Principles, Dalio declares that acknowledging errors, studying them, and learning from them is the key to success. He writes, “Pain + Reflection = Progress.” Bridgewater puts this equation into action by organizing lengthy assessment sessions, in which employees must discuss their mistakes.

The next item on Dalio’s agenda was a meeting with his two co-chief executives: Jensen and David McCormick, a former senior official in the Treasury Department under George W. Bush. Like virtually all meetings at Bridgewater, this one was taped. Dalio says that the tapes—some audio, some video—provide an objective record of what has been said; they can be used for training purposes, and they allow Bridgewater’s employees to keep up with what is going on at the firm, including his discussions with senior colleagues. “They get to see all of my mistakes,” Dalio told me. “They get to see all of my humanity.”

Once a tape recorder had been switched on, Jensen, McCormick, and Dalio discussed the possible promotion of an internal candidate to a senior-management role. McCormick, a soft-spoken forty-five-year-old who studied engineering at West Point, argued that the candidate’s prior experience at a big Wall Street firm indicated that he could probably do the job. Dalio disagreed. An investment bank is a “totally different world,” he said. But, rather than continue the discussion, he asked one of his assistants to call in the candidate. One rule of radical transparency is that Bridgewater employees refrain from saying behind a person’s back anything that they wouldn’t say to his face.

The man arrived and stood before Dalio’s desk. Dalio explained what the discussion was about and said, “I don’t imagine that you would be a good fit for the job.” The man took a seat, and Dalio and McCormick continued their discussion about his qualifications. The candidate explained his experience on Wall Street and said he thought he could do the job well. Dalio leaned back in his chair, looking skeptical. The employee didn’t get the promotion.

The only child of Italian-American parents, Ray Dalio was born in Jackson Heights, Queens, in 1949. His father was a jazz musician who played the clarinet and saxophone at Manhattan jazz clubs such as the Copacabana; his mother was a homemaker. When Dalio was eight, the family bought a three-bedroom house in Manhasset, and enrolled Ray in the local public school. “I was a bad student,” he recalls. “I have a bad rote memory, and I didn’t like studying.” From the age of twelve, Dalio caddied at the nearby Links Golf Club, whose members included many Wall Street investors. Some of them gave Dalio tips. The first stock he purchased was Northeastern Airlines, which soon received a takeover offer. Its shares tripled. “I figured that this was an easy game,” Dalio said. By the time he started college, at a nearby campus of Long Island University, he had built up a stock portfolio worth several thousand dollars.

After signing up for some finance classes, he discovered that there were some topics he enjoyed studying. Transcendental meditation, which he took up following a trip to India by the Beatles, also helped his work habits. Most mornings before going to the office, he still meditates. Demonstrating his technique, he sat back in his office chair, closed his eyes, and clasped his hands in front of him. “It’s just a mental exercise in which you are clearing your mind,” he said. “Creativity comes from open-mindedness and centeredness—seeing things in a nonemotionally charged way.”

After graduating, Dalio went to Harvard Business School, where he traded commodities—grains, oil, cotton, and so on—for his own account. Not long after leaving Harvard, he landed at Shearson Hayden Stone, the brokerage firm run by Sanford Weill. Dalio worked in the commodity-futures department, advising cattle ranchers, grain producers, and others on how to hedge risks. (The horns of a longhorn steer, the gift of some California ranchers, are mounted behind his desk.) On New Year’s Eve in 1974, Dalio went out drinking with his departmental boss, got into a disagreement, and slugged him. About the same time, at the annual convention of the California Food & Grain Growers’ Association, he paid an exotic dancer to drop her cloak in front of the crowd. After being fired, he persuaded some of his clients to hire him as a consultant and founded Bridgewater, operating it out of his two-bedroom apartment. He was twenty-six years old.

By the early nineteen-eighties, Dalio had got married, started a family, and moved to Wilton, Connecticut, where he lived and traded out of a converted barn. He also advised businesses on how to manage risk and published an economic newsletter. One of his readers was Bob Prince, a young financial analyst who worked for a bank in Oklahoma, and who is now Bridgewater’s co-chief investment officer. Prince showed one of Dalio’s articles to his boss, David Moffett, who went on to become the chief executive of Freddie Mac. “He said it was the best thing he had ever read on how the economy works,” Prince recalled. Another of Dalio’s articles that stuck in Prince’s memory was titled “What Is a Jeweler?” It described a jeweler as basically an investor with a long position in gold and precious stones. If the market price of these commodities goes up, the jeweler makes money on his stock. If prices fall, he can lose out. To limit the risk, Dalio wrote that jewelers should purchase gold-futures contracts designed to rise in value when the price of gold falls.

In 1985, Dalio persuaded the World Bank’s employee-retirement fund to let Bridgewater manage some of its capital. In 1989, Kodak’s retirement system did the same. At the time, Kodak had most of its money invested in stocks. Dalio’s pitch, which hasn’t changed much over the years, was that by investing in a variety of other markets, such as U.S. and international bonds, and using leverage to bolster its exposure, Bridgewater could match or beat the stock market with less risk. “He had a new way of thinking,” Rusty Olson, who ran Kodak’s retirement funds for many years, told me. “You get the same return, but you get a heck of a lot of beneficial diversification, too.”

Hedge funds date to 1949, when Alfred Winslow Jones, a writer at Fortune, opened a private investment firm using sixty thousand dollars he had raised from friends and forty thousand he had saved. To boost his returns, Jones borrowed heavily and bought stocks he liked “on margin”—a practice that had been discredited in the late nineteen-twenties. As a “hedge” against the market falling, Jones also picked out some stocks he believed to be overvalued and bet against them—a practice known as “selling short.” Jones’s fund regularly beat the Dow, and by the late nineteen-sixties it had attracted many imitators.

Worldwide, there are now some ten thousand hedge funds, which the government regulates only loosely. Together, they have about two trillion dollars under management. Even today, they employ the two basic tools that Jones used—borrowing (“leverage”) and selling short—and they charge their clients hefty fees, as Jones did. On top of a two-per-cent management fee, they deduct twenty per cent of any investment gains they generate. Jones claimed that this remuneration scheme, which is known as “two and twenty,” was inspired by the way ancient Phoenician merchants financed their trading expeditions. But the practice is also tax-driven. It allows hedge-fund managers to classify much of their income as capital gains, which are taxed at a far lower rate than regular income. While cops and schoolteachers face a marginal tax rate of twenty-five per cent, hedge-fund managers like Dalio have for years paid fifteen per cent on the lion’s share of their income.

Some hedge-fund managers, such as Steven A. Cohen, of S.A.C. Capital, and David Einhorn, of Greenlight Capital, are stock pickers, like Jones. Others, such as James Simons, of Renaissance Technologies, are known as “quants.” They use computers to sift through market data, spot profitable opportunities, and place trades, all with minimal human intervention. As a macro trader, Dalio is working in the tradition of George Soros and Julian Robertson, famous speculators who ranged across markets.

Bridgewater has long run two primary investment funds. One, called All Weather, has low charges attached to it and seeks to match the over-all market return, which is known as “beta,” in whichever market the client chooses. Another, Pure Alpha, which has the standard two-and-twenty charges, aims at beating the market return but also at limiting risk. To investment professionals, “alpha” is the return over and above the market return. If in a given year the S. & P. 500 returns fifteen per cent and an equity-fund manager generates a return of twenty per cent, his alpha is five per cent.

Part of Dalio’s innovation has been to build a hedge fund that caters principally to institutional investors rather than to rich individuals. Of the roughly one hundred billion dollars invested in Bridgewater, only a small proportion comes from wealthy families. Almost a third comes from public pension funds, such as the Pennsylvania Public School Employees’ Retirement System; another third comes from corporate pension funds, such as those at Kodak and General Motors; a quarter comes from government-run sovereign wealth funds, such as the Government Investment Corporation of Singapore. “Making money on a constant basis is the holy grail, and Ray and Bridgewater have done that,” Ng Kok-Song, the chief investment officer of the Singapore fund, told me. “They are consistently innovating—constantly soul-searching and asking, ‘Have we got this right?’ ” Kok-Song went on, “I am constantly asking myself, ‘If Bridgewater is doing this, shouldn’t we be doing the same thing?’ ”

At some hedge funds, client service is an afterthought. Bridgewater’s investors receive a daily newsletter, monthly performance updates, quarterly reviews, and conference-call briefings from Dalio and other senior executives. “When a lot of folks were very, very secretive, Ray could see the value in creating something that was more open, something that was attractive to very large streams of money,” Robert Johnson, a former senior executive at Soros Fund Management, who now runs the Institute for New Economic Thinking, said to me.

Recently, the hedge-fund industry has been shaken by allegations that it exploits inside information. In May, Raj Rajaratnam, the founder of the Galleon Group, was convicted on fourteen counts of conspiracy and securities fraud. Other government investigations are continuing, including one involving S.A.C. Capital. Dalio and Bridgewater don’t appear to be involved. Dalio told me that Bridgewater hasn’t received any subpoenas, adding that he had no reason to believe that the firm was under investigation by any official agency.

Dalio is an outdoorsman and naturalist of the Hemingway school: he likes to go places and kill things. He fishes in Canada, shoots grouse in Scotland, and hunts big game in Africa, with a bow—particularly Cape buffalo, which weigh up to two thousand pounds, are famously ornery, and sometimes gore hunters with their giant horns. Naturally, Dalio sees this as a metaphor for how he invests. “It’s always a matter of controlling risk,” he explained. “Risky things are not in themselves risky if you understand them and control them. If you do it randomly and you are sloppy about it, it can be very risky.” The key to success, he said, is figuring out “Where is the edge? And how do I stay the right distance from the edge?”

One way he does it is by spreading his bets: at any given time, the Pure Alpha fund typically has in place about thirty or forty different trades. “I’m always trying to figure out my probability of knowing,” Dalio said. “Given that I’m never sure, I don’t want to have any concentrated bets.” Such thinking runs counter to the conventional wisdom in the hedge-fund industry, which is that the only way to score big is to bet the house. George Soros famously did this in 1992—selling short some ten billion dollars’ worth of sterling. A few years ago, John Paulson wagered hugely against U.S. mortgage bonds and made several billion dollars.

Dalio is a consistent hitter of singles and doubles—the José Reyes of Wall Street. Among the bets the Pure Alpha fund placed last year were long positions in Treasury bonds, the Japanese yen, and gold, and short positions in the euro and European sovereign debt. A potential problem with this type of global investing is that these days many markets move in the same direction, which makes it hard to achieve real diversification. Bridgewater’s solution is to place a lot of “spread” bets, purchasing one security it considers undervalued and selling short another one it considers overvalued. For example, it might buy platinum and sell silver, or buy a thirty-year U.K. bond and sell a ten-year bond. The returns from spread bets tend to be uncorrelated with the over-all market.

Other hedge funds have tried to mimic Dalio’s approach, which is sometimes referred to as “portable alpha,” but none have proved as successful. The strategy depends on an ability to outperform the market consistently, which many economists regard as virtually impossible. Dalio somehow seems to manage it.

At the start of the year, Bridgewater turned bearish on U.S. bonds and built up a short position. When the bond market stumbled, this bet (which the firm has since reversed) paid off handsomely, as did wagers on commodities and emerging-market currencies. So far in 2011, while the average hedge fund has struggled to make any money at all, the Pure Alpha fund is up more than ten per cent. The bet against Treasuries gave the lie to a criticism sometimes made of Dalio—that he is basically a bond-market investor, who has benefited from a twenty-year rally in bonds. “We have been equally likely to be short bonds or long bonds,” he said. “The performance of the Pure Alpha fund is not correlated with any asset class or any market. It has done equally well in any environment.”

What accounts for Dalio’s success? His colleague Bob Prince describes him as “a big-picture thinker connected to a street-smart” trader. Many economists start at the top and work down. They look at aggregate statistics—inflation, unemployment, the money supply—and figure out what the numbers mean for particular industries, such as autos or tech. Dalio does things the other way around. In any market that interests him, he identifies the buyers and sellers, estimates how much they are likely to demand and supply, and then looks at whether his findings are already reflected in the market price. If not, there may be money to be made. In the U.S. bond market, Bridgewater scrutinizes the weekly U.S. Treasury auctions to see who is buying—American banks, foreign central banks, mutual funds, pension funds, rival hedge funds—and who isn’t. In the commodities markets, the firm goes through a similar exercise, trying to figure out how much demand is coming from corporations and how much from speculators. “It all comes down to who is going to buy and who is going to sell and for what reasons,” Dalio explained.

To guide its investments, Bridgewater has put together hundreds of “decision rules.” These are the financial analogue of Dalio’s Principles. He used to write them down and keep them in a ring binder. Today, they are encoded in Bridgewater’s computers. Some of these indicators are very general. One of them says that if inflation-adjusted interest rates decline in a given country, its currency is likely to decline. Others are more specific. One says that, over the long run, the price of gold approximates the total amount of money in circulation divided by the size of the gold stock. If the market price of gold moves a long way from this level, it may indicate a buying or selling opportunity.

In any given market, Bridgewater may have a dozen or more different indicators. However, even when most or all of the indicators are pointing in a certain direction, Dalio doesn’t rely solely on software. Unless he and Jensen and Prince agree that a certain trade makes sense, the firm doesn’t make it. While this inevitably introduces an element of human judgment to the investment process, Dalio insists it is still driven by the rules-based framework he has built up over thirty years. “When I’m thinking, ‘What is going on today?,’ I also need to make the connection to ‘How does what is happening today fit into our framework for making this decision?’ ’’ he said. Ultimately, he says, it is the commitment to systematic analysis and systematic investment that distinguishes Bridgewater from other hedge funds. “I hear a lot of people describing what’s happening today without the proper historical context and without the framework of how the machine works,” he says.

In looking at the economy as a whole, Dalio pays particular attention to the amount of credit that banks and other financial institutions are creating, which he regards as a key factor in over-all spending. This may seem like common sense, but until recently many economists and policymakers didn’t pay much heed to the growth of credit, concentrating instead on the amount of actual money in the economy—notes, coins, bank deposits—which is largely determined by the Federal Reserve. In July, 2007, Dalio and a co-author wrote in Bridgewater’s daily newsletter about “crazy lending and leveraging practices,” adding, “We want to avoid or fade this lunacy.” A couple of weeks later, after the sub-prime-mortgage market froze up, Dalio’s newsletter declared, “This is the financial market unraveling we have been expecting. . . . This will run through the system with the speed of a hurricane.”

Searching for historical precedents, Bridgewater put together detailed histories of previous credit crises, going back to Weimar Germany. The firm’s researchers also went through the public accounts of nearly all the major financial institutions in the world and constructed estimates of how much money they stood to lose from bad debts. The figure they came up with was eight hundred and thirty-nine billion dollars. Armed with this information, Dalio visited the Treasury Department in December, 2007, and met with some of Treasury Secretary Henry Paulson’s staff. Nobody took much notice of what he said, but he went on to the White House, where he presented his numbers to some senior economic staffers. “Ray laid out the argument that the losses he foresaw in the banking system were astronomical,” a former Bush Administration official who attended the White House meeting recalled. “Everybody else was talking about liquidity. Ray was talking about solvency.”

His warnings ignored in Washington, Dalio issued more jeremiads to his clients. “If the economy goes down, it will not be a typical recession,” his newsletter said in January, 2008. Rather, it would be a disaster in which “the financial deleveraging causes a financial crisis that causes an economic crisis. . . . This continues until there is a reflation, a currency devaluation and government guarantees of the efficacy of key financial intermediaries.” As the crisis deepened, Dalio continued to assess it far more accurately than many senior policymakers did. When the government allowed Lehman Brothers to collapse, he despaired. “So, now we sit and wait to see if they have some hidden trick up their sleeves, or if they really are as reckless as they seem,” the newsletter said on September 15, 2008.

Eventually, after the near implosion of the financial system had brought about a deep recession, some policymakers came to respect Dalio’s analysis. “I think the central policy judgment was that there was more risk in doing too little than in doing too much,” Lawrence Summers, who headed the National Economic Council between 2009 and 2010, recalled. “That was a judgment I reached, and it was a judgment Ray reached.” While Summers was in the White House, he read Bridgewater’s economic newsletter and spoke every few months with Dalio, whom he described to me as “an impressively intellectually aggressive guy.” Summers went on, “He had a fully articulated way of looking at the economy. I’m not sure I would agree with all of it, but it seems to have been a very powerful analytical tool through this particular period.”

And a powerful investment tool, too. Anticipating that the Federal Reserve would be forced to print a lot of money to revive the economy, Bridgewater placed a number of bets that would pay off in such a scenario—for instance, going long Treasury bonds, shorting the dollar, and buying gold and other commodities. These trades helped the Pure Alpha fund make money in 2008, but Dalio’s bearishness cost him in 2009. Despite the Fed’s actions and the Obama Administration’s stimulus package, Dalio predicted that the economic recovery would be weak. When growth rebounded faster than he expected and the Dow rose nineteen per cent, the Pure Alpha fund gained just four per cent. But last year, when G.D.P. growth faltered, the fund made a great deal of money betting on Treasury bonds and other securities that tend to do well in a weak economy.

In April, an article in New York ridiculed Dalio’s Principles, saying that they read “as if Ayn Rand and Deepak Chopra had collaborated on a line of fortune cookies.” It also accused him of running Bridgewater like a cult. “I’ve been surprised that there’s been so much controversy about us having such clearly set-out principles, especially since they’re all about being truthful and transparent to do good work and have meaningful relationships,” Dalio wrote to me subsequently. “Most of the people who don’t like us having them haven’t read them—they just assume that us having a lot of principles makes us a cult. That’s O.K. I figure that the people who matter to us will take the time to read them and form their own opinions and those who don’t care enough to read them don’t matter to us.”

Dalio may protest too much. The word “cult” clearly has connotations that don’t apply to an enterprise staffed by highly paid employees who can quit at any moment. But Bridgewater’s headquarters are in the woods, isolated from any other financial institution; Dalio is a strong-willed leader; and the employees do use their own vocabulary—Dalio’s vocabulary. Bob Elliott, a twenty-nine-year-old Harvard graduate who has worked at Bridgewater for six years, told me earnestly, “Once you understand how the machine works, you have the ability to take that and study and apply it across markets.” It’s also the case that in the time I spent at the firm I saw senior people criticizing subordinates—but not the reverse.

In his Principles, Dalio acknowledged that his firm can seem strange to outsiders and newcomers: “Since Bridgewater’s culture is very different from what is typical in the world at large, people often encounter culture shock when they start here.” In part to minimize this shock, for years Bridgewater recruited young men and women straight out of college. (Harvard, Princeton, and Dartmouth were favorite targets.) But the firm’s in-your-face attitude—and the relentless pressure to perform—takes its toll. “We get a lot of people who self-select out of that pretty quickly,” Michael Partington, a recruiter at Bridgewater, said to me. Within two years of arriving at Bridgewater, about a quarter of new hires have quit or been let go.

Bridgewater has been expanding rapidly—it now has more than a thousand people on its payroll—and it has brought in a lot of mid-career executives. One day, I drove to Westport and sat in on a management-committee meeting, which had been set up for the purpose of “getting in synch” with a recent recruit, whom I’ll call Peter and who had come from a big financial firm. All nine members of Bridgewater’s management committee were sitting at a long wooden conference table. Peter, a lean man with fair hair, sat stiffly near the front: he looked like somebody anticipating a root canal. Jensen and McCormick were nominally in charge, but Dalio took over, telling Peter that, during a previous management meeting, he had answered emotionally in response to questioning from Jensen. “This is a common thing when somebody’s getting probed,” Dalio said. “Because the amygdala gets stimulated and you have that emotional reaction.” Peter agreed that he had become upset, especially when he sensed he was being accused of misleading his colleagues. “I felt in some sense my integrity was being attacked,” he said. “That’s when things spiraled out of control.”

Dalio walked to the front of the room, where he wrote on a whiteboard, “FELT,” “INTEGRITY,” and “MISLED.” “?‘Felt’ is the key word here . . . and it’s a challenge for people,” he said. After a bit more discussion, he went on, “What we’re trying to have is a place where there are no ego barriers, no emotional reactions to mistakes. . . . If we could eliminate all those reactions, we’d learn so much faster.” Another member of the committee, Eileen Murray, intervened to say she assumed that Peter had not encountered this type of conversation at his previous job. He confirmed that he hadn’t. Murray nodded sympathetically. “When I first came here, I was like, ‘What the hell is going on?’ ” she said.

Dalio wasn’t finished. He suggested that the problem was that Peter had an idea of how things should be handled, and when the reality turned out to be different he hadn’t been honest with his colleagues. “The issue is that you are not freely releasing those beliefs,” he said to Peter. “Unlike a lot of companies, where you are meant to sit there and be quiet . . . here we respect your notion that you have a point of view. . . . Your responsibility is to say, ‘Does it make sense to me?’ And if it doesn’t make sense don’t keep it bottled up.” Dalio went on, “I’m saying, just let it flow, man.”

Peter said he thought it was understandable that somebody new to the firm would react under stress as he had. Still, he added, “If I had to replay this thing again, I’d be much more open with my thoughts.”

“What would you say the duty of a leader is?” Dalio asked him.

Peter replied, “The duty of a leader, first and foremost, is to be transparent.”

Bridgewater’s decision rules surely contribute to his firm’s success. But Dalio also believes that his management principles play a role. “What is a typical organization?” he asked me one day. “A typical organization is one where people are walking around saying, ‘This is stupid, this doesn’t make sense,’ behind each other’s backs.” In support of his management theories, Dalio has an expert witness. “About eighty-five per cent of what’s in the Principles could be documented and supported by research,” Bob Eichinger, an organizational psychologist who has done consulting work for Bridgewater and other large companies, said. Eichinger went on, “Is it a better way to run a company? From a results perspective, probably so. Could a large portion of the working population be comfortable in that environment? Probably not.”

Some senior executives at Bridgewater do relish working there. Eileen Murray, who runs the firm’s accounting and technology systems, is one of them. Before moving to Bridgewater, in 2009, she spent twenty-five years on Wall Street, rising to a senior post at Morgan Stanley. “I wanted to make sure I wasn’t joining some petri dish in Westport, Connecticut, as part of a big experiment,” she said, recalling her initial, lengthy conversations with Dalio. “If someone’s intention is to make me a better person, I really appreciate that. If people do things because they can, or because they are the boss . . . I don’t react to that well.” Murray said she is now reassured, because “the intention is to make people better. . . . I have never seen a C.E.O. spend as much time developing his people as Ray.”

Another new member of Bridgewater’s management committee is James Comey, the firm’s top lawyer, who served as Deputy Attorney General in the Bush Administration between 2003 and 2005. “Most of my friends think I am having a midlife crisis,” Comey told me in a recent phone conversation, referring to his decision, last year, to leave Lockheed Martin and accept an offer from Dalio. He was tired of corporate politics and craved a setting where people spoke truth to power, but, he said, it took him a while to get used to dealing with Dalio. “When Ray sent me an e-mail saying, ‘I think what you said today doesn’t make sense,’ I tended to think, What does he really mean? Where’s he coming from? And what is my play? Who are my allies? All of the things you think about in the outside world. It took me three months to realize that when Ray says, ‘I think you are wrong,’ he really means ‘I think you are wrong.’ He’s not trying to provoke you, or anything else.”

Comey was initially struck by how long it took Bridgewater to make decisions, because of the ceaseless internal debates. “I said, ‘Lordy, we have to put tops on bottoms. Let’s get something done,’ ” Comey recalled. But he added, laughing, “The mind control is working. I’ve come to believe that all the probing actually reduces inefficiencies over the long run, because it prevents bad decisions from being made.” Comey said of Dalio, “He’s tough and he’s demanding and sometimes he talks too much, but, God, is he a smart bastard.”

And yet Dalio’s acuity prompts an awkward question: how much of Bridgewater’s success comes not from the way it is organized, or any notion of “radical transparency,” but from the boss’s raw investment abilities? At other hedge funds, it is taken for granted that the firm’s principal asset walks out the door every evening and settles into a chauffeur-driven car. Is Bridgewater really any different? Although the firm trades in more than a hundred markets, it is widely believed that the great bulk of its profit comes from two areas in which Dalio is an expert: the bond and currency markets of major industrial countries. Unlike some other hedge funds, Bridgewater has never made much money in the U.S. stock market, an area where Dalio has less experience. “Bridgewater really is Ray,” one former employee told me. “The key decisions they have made—where they have really made their money—is Ray. Most of what really matters is Ray, with help from Greg and Bob. You could run the firm with forty or fifty people instead of a thousand, and it would be basically the same.”

As long as Dalio remains healthy, the fact that he plays a key role in directing Bridgewater’s investments isn’t an issue. (Based on past experience, it is a big advantage.) But, from a business and marketing perspective, the suggestion that Bridgewater’s success continues to hinge on Dalio is a problematic one. As the former employee explained, “It’s hard to market that model—one guy and his brilliant track record. If you want to sell your firm to institutional clients, it’s critical to appear to be ‘rule-driven.’ That takes a lot of smarts. Most people want to take the credit. To say ‘I just run this machine’ detracts from your own individual brilliance. But that is very smart business.”

Dalio contests this account. He insists that he is but one member of a large team, with Greg Jensen and Bob Prince acting as his co-chief investment officers. He compares the comments of former employees to the carping of ex-spouses. In fact, with the firm prospering, Dalio has been living up to a promise to spend a bit more time away from it, and he has ceded some day-to-day management responsibility to Jensen and McCormick. “I’m stepping back a little: I’m going to a minister/mentor role,” Dalio said, comparing himself to Lee Kuan Yew, the longtime Prime Minister of Singapore, who relinquished his post in 1990 but even today retains great influence. This month, Dalio is formally giving up his co-C.E.O. title in favor of “Mentor.”

The managerial changes and Dalio’s lean appearance have ignited some speculation that he is sick, but he insisted to me that he is fine. He said his weight loss was the result of an “intended weight-loss program,” and he said he has absolutely no intention of giving up his role in directing Bridgewater’s investments. In stepping back from day-to-day management and in bringing in senior people, he said he is seeking to preserve the essence of the firm he built while preparing it for his eventual departure. Bridgewater has grown so large that its two main funds are now closed to new investors. Recently it launched a third fund, which is called Pure Alpha Major Markets.

Last year, Dalio sold about twenty per cent of Bridgewater to some of its employees in a deal financed by several of the firm’s longtime clients, and he told me that ultimately he would like to sell his entire ownership stake to his colleagues. Unlike certain other hedge-fund managers, though, he has no interest in making another fortune by floating his firm on the stock market. “I don’t want Bridgewater to go public or have it controlled by anybody outside the firm,” he said. “I think people who do that tend to mess up the firm.”

Dalio insists that money has never been his main motivation. He lives well, but avoids the conspicuous consumption that some of his rivals indulge in. He and his wife, Barbara, to whom he has been married for thirty-four years, own two houses, one in Greenwich, Connecticut, and one in Greenwich Village, which he sometimes uses on weekends. (They are currently building a new house on the water in Connecticut.) Apart from hunting and exploring remote areas, Dalio’s main hobby is music: jazz, blues, and rock and roll. Recently, he joined a philanthropic campaign started by Bill Gates and Warren Buffett, pledging to give away at least half of his money. (Forbes estimates his net worth at six billion dollars.) He and his wife wrote in a public letter, “We learned that beyond having enough money to help secure the basics—quality relationships, health, stimulating ideas, etc.—having more money, while nice, wasn’t all that important.”

Not that Dalio makes any apology for his fortune or his profession. An agnostic and a self-described “hyper realist,” he regards it as self-evident that all social systems obey nature’s laws, and that individual participants get rewarded or punished according to how far they operate in harmony with those laws. He views the financial markets as simply another social system, which determines payoffs and punishments in a like manner. “You have to be accurate,” he says. “Otherwise, you are going to pay. Alpha is zero sum. In order to earn more than the market return, you have to take money from somebody else.”

Dalio is right, but somewhat self-serving. If hedge-fund managers are playing a zero-sum game, what is their social utility? And if, as many critics contend, there isn’t any, how can they justify their vast remuneration? When I put these questions to Dalio, he insisted that, through pension funds, Bridgewater’s investors include teachers and other public-sector workers, and that the firm created more value for its clients last year than Amazon, eBay, and Yahoo combined. However, it is one thing to say that the most successful hedge-fund managers earn the riches they reap. It is quite another to suggest that the entire industry serves a social purpose. But that is Dalio’s contention. “In aggregate, it really contributes a lot to the efficiency of capital allocation, and capital allocation is very important,” he said.

Like many successful financiers, Dalio justifies capitalism and his place in it as a Darwinian process, in which the over-all logic of the system is sometimes hidden. This is actually what the mention, in his Principles, of hyenas savaging a wildebeest was about. “Is this good or bad?” he wrote. Like “death itself, this behavior is integral to the enormously complex and efficient system that has worked for as long as there has been life.” Of course, this view conveniently ignores the argument that hedge funds, through their herd behavior, have contributed to speculative bubbles, in tech stocks, oil, and other commodities. Even some defenders of the industry concede that the problem is real and potentially calamitous. “There is a basis for the argument that hedge funds add economic value,” Andrew Lo, an economist at M.I.T. who runs his own hedge fund, says. “At the same time, they create systemic risks that have to be weighed against those positives.”

Because hedge funds use a lot of borrowed money to magnify their bets, they are subject to rapid reversals: the history of the industry is littered with blowups. This wouldn’t matter much if other parts of the economy weren’t affected by the actions of hedge funds, but sometimes they are. In 2008, hedge funds had hundreds of billions of dollars on deposit at investment banks, which acted as their brokers and counterparties on many trades. When the Wall Street firms got into trouble, a number of other hedge funds demanded their money back immediately. These demands amounted to a virtual run on the banks and helped to bring down Bear Stearns and Lehman Brothers. Dalio acknowledged to me that Bridgewater was one of the funds that pulled a lot of money out of Lehman and other Wall Street firms, but he said he had little choice. “I’m a fiduciary to my clients. My responsibility is to know where it’s risky and where it’s not risky, and to get out of the risks.”

Hedge funds have also contributed to the radical increase in income inequality. Fifteen years ago on Wall Street, remuneration packages of five or ten million dollars a year were rare. Today, C.E.O.s and star traders routinely demand vastly higher sums to keep up with their counterparts at hedge funds. In addition to distorting salary structures elsewhere, the rewards that hedge-fund managers reap draw some of the very brightest science and mathematics graduates to the industry. Can it really be in America’s interest to have so much of its young talent playing a zero-sum game?

Rather than confronting these issues, Dalio, like all successful predators, is concentrating on the business at hand—the markets and the global economic outlook. This spring, he told me that economic growth in the United States and Europe was set to slow again. This was partly because some emergency policy measures, such as the Obama Administration’s stimulus package, would soon come to an end; partly because of the chronic indebtedness that continues to weigh on these regions; and partly because China and other developing countries would be forced to take drastic policy actions to bring down inflation. Now that the slowdown appears to have arrived, Dalio thinks it will be prolonged. “We are still in a deleveraging period,” he said. “We will be in a deleveraging period for ten years or more.”

Dalio believes that some heavily indebted countries, including the United States, will eventually opt for printing money as a way to deal with their debts, which will lead to a collapse in their currency and in their bond markets. “There hasn’t been a case in history where they haven’t eventually printed money and devalued their currency,” he said. Other developed countries, particularly those tied to the euro and thus to the European Central Bank, don’t have the option of printing money and are destined to undergo “classic depressions,” Dalio said. The recent deal to avoid an immediate debt default by Greece didn’t alter his pessimistic view. “People concentrate on the particular thing of the moment, and they forget the larger underlying forces,” he said. “That’s what got us into the debt crisis. It’s just today, today.”

Dalio’s assessment sounded alarmingly plausible. But when one plays the global financial markets a thorough economic analysis is only the first stage of the game. At least as important is getting the timing right. I asked Dalio when all this would start to come together. “I think late 2012 or early 2013 is going to be another very difficult period,” he said.

Brophy Saturday 22 October 2011 - 01:44 am | | Brophy Blog

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