Initial Thoughts About the Crisis Everyone Knows is Coming
A crisis is brewing. "Everyone" knows it. The only question: When?
"Everyone" in quotes because you'll always find the pollyannas - typically shills for Wall Street - who never, ever will even whisper the simple fact that nothing goes up forever, that bear markets have occurred and will occur again, that economies don't remain in "Goldilocks" mode forever, etc., etc. But setting those guys aside (and I try to never waste time with them), we've got smart guys (and gals) who see the world as it is - or at least as they perceive it to be. One of these, Ray Dalio, recently published a book titled A Template for Understanding Big Debt Crises. He's offering it free in pdf form. Search for it and you'll find it. I've started reading it. You may find it helpful in better understanding what's brewing, why it's brewing and how to discern when the you-know-what will hit the fan.
In his own words, here's why he wrote the book and offers it for free:
"I am writing this on the tenth anniversary of the 2008 financial crisis in order to offer the perspective of an investor who navigated that crisis well because I had developed a template for understanding how all debt crises work. I am sharing that template here in the hope of reducing the likelihood of future debt crises and helping them be better managed."
Dalio famously founded and leads the world's biggest hedge fund organization, Bridgewater Associates. Did he/they navigate the last crisis well as he states? Honestly, I don't know, but he's not the sort of guy who typically lies about such matters. And the fact is, Bridgewater does boast a respectable track record.
While he's stating the intention of reducing the likelihood of future debt crises, so far my sense is that he's more so offering ways to manage them better. The crises themselves develop - and have developed throughout history - following certain patterns, many, if not all, of which springs from the flaws in our human nature. Understanding that human nature won't (or hardly ever won't) change, it's good bet that previous patterns that caused debt crises in the past will persist in the future.
Besides human nature itself, in our times, actions taken by central banks and governments have directly caused crises. Dalio doesn't consider central banks and governments per se to be the problems others have claimed. Despite the role central banks play in causing the build up of debt leading to an eventual crisis, Dalio doesn't call for either the dissolution or reduction in power of central banks. Rather he provides advice to central bankers regarding how they can better manage the crises that they themselves had a hand in causing. Ditto for powerful central governments. In this he would differ from libertarians, for example, who would prefer the power of central banks and governments to be reduced in order to lessen their ability to screw things up. He seems content with governments as they are. Or if not content, than basically accepting of things as they are. He could be criticized for this view and attitude toward central banks and government, bit it is what it is.
Back to the book, it's a whopping 471 pages, divided into several parts. The first part - about 60 pages - provides the template Dalio is offering to better understand and survive these crises, including the one that's coming. In his own words:
"My curiosity and need to know how these things work in order to survive them in the future drove me to try to understand the cause-effect relationships behind them."
In an interview on CNBC to promote the book, Dalio was naturally asked about whether he believes the next crisis was imminent and when he thinks it will unfold. He doesn't believe it's imminent, and gave his reasons. The reasons he gave were consistent with what I've been reading so far. He's basically using the template he presents in his book to gauge where things stand now. While some factors do indicate a brewing crisis, there aren't enough yet in place to think that one is imminent.
As for when he thinks one will finally unfold, there's nothing in his template to accurately measure time in this way. From what I gathered, you gather the facts, assemble them, and try to understand whether the confluence of factors that exist are sufficient to sound the alarm. Sorry to be so vague here, but forecasting, like investing, is never easy.
My own approach to the book is that I'll read at least those first 60 pages (almost done with them now), and give the other 411 pages at least a once over. The subsequent pages get into the weeds more, including specifics about previous documented crises. The thought is that if you study these in detail you'll get a better sense and feel for what's going on now. At least that's the author's intent in presenting the background research that shaped the template presented in those first 60 pages.
You might consider giving the book a look-see. Better still, read the first 60 pages. As for the rest of the book, it's likely going to be a matter of your temperament, and the amount of time you can dedicate to not just plowing through, but really studying, in a focused manner, the depth and breadth of the research. For me, I'll need to not only finish, but re-read and think about what Dalio presents as a template in those first 60 pages before deciding to jump into the rest of the book. (I've already perused the remainder of the book and therefore understand why he's included it and what he's hoping to accomplish in doing so.)
While I can't say I agree with everything I've read so far, I can certainly recommend you give it a shot. Dalio's own assessment of his opus magnum:
"To be clear, I appreciate that different people have different perspectives, that mine is just one, and that by putting our perspectives out there for debate we can all advance our understandings. I am sharing this study to do just that."
This relatively humble assessment of his own work contrasts with some of the "masters of the universe" spawned by the sales organization known as Wall Street. Rather than marketing his firm's products and services, or his own "genius," I think Dalio is making a good faith effort to help the rest of us prepare for the crisis everyone knows is coming.
"Everyone" in quotes because you'll always find the pollyannas - typically shills for Wall Street - who never, ever will even whisper the simple fact that nothing goes up forever, that bear markets have occurred and will occur again, that economies don't remain in "Goldilocks" mode forever, etc., etc. But setting those guys aside (and I try to never waste time with them), we've got smart guys (and gals) who see the world as it is - or at least as they perceive it to be. One of these, Ray Dalio, recently published a book titled A Template for Understanding Big Debt Crises. He's offering it free in pdf form. Search for it and you'll find it. I've started reading it. You may find it helpful in better understanding what's brewing, why it's brewing and how to discern when the you-know-what will hit the fan.
In his own words, here's why he wrote the book and offers it for free:
"I am writing this on the tenth anniversary of the 2008 financial crisis in order to offer the perspective of an investor who navigated that crisis well because I had developed a template for understanding how all debt crises work. I am sharing that template here in the hope of reducing the likelihood of future debt crises and helping them be better managed."
Dalio famously founded and leads the world's biggest hedge fund organization, Bridgewater Associates. Did he/they navigate the last crisis well as he states? Honestly, I don't know, but he's not the sort of guy who typically lies about such matters. And the fact is, Bridgewater does boast a respectable track record.
While he's stating the intention of reducing the likelihood of future debt crises, so far my sense is that he's more so offering ways to manage them better. The crises themselves develop - and have developed throughout history - following certain patterns, many, if not all, of which springs from the flaws in our human nature. Understanding that human nature won't (or hardly ever won't) change, it's good bet that previous patterns that caused debt crises in the past will persist in the future.
Besides human nature itself, in our times, actions taken by central banks and governments have directly caused crises. Dalio doesn't consider central banks and governments per se to be the problems others have claimed. Despite the role central banks play in causing the build up of debt leading to an eventual crisis, Dalio doesn't call for either the dissolution or reduction in power of central banks. Rather he provides advice to central bankers regarding how they can better manage the crises that they themselves had a hand in causing. Ditto for powerful central governments. In this he would differ from libertarians, for example, who would prefer the power of central banks and governments to be reduced in order to lessen their ability to screw things up. He seems content with governments as they are. Or if not content, than basically accepting of things as they are. He could be criticized for this view and attitude toward central banks and government, bit it is what it is.
Back to the book, it's a whopping 471 pages, divided into several parts. The first part - about 60 pages - provides the template Dalio is offering to better understand and survive these crises, including the one that's coming. In his own words:
"My curiosity and need to know how these things work in order to survive them in the future drove me to try to understand the cause-effect relationships behind them."
In an interview on CNBC to promote the book, Dalio was naturally asked about whether he believes the next crisis was imminent and when he thinks it will unfold. He doesn't believe it's imminent, and gave his reasons. The reasons he gave were consistent with what I've been reading so far. He's basically using the template he presents in his book to gauge where things stand now. While some factors do indicate a brewing crisis, there aren't enough yet in place to think that one is imminent.
As for when he thinks one will finally unfold, there's nothing in his template to accurately measure time in this way. From what I gathered, you gather the facts, assemble them, and try to understand whether the confluence of factors that exist are sufficient to sound the alarm. Sorry to be so vague here, but forecasting, like investing, is never easy.
My own approach to the book is that I'll read at least those first 60 pages (almost done with them now), and give the other 411 pages at least a once over. The subsequent pages get into the weeds more, including specifics about previous documented crises. The thought is that if you study these in detail you'll get a better sense and feel for what's going on now. At least that's the author's intent in presenting the background research that shaped the template presented in those first 60 pages.
You might consider giving the book a look-see. Better still, read the first 60 pages. As for the rest of the book, it's likely going to be a matter of your temperament, and the amount of time you can dedicate to not just plowing through, but really studying, in a focused manner, the depth and breadth of the research. For me, I'll need to not only finish, but re-read and think about what Dalio presents as a template in those first 60 pages before deciding to jump into the rest of the book. (I've already perused the remainder of the book and therefore understand why he's included it and what he's hoping to accomplish in doing so.)
While I can't say I agree with everything I've read so far, I can certainly recommend you give it a shot. Dalio's own assessment of his opus magnum:
"To be clear, I appreciate that different people have different perspectives, that mine is just one, and that by putting our perspectives out there for debate we can all advance our understandings. I am sharing this study to do just that."
This relatively humble assessment of his own work contrasts with some of the "masters of the universe" spawned by the sales organization known as Wall Street. Rather than marketing his firm's products and services, or his own "genius," I think Dalio is making a good faith effort to help the rest of us prepare for the crisis everyone knows is coming.
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