Edward Hugh is one of the Economists that truly understands the European situation, especially the Spanish economy and the problems on the Iberian Peninsula. Below is an excerpt from a must read piece via A Fistful of Euros.
Legendary hedge fund supremo Ray Dalio is in ebullient mood. Following a series of moves by Mario Draghi to underpin European government financing Dalio told Bloomberg that, in his opinion, the euro will now “likely” stay together because existing growth-constraining austerity measures will henceforth be balanced by money printing over at the European Central Bank. His statement was, of course, a response to ECB President Draghi’s save the Euro pledge.
This story starts back in July, when Mario Draghi calmly informed a London investors conference that, “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” Since that time, of course, this gamechanging statement has been qualified and clarified, and re-qualified and re-clarified innumerable times, but still the essence remains unchanged. The ECB President wasn’t talking, remember, about any specific programme of bond purchases or exceptional liquidity measures, he was talking about doing “whatever it takes”, and Ray Dalio for one is taking him at his word.
What Bridgewater’s founder was getting at when he made this assessment is that there is now no meaningful limit being placed on what the ECB might eventually do. Naturally there is the mandate to work around, but the mandate can always be changed if Europe’s political leaders see fit, and who at this point in the crisis still doubts that if needs must they will see fit.
When Dalio writes, you should read. Dalio on the deleveraging process.
The purpose of this paper is to show the compositions of past deleveragings and, through this process, to convey in-depth, how the deleveraging process works. The deleveraging process reduces debt/income ratios. When debt burdens become too large, deleveragings must happen. These deleveragings can be well managed or badly managed. Some have been very ugly (causing great economic pain, social upheaval and sometimes wars, while failing to bring down the debt/income ratio), while others have been quite beautiful (causing orderly adjustments to healthy production-consumption balances in debt/income ratios). In this study, we are going to review the mechanics of deleveragings by showing how a number of past deleveragings transpired in order to convey that some are ugly and some are beautiful. What you will see is that beautiful deleveragings are well balanced and ugly ones are badly imbalanced. The differences between how deleveragings are resolved depend on the amounts and paces of 1) debt reduction, 2) austerity, 3) transferring wealth from the haves to the have-nots and 4) debt monetization. What we are saying is that beautiful ones balance these well and ugly ones don’t and what we will show below is how. Before we examine these, we will review the typical deleveraging process. (Full reading here).
Simply the world’s best hedge fund manager, Mr Dalio. From the Economist.
“THE most beautiful deleveraging yet seen” is how Ray Dalio describes what is now going on in America’s economy. As America has gone through the necessary process of reducing its debt-to-income ratio since the financial crash of 2008, he reckons its policymakers have done well in mixing painful stuff like debt restructuring with injections of cash to keep demand growing. Europe’s deleveraging, by contrast, is “ugly”.
Mr Dalio’s views are taken seriously. He made a fortune betting before the crash that the world had taken on too much debt and would need to slash it. Last year alone, his Bridgewater Pure Alpha fund earned its investors $13.8 billion, taking its total gains since it opened in 1975 to $35.8 billion, more than any other hedge fund ever, including the previous record-holder, George Soros’s Quantum Endowment Fund. (Full article here).
For more on Dalio, check out the must read article by The New Yorker from last year, as well as Dalio’s priciples. Link here.
Last year we saw low volatility, high volatility, greed and fear play out. With the average hedge fund down in 2011, there were some exceptional value makers. Forbes reports;
For most hedge fund managers, 2011 was a year to forget. The average hedge fund fell by 5% even as the U.S. stock market eked out a tiny gain. Big shot investors like billionaire John Paulson were humbled and lost massive amounts of money. Yet even in a down year, arguably its worst ever, the hedge fund industry demonstrated its unmatched ability to make people rich.
No hedge fund titan made more in 2011 than Raymond Dalio. The founder of Bridgewater Associates, the world’s biggest hedge fund firm, made an estimated $3 billion in 2011 as his funds produced net returns in the 20% range. As a result, Dalio tops Forbes’ list of the 40 highest-earning hedge fund managers of 2011. Full article here.
Dalio does it again by earning 13.8 Billion USD for his clients last year. Simply, the best.
Below is a list of how much money clients have made investing in top hedge funds since inception. The data are provided by LCH Investments NV.
Hedge Fund Net Gains Year Founded Bridgewater Pure Alpha $35.8 Billion 1975 Quantum Endowment Fund $31.2 Billion 1973 Paulson & Co. $22.6 Billion 1994 Baupost $16 Billion 1983 Brevan Howard $15.7 Billion 2003 Appaloosa $13.7 Billion 1993 Caxton Global $13.1 Billion 1983 Moore Capital $12.7 Billion 1990 Farallon $12.2 Billion 1987 SAC $12.2 Billion 1992
Full Bloomberg article here.
The WSJ ran a “reminder” article yesterday on what the world’s biggest hedge fund, Bridgewater, and it’s boss, Dalio think about the Economy. Nothing new from Dalio, who is still very bearish on the debt, leverage, economy etc. We would like to remind our readers of a great piece on Dalio and his fund, by The New Yorker last year.
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.
And the conclusion;
Some short quotes from at least a few intelligent people that attended Bloomberg Markets 50 Summit in NY. Full article by Andrew Horowitz here..
Nassim Taleb; The system has consumer between $2-3 trillion of compensation over the past 5 years. The great bank robbery. There are rules that we had for centuries, the problem is that the modern version of capitalism that we have (of which Adam Smith did not like) does not have consequences.
We are not made for information, we are not made for randomness, we are not cut for this world. 2 options, heuristics and try to play with them or 2) change the world. Either the world will self-correct or destroy itself. All we need is common law (heuristic). If we want to simplify the system, look at what Swede did in 1991, they cleaned house in 90 days. Then reset the system.
Thinking requires effort and a high expenditure of energy. Heuristics – we don’t know that we are using heuristics and have the illusion that we are thinking when we are not thinking.
Dalio; Credit can be created in countries and the same cycle as above will persist. How much of the money that is being spent by ECB to do a restructuring and other measures to fix things. One of the most important things now is to understand what is going on and make some important plans, rather than waking up every day to a new surprise.
On printing money: It is quite a handy thing to have. If you are a creditor with a linked policy then you have problems in that there are extremes that are created. For example Greece is a creditor and they cannot adjust and they are their economy is going to crash, if on the other hand you have those that are linked and needs to print then you have a bubble like China.
What is working for Bridgewater? Dalio says the he writes the daily so that he knows that he knows what he is doing wrong. If you diversify and don’t rely on only one things to make your year, but many ideas go into the Ray Dalio code and his template for the economy is available to download HERE. (pdf).
You might want to check out Dalio’s Secret Rules after reading the below. Dalio and Renaissance are the Winners this year. Link to Dalio’s Rules.
From FinAlternatives; Amidst August’s hedge fund carnage, some managers were able to produce some impressive returns. Perhaps not surprisingly, some that did are among the biggest and most successful in the industry.
This year, almost no hedge fund has been more successful than Bridgewater Associates. The $122 billion firm’s flagship Pure Alpha II fund is up 25.3% this year,Bloomberg News reports.
“Making money is a zero-sum game, so to be successful you have to be willing to stand apart from the crowd,” Bridgewater founder Ray Dalio told Bloomberg. “And you have to be right.”
Few have been righter than Dalio this year. But one of those few sits just across the Long Island Sound from Bridgewater’s Westport, Conn., headquarters. Renaissance Technologies’ Institutional Equities Fund is up 25.56% this year, edging Pure Alpha thanks in part to a 5.4% August return. RenTech’s Institutional Futures Fund did even better last month, rising 5.89%, according toDealbreaker.com, but it is only up 7.56% on the year.
MKP Capital Management’s flagship Opportunity Fund is another of August’s standouts, returning 3.51% last month. The $1.5 billion global macro vehicle is up 8.31% through the first eight months of the year, MarketWatch reports.
Tudor Investment Corp. was no slouch in August, either. Its Momentum Fund rose 2.59% on the month and its Tensor Fund 0.85%, according to Dealbreaker. For the year, however, it has been less lucky. Momentum is up just 3.32% in 2011, while Tensor is down 5.28%.