Ray Dalio Interview - July 2, 2020

[valueinvestor]

Finally an interview with very few interruptions!

 

Seems like Ray thinks that there's a possibility of the US losing its reserve currency status.

[muscleman]

Finally an interview with very few interruptions!

 

Seems like Ray thinks that there's a possibility of the US losing its reserve currency status.

 

Would you mind giving a summary of this interview please? Is he bearish or bullish on the stock market?

[LC]

His fear is USD losing its reserve status, he says we are pushing that status to its limits. And he says there are 3 factors:

-Monetary policy cycle

-Wealth gap cycle

-China (he says factors underlying this competitive dynamic are things like national education and a fragmented populace)

 

One proxy you can use to evaluate some aspects Dalio mentions is your assessment of how attractive a country is to the marginal and geographically neutral immigrant. Is US the #1 destination for this hypothetical immigrant?

[SharperDingaan]

He's not wrong - but the timing of all this is the mystery.

Reserve status loss is also a LOT more routine than most recognize; everytime a nation's economy reverts to 'dollarization' - versus its own currency. Zimbabwe, South America (multiple times/places), EU member switches to the EU, etc. Most often not 'planned', more a gradual build-up to a tipping-point - and sudden change, expressed as a 'market discontinuity'.

 

Folks don't want to hear it, but the recent technological ability to use CBDC, as a global reserve currency replacement - fundamentally alters everything. The limitation is not the technology, but the thinking/mind-set. Reserve status confers power, but it's a limited term (long-term) engagement, and inherently disruptive (unstable). CBDC offers shared power, no time horizon, and is inherently stabilizing (high volume trade/capital flows settle via the CBDC, low volume trade/tourism flow settle via local currency exchange)

 

Game theory suggests a once-only advantage to the first nation, that converts its reserve currency status to the CBDC

A China never gets reserve currency status, and each of the USD, EU, Yuan, etc lose their regional currency status. Unlikely to occur under a Trump - more likely under someone else. The more global disruption/bad community behaviour, the closer the tipping point.

 

SD

 

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[valueinvestor]

Finally an interview with very few interruptions!

 

Seems like Ray thinks that there's a possibility of the US losing its reserve currency status.

 

Would you mind giving a summary of this interview please? Is he bearish or bullish on the stock market?

 

Sure!

 

Hope you can watch it, as it's really an informational 20 minutes. However to summarize, fed is driving capital markets, and capital markets are driving equity markets. Interest rates close to zero, hence it is likely the demand for equities will increase, where PE will be around 40, while demand for bonds/cash decreases.

 

Risks of US Dollar Currency Losing Reserve Status is something to think about - where it can have a large effect on US equities, even if the underlying business is doing phenomenally well.

[UK]

https://www.wsj.com/articles/zimbabwes-plan-to-save-its-currency-shut-down-the-stock-exchange-11594129176

 

“For the last decade or so, Zimbabwe has been an upside down place,” said Peter Townshend, portfolio manager for Sanlam’s Africa Equity Fund. “Any time you see stocks going up, it is actually a bad sign and indicates deteriorating conditions.”