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Transcript of Ray Dalio’s Comments at Davos

While most eyes were on a certain fight between two activist investors on Friday, another great investor also had some really interesting things to say. Bloomberg hosted a debate on the Global Economy at Davos with Ray Dalio and others. Here is the link to the video (if you’d like to watch the entire 50 minute panel) and below is a rough transcript of Dalio’s comments (with the times he was speaking):

8 minutes, 40 seconds:  Are you concerned about inflation if you look at the way that we have all this cheap liquidity out there?

“I think the economy works like a machine and I think it’s important to understand how the machine works in order to answer that question. So if there is a transaction, you could pay with money or you can pay with credit. If you have money, that is making up for a contraction in credit. It’s not inflationary because the total amount spent in comparison to the total number of goods sold will determine the price.

So when we’ve added money, we’ve made up for credit and that’s been fine. What’s happened now is that because of all the money that has been added to the system, there is a great deal of liquidity in the world. So there is money in corporations, in households. Liquidity is all over the place, a lot of it. And it has gone there because of monetary policy and it has also gone there seeking safety.

That is changing on the margin. The returns of cash are terrible. So as a result of that, what we have is a lot of money in a place — and it needed to go there to make up for the contraction in credit — but a lot of money that is getting a very bad return. That, in this particular year, in my opinion, will shift. And the complexion of the world will change as that money goes from cash into other things.

Now each region is very different, each set of circumstances. But the landscape will change I think particularly later in the year and beyond as those people who put their money there are receiving this bad return and feel an environment of safety [now] because the imbalances of Europe have largely been rectified. They have been rectified because the amount of borrowing is now consistent with the ability to fund that. And so the tail risks were taken off the table and that less risky environment is going to create that kind of a shift I think.”

11 minutes: Do you think we are seeing a credit bubble?

“There is a lot of liquidity, but the most fundamental laws of economics is you can’t have debt rise faster than income. You can’t have income rise faster than productivity and the long term growth will be dependent on productivity. And we have these cycles around productivity growth because of debt cycles. We don’t have a credit bubble because of the production of too much credit, but we do have a bubble in liquidity.

There is too much liquidity and so bonds are a poor investment, they will have a poor return. Cash will have an even worse return, that’s assured. And that’s a bubble. Too much money in there. So the cash bubble exists, but we are reaching an equilibrium in terms of the debt growth.”

20 minutes, 20 seconds: (in response to another speaker’s comment)

“I think it is important to understand the adjustment that is happening is not just central banks feel there was a funding gap, the amount of money that can be lent and the amount of money that needed to be borrowed, there was a gap. And the central banks needed to come in and help fill that gap.

What’s happened in the adjustment is that the amount of money that is being lent and borrowed has fallen a lot and with that depressions have historically occurred.  So it is important to realize that when we go back to normalcy, normalcy [will not be] like the past. In other words those countries can’t spend the way that they have spent before. Equilibrium means a depressed economy. And what that means is the fundamental law is that we can’t raise debt faster than income from now on. And if we can’t raise debt faster than income we have to have a low debt growth and the issue will come to productivity.

So the shift of the discussion is going to change. The shift of the discussion is now going to change in the economics of how do you become competitive. And so competition will be the discussion and I won’t go on there, but there are clear benchmarks for discussion about productivity and ultimately you can only spend what you produce.

If you use the measures …literally what does it cost to have an educated person in France, the United States and China?  Look at those comparisons and the cost of an educated person in these countries is multiples of the cost of an educated person in China and so when it comes down to it, there are going to be very big social questions. It’s going to be values of life. How long is vacation? How much savings? Very much quality of life types of questions. How much will there transfers of wealth? Productivity is going to be the question. There are clear benchmarks of productivity. I won’t go on, but we have a list of those things that correlate with 90 percent correlation with the outcome of the growth rate the next ten years. They are like a health index. If you look at that health index, you can go down that and compare it and those are going to be the drivers. Productivity, because the debt cycle will no longer be the main driver.”

27 minutes, 10 seconds: Ray are you concerned about currency wars?

“I’m not particularly concerned about currency wars. I also think central banks will play a much lesser role going forward. I think the ECB’s balance sheet will gradually taper off. The same thing with the U.S. So I think they will naturally recede. I think that their next move will be, as described, a move from liquidity to the purchases and then we have a shift. So I don’t think that is the issue. I think the shift of the cash, that massive amount of cash will be what will be a game changer…into stocks, into everything. It will mean more purchases of goods and services and financial assets. It will be into equities, it will be into real estate, it will be into gold, it will be into a lot of….just basically everything.”

39 minutes, 20 seconds: Audience question – What are your views on the Fed’s ability to shrink its balance sheet before it creates an inflation problem?

“Again I think it’s important to think of the economy as operating like a machine and everything is a transaction. So the amount of spending is what matters. Now spending can mean money or it can mean credit. If credit is picking up then money can decrease and so spending is the thing that matters. When it picks up, it will be incumbent on the central banks to reduce the amount of money so that the amount of spending is consistent with the productivity growth rate. And so I believe that that can be done as long as there is balance. As long as debt doesn’t rise faster than income, income doesn’t rise faster than productivity, and productivity then grows at a decent pace. That’s what matters.”

49 minutes, 25 seconds: Closing remarks

“I think it is very difficult to talk about the world as a whole because conditions are very different. I think in the U.S., it’s a transition year. It’s one of those years that will go down in history as one you won’t even remember. It’s a transition in between cycles as we move from one to the other. I think in Europe, what we have achieved is the debt creation has been brought down to a level that is funding and that is a depression-like condition and that will now be an environment in which social pressures and political pressures will be difficult. And the importance there is not to have a pick-up in debt relative to income again and deal with it through productivity. I think in China they are in the other side of the cycle. The other side of the cycle is that debt is rising too fast relative to income and that is something that is the opposite side of the cycle and they will have to deal with it. So I think that those conditions are a landscape. They are transitions for all those countries.”

https://www.santangelsreview.com/2013/01/27/transcript-of-ray-dalios-comments-at-davos/ 

Charlie Munger Philosophical

Graeme Obree on the state of affairs in cycling today

Graeme Obree insists the UCI is beyond repair and it is too late to be considering holding a truth and reconciliation process. However, he believes there has been a shift in attitudes towards doping in the peloton, leading to drug use being far less prevalent now than when he made his own brief, ill-fated move into the sport in the 1990s.

The former individual pursuit world champion and Hour record holder, now training for an attempt on the human powered vehicle world record, was talking to the Scottish website We Are Free Agents after giving a talk at Glasgow University on Monday evening to open its Sport and Wellbeing Week.

No stranger to run-ins with the UCI – famously, he sawed off handlebar extensions while officials watched after a new rule had been introduced that rendered his bike temporarily illegal – Obree says that the fallout from the Lance Armstrong scandal highlights that the governing body is failing to move the sport on.

“I don’t think the UCI are a fit body to be running the sport,” he maintained. “The UCI is an autocratic, old boys’ network all the way through the levels of the pyramid. I think there’s no way of repairing that organisation.”

He also believes the governing body’s belated acceptance that Arsmtrong doped his way to seven Tour de France wins after the United States Anti Doping Agency published its Reasoned Decision in the case does not reflect the reality of the situation, saying: “Oh yeah, of course the UCI knew about doping, everybody knew, from national coaches right up.”

Obree’s view is that the UCI is still attempting to safeguard itself rather than address the wider issues raised by USADA’s report.

“Cycling did the minimum that it could to deal with this issue, and they’ve been forced into the situation because of Lance. Even Lance is saying the minimum. So cycling is just enduring the process.”

He also asserts that setting up a truth and reconciliation process, as the UCI now says it wants to do, has come far too late in the day.

“I don’t think it would make any difference at all,” he explained. “From my personal point of view I was so angry and resentful, because I lost my career and income, and was depressed.

“People were in denial about the drug taking, and it’s taken this long for people to go: ‘oh my goodness, it was like Graeme said it was.’ So now I’m kind of indifferent, because who did what doesn’t matter anymore.”

He backs up that opinion by pointing out that doping had become so endemic within the sport that aspiring youngsters were in effect forced into it in order to progress.

“I can see the pressures on the riders,” he said. “Before you even get to the Tour de France, several layers down, in top amateur clubs in France, Italy and everywhere, riders get groomed from a young age that drugs is what everyone does, and that it isn’t cheating it’s part of the sport.

“So what happens is people who won’t do it don’t even get to the Tour de France. I wouldn’t describe them as amoral people, because they’re groomed into that. I understand the pressures on riders, when they’re thinking ‘I’ve got to do this, everyone else is doing it, and it’s part of my job. I put ten years of my life into this; I’ve got to do drugs.”

Obree related his experience at the French team Le Groupement, where his outspoken anti-doping stance and refusal to contemplate taking drugs saw his road career extinguished almost as soon as it had begun.

“I was told by that French team that every single rider in the Tour de France was doing it, and that you can’t have a loose cannon.

“You know what the most depressing thing about it is? They genuinely believed you were being unprofessional. These folk that walked off in disgust thought I wasn’t taking my job seriously. They thought I was a slob for not taking drugs.”

While it is cycling that most regularly hits the headlines when it comes to doping scandals, Obree asserts that other sports aren’t immune and that where money is involved, some people will be tempted to cheat.

“I got invited on a drugs camp with track and field athletes. I think if there’s money in sport, and there’s money for winning, and it’s a sport where not tiring out makes a big difference, then you’re talking about a business, and if an undetectable substance is going to get you that money, why would every single human being turn away from it?

“Operation Puerto just happened to stop three weeks before the soccer World Cup,” he went on. “There were footballers involved in that [Operation Puerto]. So this isn’t just a thing in cycling.

“Cycling has now been exposed, and I’ve got a feeling this is now going to spread. There’s other folk in other sports who are hoping it doesn’t spread to them. Because where there’s big money, and not tiring makes a big difference, then why wouldn’t there be doping?”

He does believe, however, that cycling itself has moved on from his days, when he was very much the exception as not only a rider who refused to dope, but one who spoke out against it.

“Certainly I’d be shocked to the core if Chris Hoy or Nicole Cooke or anyone like that was taking drugs,” he stated. “There’s been a huge pegging back of performance.

“Here’s a stat for you: In Lance’s era riders were producing 6.7 watts of power per kilogram of body weight, now the average is 5.7 watts per kilogram, so you’re talking about 15 per cent less power. So there is evidence the riders are producing a whole lot less power.”

He doesn’t think for a moment that the sport is completely drugs-free, though. “I know for a fact that riders are still doping, because somebody told me.

“But here’s the big difference: 20 years ago you were thought of as a rank amateur who wasn’t taking his job seriously if you weren’t doping. The average rider now isn’t going to accept someone in their peer group doing that.

“Taking drugs is now a behaviour pattern that is not acceptable to the average rider, even the very, very top riders. Doping is only going to be eliminated by attitude, and that attitude is pretty well there.”

http://road.cc/content/news/75270-graeme-obree-uci-beyond-repair-doping-far-less-prevalent-nowadays

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