A fantastic Ray Dalio interview with Economic Times
Summary of important points
what is a good business? Over time, most top businesses that existed 10-20-30 years ago, are no longer good businesses. The world changes and I do not think one can just sit on a good business and be comfortable doing that.
How to reduce debt? The first way is austerity (nobody likes austerity… its a bad word). The problem with austerity is when you have too much that, they think one should spend less but when they spend less, one person is spending another’s income and it compounds. But anyway, that is the usual reaction, but it does not work for the system as a whole.
Sometimes it is done by bankruptcy and debt restructuring. Debt restructuring and austerity are both deflationary forces and are negative on the economy. That is because when you have debt write-down you are reducing somebody’s net worth because that one person’s asset being written down is another person’s debt and so you create debt relief but you also reduced the value of the asset and that is a deflationary force. (we are trying that in India unsuccessfully for some time)
The third way of doing it is to print financial assets and have the central bank buy financial assets, quantitative easing it is commonly called now.(Financial markets were living on this for last 10 years)
The fourth way of doing it is to find some way of transferring wealth from those who have more assets to service those who do not.( this is coming next….. universal basic income and taxing the top end known as populism).A lot of the power of the monetary easing through quantitative easing and buying financial assets is behind us than in front of us. There is not as much power to reverse it. You are also in a world in which there is much more populism.
Look at the world reserve currencies, the dollar in a sense is risky, the euro is risky. We are dealing with a whole set of things that makes the euro risky. The Japanese yen is risky in terms of that money. There is a lot of debt around and there is a challenge in terms of that money. And you could be in a situation where that kind of money is not as appreciated and also the nature of assets means that equities and bonds in a sense are tied to that same financial structure. So, gold is a diversifying asset and should make for 5-10% of a person’s portfolio. This share could go up later into the cycle. I cannot tell you exactly where it is but I can say I think we are pretty late ( I would tend to agree and strongly think that by end of 2019 investors should have 25% in precious metals)
We are in a new world which has quite profound disruptions because we built this world in a globalist way, where you could produce wherever it was most cost effective and ship it. Now, that is being disrupted.
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