There’s been a lot of chatter recently about whether or not the economy is going into a recession, is already in a recession or is really humming along fine despite all the haters. And if you watch a certain financial news network at lunch, you might even be familiar with the argument that recessions are not real if you don’t want them to be…if you just believe.
In short, the macro conversation in American finance today is as batshit, fact-averse, and partisanly subjective as literally every other facet of modern American life. Indicators that used to be objectively seen as recessionary are being explained away or blithely ignored as investors lean into badly-written tweets and unconfirmed news headlines to pump the stock markets. Up is down, down is sideways, and Larry Kudlow is the notional bulwark against total economic disaster.
We live in hellscape and nothing makes sense. Just ask Ray Dalio…
The Pure Alpha fund at Ray Dalio’s firm has tumbled about 6% through Aug. 23. The losses were fueled by bearish wagers on global interest rates, according to a person familiar with the matter. The fund, which bets on macroeconomic trends, is trailing the 13% return for the MSCI World Index. A more levered version of the flagship fund, Pure Alpha II, was down about 9% in that time.
The Wizard of the Westport Woods is getting his principled ass handed to him because he’s looking at the data and seeing the apocalypse while all you lesser mortals are out here acting so delusional that fucking Peloton is about to do an IPO.
And don’t take our word for it that you are all too stupid to have money, take Ray’s.
In a LinkedIn post that is very Daliolicious, the world’s biggest hedge fund manager™ lays out his theory of the current macro environment using his stylistic blend of data and historical relativism to argue that the bond market, growing wealth inequality and the trade war with China are combining to make things look a lot like the late 1930s…and that’s not good.
So listen up, dickslaps, Ray Dalio is preaching:
To understand the current period, I recommend that you understand the workings of the 1935-45 period closely, which is the last time similar forces were at work to produce a similar dynamic.
Please understand that I’m not saying that the past is prologue in an identical way. What I am saying that the basic cause/effect relationships are analogous: a) approaching the ends of the short-term and long-term debt cycles, while b) the internal politics is driven by large wealth and political gaps, which are producing large internal conflicts between the rich and the poor and between capitalists and socialists, and c) the external political conflict that is driven by the rising of an emerging power to challenge the existing world power, leading to significant external conflict that eventually leads to a change in the world order. As a result, there is a lot to be learned by understanding the mechanics of what happened then (and in other analogous times before then) in order to understand the mechanics of what is happening now. It is also worth understanding how paradigm shifts work and how to diversify well to protect oneself against them.
What Ray is saying however is that he cannot believe his macro fund is down when he is so much smarter than the rest of you. So if he has to throw on a sandwich board with charts of end cycle debt and photos of Great Depression bread lines while pacing up and down Times Square behind the set of “Squawk Box,” he’ll do it.
But you’re going to give him his alpha back.