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The times ahead will be radically different from those we've experienced in our lifetimes

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"How do I know that? because they always have been"

Yesterday, a friend of mine gave this book to me and that was the first line in the introduction. The book is written by Ray Dalio, the founder and chief investment officer of Bridgewater Associates, the largest hedge fund in the world.

it's a 600 pager, and I just started reading it, but it starts with an interesting point.

The world moves in big cycles

Huge debts, zero interest rates, money printer going brrrrrrrrrr, Worldwide pandemic, the rise of empires, war...

It's all happened before, and will happen again.

Let's take currency devaluation as an example.

I hadn't even been born when de US ran out of money defaulted on its debts (1971). How? well, back then the US was on the gold standard. Gold was used in exchange for goods and services and the dollar bill was somewhat akin to a written check, in that it could be converted into actual gold as a reserve asset.

but...

The US was printing a lot more dollar bills than it had gold to back it up and people became worried that they might not be able to claim their gold. So everybody ran to the bank to convert their paper money into gold as fast as they could.

It soon became apparent that the US government would not be able to fulfill it's promise to the people, and on August 15th, 1971, president Nixon went on TV to announce the end of the gold-backed dollar:

To put it in crypto terms, the dollar got rugged! What could this mean for the stock market??? surely it would crash on Monday morning, right? well, when the opening bell rang, there certainly was a hairy canary, but not in the way you'd expect. The stock market was pumping, and pumping and pumping!

completely out of left field, right?

For investors like Ray Dalio, it was one hell of a surprise, but after digging into historic events, he realized the exact same thing had happened in 1933 with the exact same consequences. Back then in was president Franklin D. Roosevelt who made the announcement on the radio:

And this same thing had happened many times before in history.

Lesson learned?

When Central banks printer goes brrrrrr to relieve a crisis, you should purchase stocks, gold and commodities, because their value will rise as the value of paper money falls.

The situations I have witnessed this are:

  • the 2008 housing crisis
  • the 2020 COVID pandemic

So it might be a good idea to keep the above principle in mind when it happens again.

I have only started to read this book, but as you can see, the introduction is fascinating and relevant to the current times. I will continue to update you on my reading and hopefully we can learn something together.

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