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Ray Dalio's 'The World has gone made' and how to hedge the risks

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@karamyog
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Ray Dalio is a billionaire hedge fund manager. He is co-chairman and co-CIO at Bridgewater Associates - one of, if not, the largest hedge funds in the world. His latest post has been all over traditional media. He came out on LinkedIn and said the world has gone mad! Here is the link to his post -

The World Has Gone Mad and the System Is Broken https://www.linkedin.com/pulse/world-has-gone-mad-system-broken-ray-dalio

I think almost everyone active on Steemleo community would have read this post. Every word in it is worth reading. I had a similar opinion and I'm aware many share similar concerns about the stupidity Central Banks have been displaying since 2008.

The Great financial crisis of 2008 caused central banks to step in. The world had just witness the ill effects of an overly leveraged financial system that had created one of the largest housing bubbles in financial history. So what did Central banks do? They did one thing right i.e. bail out banks, because depositors losing all their money would have led to something much worse than a mere financial catastrophe.

What they did soon after was stupid. In a world, where people had seen huge erosion of wealth, they started buying assets. They lowered interest rates so that borrowing becomes easy and cheap and they started buying financial assets. Now, most assets in the world are owned by rich people, not the average working class person. The average working class person does not need credit, he/she needs higher income, lower taxes, cheaper assets. But cental banks decided to prop up assets by buying bonds and they bought loads of them, by printing free money.

Buying bonds pushed the yields down on those instruments. That in turn caused investors to buy riskier assets - less creditworthy bonds, real-estate. I think the largest ill effect of this nonsense has been that skewed risk reward has led to investors taking 30 year and 100 year govt risk. It has led to investors pumping money into dreams i.e. startups that are fundamentally weak business ideas. Real Estate funds have been lapping up on property, commercial or residential. As a result, now we live in a world where every asset smells like a bubble - bonds, equities, real estate, private equity, venture capital, everything. And asset prices have gone up so much that while credit is cheap, working class people and young workers can't afford to buy a house. Or if they can, they'll end up buying a super inflated asset.

The madness should be pretty obvious to everyone but it isn't. The who's who of the financial world have been calling out central banks but no one seems to be listening. The worst of it all are the negative rates in Europe where you are paying to lend. Yes, paying to lend and ECB has been able to get away with it.

I was watching and reading a lot about how fiat money system is broken and that it will all end very badly. I just wasn't able to identify when and what will be the trigger. However, if I think of it, we are already seeing it. Inflation may not be high but assets have become unaffordable. Wages aren't growing and people are saving less for the future. There is no way pension funds will ever be able to meet their obligations. The wealth gap will keep increasing and freely printed money will never reach the bottom. It will cause stress to build up at the national level. Wealth gap has already shown it can cause unpopular election outcomes. Brexit is an example. People are frustrated because their economic conditions are worsening so they are blaming immigrants, liberals, left wing forces and what not. I think it all has to do with a broken financial system and there seems to be no one wanting to fix it.
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I do think there are only 2 assets right now that offer asymmetric risk reward profile. And yes, gold and bitcoin. No matter what Warren Buffet says, he is worth enough and will not care about gold but the best way to hedge against the breakdown of financial system is to buy gold. Additionally, if someone in Europe has to pay to keep money at a bank, that just implies higher demand for gold. DB is ready to start charging wealthy people negative interest rates. Gold just makes obvious sense. Gold mining company stocks is another good hedge. Bitcoin, isn't that great a hedge because big money doesn't consider it as safe haven right now. However, think about the risk reward if and when it gets safe haven status. I think 5% portfolio allocation to btc and 10% to gold is a must in today's scenario. You never know when shit will hit the fan. Be prepared for it.