Every president in my lifetime has been conceited. It’s more or less a job requirement. Bush had a bloated faith in his gut and his charm, while Obama fancied himself the smartest, most soulful person in almost any room.
.. During his only real news conference as president-elect, he mused that he could master the management of the country and of his business simultaneously, noting that while the law bars other government officials from such double duty, there’s no such formal restriction on the president.
“I would be the only one that would be able to do that,” he said. “I could run the Trump Organization — great, great company — and I could run the country. I’d do a very good job.” It was like a Russian nesting doll of self-infatuation: boast within boast within boast.
.. “I’ve done stuff no one else will do,” Reid volunteered, and then recalled — proudly, it seemed — the time during the 2012 presidential campaign when he falsely accused Mitt Romney of not having paid taxes. There was no modesty in that lie, and there’s no modesty in his apparent peace with it.
.. Still, he’s no Trump. Who is? Maybe Howard Roark, the protagonist of “The Fountainhead,” by Ayn Rand. Roark must defend his creative genius against the meddling of lesser mortals. Trump once described the novel as profound.
He has other Rand fans around him. Last month, The Washington Post’s James Hohmann identified a batch of cabinet nominees, including Rex Tillerson, who are taken with her philosophy and work.
Mastering the Machine
How Ray Dalio built the world’s richest and strangest hedge fund.
.. “Given that I’m never sure, I don’t want to have any concentrated bets.”
.. Dalio is a consistent hitter of singles and doubles
.. these days many markets move in the same direction, which makes it hard to achieve real diversification.
.. “spread” bets, purchasing one security it considers undervalued and selling short another one it considers overvalued.
.. In any market that interests him, he identifies the buyers and sellers, estimates how much they are likely to demand and supply, and then looks at whether his findings are already reflected in the market price. If not, there may be money to be made.
.. Unless he and Jensen and Prince agree that a certain trade makes sense, the firm doesn’t make it.
.. The firm’s researchers also went through the public accounts of nearly all the major financial institutions in the world and constructed estimates of how much money they stood to lose from bad debts. The figure they came up with was eight hundred and thirty-nine billion dollars. Armed with this information, Dalio visited the Treasury Department in December, 2007, and met with some of Treasury Secretary Henry Paulson’s staff. Nobody took much notice of what he said, but he went on to the White House, where he presented his numbers to some senior economic staffers.
.. “Everybody else was talking about liquidity. Ray was talking about solvency.”
.. Summers went on, “He had a fully articulated way of looking at the economy. I’m not sure I would agree with all of it, but it seems to have been a very powerful analytical tool through this particular period.”
.. Dalio’s bearishness cost him in 2009. Despite the Fed’s actions and the Obama Administration’s stimulus package, Dalio predicted that the economic recovery would be weak. When growth rebounded faster than he expected and the Dow rose nineteen per cent, the Pure Alpha fund gained just four per cent.
.. an article in New York ridiculed Dalio’s Principles, saying that they read “as if Ayn Rand and Deepak Chopra had collaborated on a line of fortune cookies.”
.. It’s also the case that in the time I spent at the firm I saw senior people criticizing subordinates—but not the reverse.
.. “What we’re trying to have is a place where there are no ego barriers, no emotional reactions to mistakes. . . . If we could eliminate all those reactions, we’d learn so much faster.”
.. I have never seen a C.E.O. spend as much time developing his people as Ray.”
.. Another new member of Bridgewater’s management committee is James Comey, the firm’s top lawyer, who served as Deputy Attorney General in the Bush Administration between 2003 and 2005. “Most of my friends think I am having a midlife crisis,” Comey told me in a recent phone conversation, referring to his decision, last year, to leave Lockheed Martin and accept an offer from Dalio.
.. Comey said of Dalio, “He’s tough and he’s demanding and sometimes he talks too much, but, God, is he a smart bastard.”
.. “We learned that beyond having enough money to help secure the basics—quality relationships, health, stimulating ideas, etc.—having more money, while nice, wasn’t all that important.”
..
he regards it as self-evident that all social systems obey nature’s laws, and that individual participants get rewarded or punished according to how far they operate in harmony with those laws. He views the financial markets as simply another social system, which determines payoffs and punishments in a like manner. “You have to be accurate,” he says. “Otherwise, you are going to pay. Alpha is zero sum. In order to earn more than the market return, you have to take money from somebody else.”
.. Dalio is right, but somewhat self-serving. If hedge-fund managers are playing a zero-sum game, what is their social utility? And if, as many critics contend, there isn’t any, how can they justify their vast remuneration? When I put these questions to Dalio, he insisted that, through pension funds, Bridgewater’s investors include teachers and other public-sector workers, and that the firm created more value for its clients last year than Amazon, eBay, and Yahoo combined.
However, it is one thing to say that the most successful hedge-fund managers earn the riches they reap. It is quite another to suggest that the entire industry serves a social purpose. But that is Dalio’s contention. “In aggregate, it really contributes a lot to the efficiency of capital allocation, and capital allocation is very important,” he said.
.. Like many successful financiers, Dalio justifies capitalism and his place in it as a Darwinian process, in which the over-all logic of the system is sometimes hidden.
Of course, this view conveniently ignores the argument that hedge funds, through their herd behavior, have contributed to speculative bubbles, in tech stocks, oil, and other commodities.
.. “There is a basis for the argument that hedge funds add economic value,” Andrew Lo, an economist at M.I.T. who runs his own hedge fund, says. “At the same time, they create systemic risks that have to be weighed against those positives.”
.. In 2008, hedge funds had hundreds of billions of dollars on deposit at investment banks, which acted as their brokers and counterparties on many trades. When the Wall Street firms got into trouble, a number of other hedge funds demanded their money back immediately. These demands amounted to a virtual run on the banks and helped to bring down Bear Stearns and Lehman Brothers. Dalio acknowledged to me that Bridgewater was one of the funds that pulled a lot of money out of Lehman
.. Fifteen years ago on Wall Street, remuneration packages of five or ten million dollars a year were rare. Today, C.E.O.s and star traders routinely demand vastly higher sums to keep up with their counterparts at hedge funds.
.. some of the very brightest science and mathematics graduates to the industry. Can it really be in America’s interest to have so much of its young talent playing a zero-sum game?
.. “We are still in a deleveraging period,” he said. “We will be in a deleveraging period for ten years or more.”
.. Dalio believes that some heavily indebted countries, including the United States, will eventually opt for printing money as a way to deal with their debts, which will lead to a collapse in their currency and in their bond markets. “There hasn’t been a case in history where they haven’t eventually printed money and devalued their currency,”
.. Other developed countries, particularly those tied to the euro and thus to the European Central Bank, don’t have the option of printing money and are destined to undergo “classic depressions,” Dalio said
Ayn Rand and Corporate Tax Cuts Won’t Mend the Economy
In a post on LinkedIn the other day, Ray Dalio, one of the world’s richest and most successful hedge-fund managers, offered some thoughts on the incoming Trump Administration. If “you haven’t read Ayn Rand lately, I suggest that you do as her books pretty well capture the mindset,” Dalio, the founder and chief executive of Bridgewater Associates, wrote. “This new administration hates weak, unproductive, socialist people and policies, and it admires strong, can-do, profit makers. It wants to, and probably will, shift the environment from one that makes profit makers villains with limited power to one that makes them heroes with significant power.”
.. his unvarnished post reflects the reality that Donald Trump, after running as an economic populist and tribune of the working stiff, has stuffed his Cabinet with billionaires, bankers, and conservative political ideologues. “This will not just be a shift in government policy, but also a shift in how government policy is pursued,” Dalio wrote. “Trump is a deal maker who negotiates hard, and doesn’t mind getting banged around or banging others around. Similarly, the people he chose are bold and hell-bent on playing hardball to make big changes happen in economics and in foreign policy (as well as other areas such as education, environmental policies, etc.).”
.. “Animal spirits” is a term from Keynes, not Rand. In his 1936 book, “The General Theory of Employment, Interest and Money,” the English economist used it to describe “a spontaneous urge to action” on the part of business people, one based on a general outlook of optimism rather than an individual cost-benefit analysis. One reason the U.S. economy has grown relatively slowly over the past eight years is that corporations have been sitting on their cash rather than investing it in things like factories, offices, and new equipment—a failure widely attributed to depressed animal spirits. Once Trump takes office, the mood may change dramatically, Dalio argued.
.. It is the sort of Randian analysis long favored by many people on Wall Street, and recently promoted by some of Trump’s closest economic advisers: if you want capitalism to work more effectively, offer greater rewards to the capitalists. Cut taxes, rein in regulation, and create an environment that incentivizes financial risk-taking. The free market—or, rather, the John Galts who inhabit the free market—will do the rest.
.. Because the U.S. tax code is riddled with loopholes, the tax rate that big businesses actually pay isn’t anything like thirty-five per cent. Between 2008 and 2012, according to a recent study by the nonpartisan Government Accountability Office, they paid a tax rate of about fourteen per cent, on average.
.. Surveys by the Federal Reserve Board and other organizations indicate that the main factor depressing corporate investment has been weak demand.
.. In many cases, companies’ overriding goal is to raise the prices of their stocks, which feature heavily in the remuneration packages of senior executives. Making costly long-term investments can depress earnings and stock prices in the short term.
.. In the twelve-month period that ended in October, companies in the S. & P. 500 spent $556.6 billion on buybacks, according to the research firm FactSet.
.. “the 2004 repatriation tax provision was followed by an increase in dollars spent on stock repurchases and executive compensation.”
.. Goldman predicted that three-quarters of the money that big corporations bring back to the United States next year under the Trump tax plan will end up being spent on stock buybacks.
Their Dark Fantasies
In reality, murder is at a historic low, we’re seeing a major urban revival and net immigration from Mexico is negative.
.. Mr. Ryan is, of course, a media darling. He doesn’t really command strong support from his own party’s base; his prominence comes, instead, from a press corps that decided years ago that he was the archetype of serious, honest conservatism, and clings to that story no matter how many times the obvious fraudulence and cruelty of his proposals are pointed out.
.. According to him, it’s very grim. There will, he said, be “a gloom and grayness to things,” ruled by a “cold and unfeeling bureaucracy.” We will become a place “where passion — the very stuff of life itself — is extinguished.” And this is the kind of America Mrs. Clinton “will stop at nothing to have.”
.. Gallup finds that 80 percent of Americans are satisfied with their standard of living, up from 73 percent in 2008, and that 55 percent consider themselves to be “thriving,” up from 49 percent in 2008
.. So Mr. Ryan’s vision of America looks nothing like reality. It is, however, completely familiar to anyone who read Ayn Rand’s “Atlas Shrugged” as a teenager.
.. The people Mr. Trump represents want to suppress and disenfranchise you-know-who; the big-money interests that support Ryan-style conservatism want to privatize and generally dismantle the social safety net, and they’re willing to do whatever it takes to get there.