Ray Dalio of Bridgewater sees Americans’ debt as a coming drag on growth and markets
.. While he doesn’t see another crisis in the offing, he does see the same underlying stresses at work: Americans have accumulated far more debt than they have assets and income to support.
.. Not only will this drag on growth and markets, it will leave the economy acutely vulnerable to higher interest rates. The relevant parallel, he says, is not the early 1930s, when the economy imploded, but the late 1930s when the Federal Reserve tightened monetary policy and inadvertently extended the Great Depression. Today, the central bank must balance the short-term need for higher interest rates to contain inflation against the long-term need for low rates to work off the debt overhang and sustain high asset prices.
.. “It may not be a problem in the next year or two, but the risk of not getting it right increases with time.”
.. “We ‘finance people’ see the world very differently from the way economists do,”
.. The views of finance people tend to be shaped more by trading experience than by formal economics. They assign much more weight to financial factors such as debt, asset prices and cash flow than do economists who emphasize “real economy” factors such as employment and investment
.. Finance people are wary of how macroeconomic data obscures crucial details of individual companies and households. Some economists do think like finance people, such as former Fed Chairman Alan Greenspan, but they are in the minority.
.. since the 1970s, inflation-adjusted interest rates have steadily declined while investors have accepted ever lower compensation for risks such as bankruptcy, recession and volatility (i.e. the “risk premium” has declined). This directly raises asset values and indirectly lifts growth by spurring borrowing.
.. His team estimates this has contributed three percentage points a year to stock returns since the 1970s while boosting private and government debt to 325% of gross domestic product.
.. In 2007, Mr. Dalio’s team concluded that the cost of servicing Americans’ debts was growing faster than their cash flows, creating the conditions for a crisis.
.. By slashing short-term interest rates to zero and buying bonds to push down long-term rates, it engineered the right combination of economic growth, debt write-offs and low interest rates necessary to start the painful process of “deleveraging,” or working off all that debt.
.. it can’t raise them much either, or debt servicingwould swamp cash flow and asset prices would sink. Thus Mr. Dalio foresees years of low interest rates, and while he thinks stocks are appropriately valued, he thinks returns to a typical stock-bond portfolio over the next decade will be around zero after inflation and taxes.
.. his biggest worry is that lower corporate taxes and higher stock prices do nothing for the bottom 60% of households who own almost no assets and whose stagnant wages are the mirror image of expanding profit margins, feeding resentment and political polarization. Says Mr. Dalio: “If we do have an economic downturn, I worry we will be at each other’s throats.”
Peter Thiel’s Founders Fund Makes Monster Bet on Bitcoin
Few mainstream investors have bought large sums of bitcoin, scared off by concerns about cybersecurity and liquidity
Founders bought around $15 million to $20 million in bitcoin, and it has told investors the firm’s haul is now worth hundreds of millions of dollars after the digital currency’s ripping rise in the past year.
.. He previously ran a multibillion-dollar hedge fund focused on global macroeconomic trends, and had some success navigating the financial crisis before racking up investment losses by investing in safe havens and missing out on the subsequent rebound.
.. Founders has more than $3 billion under management and has taken stakes in more-than 100 companies, including Facebook, Airbnb Inc., SpaceX and Lyft. More recent investments include the crypto-focused hedge funds Metastable Capital and Polychain Capital, which puts money into blockchain companies.
The stench of Trump’s self-dealing
The political system is rigged for the richest insiders in America.
When we talk about the insider, who are we talking about? It’s the comfortable politician only looking out for his own interest. It is the lobbyist who knows how to put that perfect loophole in every single bill to get richer and richer and richer at your expense.
The richest Americans are paying nothing, and it is ridiculous. These guys shift paper around, and they get lucky. These hedge-fund guys are getting away with murder, when you have one who is making $200 million a year and paying very low taxes. It’s not fair. And it tells people a lot. The middle class is getting absolutely destroyed. This country won’t have a middle class soon. It’s got to end.
.. What fools Trump made of those Midwestern voters who wanted the reality star to go after Washington and New York elites. As “Too Big to Fail” author Andrew Ross Sorkin reported this week, “If you’re a billionaire with your own company and are happy to use your private jet so you can ‘commute’ from a low-tax state, the plan is a godsend. . . ... Those rich insiders whom Trump walloped on his way to the White House will get more than 80 percent of this tax plan’s benefits at the end of a decade... such a massive giveaway to the very hedge-fund managers and real estate executives he promised as a candidate to confront only adds to the stench of self-dealing that engulfs all things Trump. Like autocrats across the world, the 45th American president has perfected the art of the self-deal... There will be no justification for having thrown on an additional $1.5 trillion to our existing $20 trillion debt — at a time when unemployment was low, consumer confidence was high and Wall Street was setting records by the day... It should be painfully obvious to a first-year economics student that there is no rational reason to pass massive tax breaks for billionaires when the economy is humming along. The only justification can be political.
.. Trump was right to say then that the political system is rigged for the richest of Americans. Unfortunately, it is now Trump’s working-class supporters who will pay the highest price for believing any promise that tumbled out of the mouth of the phony plutocratic populist.
The Little-Known Pragmatist Who Is Shaping the Trump Tax Cuts
Mr. Muzinich, a 39-year-old newcomer to Washington, has emerged as a central player in the Trump administration’s tax overhaul effort. The former investment banker and hedge fund manager is the Treasury point man on taxes, accompanying Mr. Mnuchin into “Big Six” meetings with top Republican lawmakers drafting the tax plan and laying out the administration’s positions on which taxes and deductions to cut or preserve.
.. He fits the mold of Mr. Trump’s top economic advisers, Mr. Mnuchin and Gary D. Cohn, the director of the National Economic Council, both of whom made a career on Wall Street. While not a Goldman Sachs alumnus, as they are, he brings an extensive background from the world of finance, having been a banker at Morgan Stanley and the president of Muzinich & Co., an international investment firm founded by his father.
.. His Wall Street brashness sometimes shines through when he gets into deal-making mode.
.. Mr. Muzinich, who holds an M.B.A. from Harvard and a law degree from Yale
.. In a 2007 Op-Ed article in The New York Times, Mr. Muzinich and a co-author, Eric Werker, called on Congress to offer tax credits to companies that build factories in developing countries and to offset the lost revenue with reductions in foreign aid.
.. “I think that he is pragmatic,” said Glenn Hubbard, the dean of Columbia Business School, where Mr. Muzinich taught before joining the Treasury Department. “He’s looking for good policy solutions, not policy positions.”
.. Some economists have scoffed at Mr. Mnuchin’s promises that tax cuts would more than pay for themselves because of the robust economic growth he says they will create. The department came under fire for removing from its web site an economic study that contradicted the secretary’s analysis of the benefits of corporate tax cuts.