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
FBI’s Comey opposed naming Russians, citing election timing: Source
FBI Director James Comey argued privately that it was too close to Election Day for the United States government to name Russia as meddling in the U.S. election and ultimately ensured that the FBI‘s name was not on the document that the U.S. government put out, a former bureau official tells CNBC.
The official said some government insiders are perplexed as to why Comey would have election timing concerns with the Russian disclosure but not with the Huma Abedin email discovery disclosure he made Friday.
James Comey’s Self-Righteous Meddling
What law enforcement officer, by the way, announces that he is going to conduct a search before even obtaining a warrant?
.. Was Comey acting out of pure concern for the law? Or did he relish the chance to assert that he, and not the president, was right? We can’t know for sure, but Comey has always enjoyed flexing his power.
.. And now Comey is telling his staff that he felt compelled to tell Congress about the extra set of emails (which the F.B.I. most likely already saw in its original investigation) because, well, golly, he promised he would keep Congress informed.
.. The idea that he wanted to help his political party is pretty terrifying. But the idea that he acted out of moral self-righteousness is not much more reassuring, given the immense powers of his office.
.. Barry Goldwater, a real conservative if there ever was one, was outraged by the rise of morality politics in the Republican party.
“Mark my word, if and when these preachers get control of the party, and they’re sure trying to do so, it’s going to be a terrible damn problem,” Goldwater once said, according to John Dean’s book “Conservatives Without Conscience.” “Frankly, these people frighten me.”
.. Was Comey setting out to change the election results to benefit his own party and its leaders in Congress? Or was he posing as the owner of the moral high ground?
Neither option is comforting. And neither changes the fact that Comey had to know that his actions were not justified by government procedure or lawyerly protocol
James Comey Broke with Loretta Lynch and Justice Department Tradition
“You don’t do this,” one former senior Justice Department official exclaimed. “It’s aberrational. It violates decades of practice.” The reason, according to the former official, who asked not to be identified because of ongoing cases involving the department, “is because it impugns the integrity and reputation of the candidate, even though there’s no finding by a court, or in this instance even an indictment.”
.. The F.B.I. director is an employee of the Justice Department, and is covered by its policies. But when asked whether Comey had followed these guidelines and consulted with the Public Integrity Section, or with any other department officials, Kevin Lewis, a deputy director of public affairs for the Justice Department, said, “We have no comment on the matter.”
.. According to the Administration official, Lynch asked Comey to follow Justice Department policies, but he said that he was obliged to break with them because he had promised to inform members of Congress if there were further developments in the case. He also felt that the impending election created a compelling need to inform the public, despite the tradition of acting with added discretion around elections.
.. “Comey is an outstanding law-enforcement officer,” Miller said, “but he mistakenly thinks that the rules don’t apply to him. But there are a host of reasons for these rules.”
.. As Miller sees it, Comey’s “original sin” was the press conference he held in July regarding the Clinton e-mail investigation.
.. Ordinarily, when no charges are brought, such matters are not exposed to public view, let alone addressed at press conferences.
.. But, as Miller notes, Comey’s press conference triggered a series of other events, including congressional hearings where Comey was forced to defend his decision not to recommend prosecution. Comey’s letter to Congress on Friday updated his earlier statements that the Clinton e-mail investigation had ended.
.. “Of course, we don’t ordinarily tell Congress about ongoing investigations, but here I feel an obligation to do so given that I testified repeatedly in recent months that our investigation was completed. I also think it would be misleading to the American people were we not to supplement the record. At the same time, however, given that we don’t know the significance of this newly discovered collection of emails, I don’t want to create a misleading impression. In trying to strike that balance, in a brief letter and in the middle of an election season,” he noted, “there is significant risk of being misunderstood.”
.. This official thought that Comey “didn’t want to look tainted. This new information comes to him, and he’s afraid if he doesn’t make it public until after the election he’ll be impeached. People will say he lied to Congress. But in the end he did the self-protective thing. Was it the right thing? Put it this way: it isn’t what previous Administrations have done.”