Ray Dalio, the sixty-one-year-old founder of Bridgewater Associates, the world’s biggest hedge fund, is tall and somewhat gaunt, with an expressive, lined face, gray-blue eyes, and longish gray hair that he parts on the left side. When I met him earlier this year at his office, on the outskirts of Westport, Connecticut, he was wearing an open-necked blue shirt, gray corduroy pants, and black leather boots. He looked a bit like an aging member of a British progressive-rock group. After a few pleasantries, he grabbed a thick briefing book and shepherded me into a large conference room, where his firm was holding what he described as its weekly “What’s going on in the world?” meeting.The entire article is too long to post here. I recommend readers buy a copy of the New Yorker magazine and read it. It's also available online by clicking here (9 pages in all).
Of the fifty or so people present, most were clean-cut men in their twenties or thirties. Dalio sat down near the front of the room. A colleague began describing how the European Central Bank had just bought some Greek bonds from investors at a discount to their face value—a move that the speaker described as a possible precursor to an over-all restructuring of Greece’s vast debts. Dalio interrupted him. He said, “Here’s where you are being imprecise,” and then explained at length what a proper debt restructuring would entail, dismissing the E.C.B.’s move as an exercise in “kicking it down the road.”
Dalio is a “macro” investor, which means that he bets mainly on economic trends, such as changes in exchange rates, inflation, and G.D.P. growth. In search of profitable opportunities, Bridgewater buys and sells more than a hundred different financial instruments around the world—from Japanese bonds to copper futures traded in London to Brazilian currency contracts—which explains why it keeps a close eye on Greece. In 2007, Dalio predicted that the housing-and-lending boom would end badly. Later that year, he warned the Bush Administration that many of the world’s largest banks were on the verge of insolvency. In 2008, a disastrous year for many of Bridgewater’s rivals, the firm’s flagship Pure Alpha fund rose in value by nine and a half per cent after accounting for fees. Last year, the Pure Alpha fund rose forty-five per cent, the highest return of any big hedge fund. This year, it is again doing very well.
The discussion in the conference room moved on to Spain, the United Kingdom, and China, where, during the previous week, the central bank had raised interest rates in an attempt to slow inflation. Dalio said that the Chinese economy was in danger of overheating, and somebody asked how a Chinese slowdown would affect the price of oil and other commodities. Greg Jensen, Bridgewater’s co-chief executive and co-chief investment officer, who is thirty-six, said he thought that even a stuttering China would still grow fast enough to push world commodity prices upward.
Dalio asked for another opinion. From the back of the room, a young man dressed in a black sweatshirt started saying that a Chinese slowdown could have a big effect on global supply and demand. Dalio cut him off: “Are you going to answer me knowledgeably or are you going to give me a guess?” The young man, whom I will call Jack, said he would hazard an educated guess. “Don’t do that,” Dalio said. He went on, “You have a tendency to do this. . . . We’ve talked about this before.” After an awkward silence, Jack tried to defend himself, saying that he thought he had been asked to give his views. Dalio didn’t let up. Eventually, the young employee said that he would go away and do some careful calculations.
After the meeting, Dalio told me that the exchange had been typical for Bridgewater, where he encourages people to challenge one another’s views, regardless of rank, in what he calls a culture of “radical transparency.” Dalio had no qualms about upbraiding a junior employee in front of me and dozens of his colleagues. When confusions arise, he said, it is important to discuss them openly, even if that involves publicly pointing out people’s mistakes—a process he referred to as “getting in synch.” He added, “I believe that the biggest problem that humanity faces is an ego sensitivity to finding out whether one is right or wrong and identifying what one’s strengths and weaknesses are.”
Dalio is rich—preposterously rich. Last year alone, he earned between two and three billion dollars, and reached No. 55 on the Forbes 400 list. But what distinguishes him more from other hedge-fund managers is the depth of his economic analysis and the pretensions of his intellectual ambition. He is very keen to be seen as something more than a billionaire trader. Indeed, like his sometime rival George Soros, he appears to aspire to the role of worldly philosopher. In October, 2008, at the height of the financial crisis, he circulated a twenty-page essay immodestly titled “A Template for Understanding What’s Going On,” which said the economy faced not just a common recession but a “deleveraging”—a period in which people cut back on borrowing and rebuild their savings—the impact of which would be felt for a generation. This line of analysis wasn’t unique to Dalio, but almost three years later, with economic growth stagnating again, it does not seem off the mark.
Many hedge-fund managers stay pinned to their computer screens day and night monitoring movements in the markets. Dalio is different. He spends most of his time trying to figure out how economic and financial events fit together in a coherent framework. “Almost everything is like a machine,” he told me one day when he was rambling on, as he often does. “Nature is a machine. The family is a machine. The life cycle is like a machine.” His constant goal, he said, was to understand how the economic machine works. “And then everything else I basically view as just a case at hand. So how does the machine work that you have a financial crisis? How does deleveraging work—what is the nature of that machine? And what is human nature, and how do you raise a community of people to run a business?”
I've already shared with you the time I met Ray Dalio back in 2004 when I discussed his principle #11, which is my motto in life: "Never say anything about a person you wouldn't say to him directly. If you do, you're a slimy weasel." Unfortunately, the slimy weasel who accompanied me on that trip screwed me over, but that's alright, he offered me tremendous opportunities too, and in the end he did me a favor. I hate working with weasels who are more concerned about managing their careers than managing money.
I also remember in that meeting when I told Ray I was much more concerned bout deflation than inflation (still am but the banksters will fight it tooth and nail), and he responded: "Son, what's your track record?," a polite way of saying "what the fuck do you know about managing money, kid?" That's what I like about Ray Dalio, his confrontational style. No bullshit, no sitting on the fence, tell me what you think and why I should listen to you. If I worked at Bridgewater, we'd either end up as best friends or as mortal enemies. I back down from nobody -- not Ray Dalio, not George Soros -- nobody intimidates me! I couldn't care less if you have more money than God, if I think you're full of shit, I'll tell it to you in your face!
Maybe that's why I'm blogging, doing my own thing and happier than ever. I like being the odd guy out, working on the fringes. And that's why I like Ray Dalio and Bridgewater. But I also fear that they too will ultimately be victims of their success. Hope I am wrong because lots of pension plans are relying on Bridgewater, but the bigger you are, the harder you fall.
And Ray, extend and pretend will continue. The debt boogeyman is overdone and once this week passes and they sign some deals in Brussels and Washington, the world will wake up to another beautiful day. As big and as smart as Bridgewater is, the world's financial oligarchs are bigger, stronger, more corrupt and more devious, always scheming on how to fuck the system to make ever more profits and record bonuses. Yup, at the end of the day, the slimy weasels will win and the rottenness of the world will prevail.