Dalio’s Analogue and Mauldin’s Commentary

The Three Big Issues and the 1930s Analogue
Survival Advice
A Preview of Next Week
New York and Houston

“The best way out is always through.”

—Robert Frost

History doesn't repeat itself, but it does rhyme.”

―Mark Twain

It will not shock you when I say we live in confusing times. Odd, seemingly inconsistent events and decisions don’t bring the expected results. Once-reliable rules don’t work. This makes it hard to chart a personal and business path forward.

At the same time, truly nothing is new under the sun. Almost everything we see happened before at some point in human history, though of course with different details and magnitude. So we can’t throw out precedent completely. Well, except for negative interest rates. That really is something new under the sun.

Negative rates are like the event horizon around a black hole. Once you cross the event horizon, all known mathematical models and descriptions of the universe change. Negative interest rates are creating the same chaos in the world as black holes do in space.

That’s why I admire and pay attention to clear, systematic thinkers like Ray Dalio. I don’t agree with everything he says, as you saw a few months ago in my open letters to Ray about his Modern Monetary Theory (MMT) comments. He still observes many of the same problems I do, and is likewise wrestling with how to address them.

Ray’s latest comments, which he posted here on August 28, are critically important to all investors. Everyone should read them. Today I will help by doing something I rarely do: reprint someone else’s entire commentary verbatim.

Below you’ll find Ray’s entire article and I want you to read it all. At the end I’ll add some comments of my own that will extend into next week. Please note, I don’t see a “but” in my comments, but more of an “and” plus a few additional side thoughts.

(Note: I’ve added bold print to highlight some of Ray’s key points. I also broke up some long paragraphs to make it a little more readable, though Ray is admirably clear already.)

As you will see, Ray says our current situation is essentially the reciprocal of the 1970s inflationary blow-off. The last historical parallel to what we now face was the 1930s. Both those analogues, while not perfect, carry valuable lessons we should consider.

As Mark Twain supposedly said, history may not repeat but it does rhyme. The fundamental economic conditions, and especially technology, have changed significantly since the 1930s but human reactions and motivations are still pretty much the same. Which is what worries me…

I’ll stop there before I steal too much of Ray’s thunder. Read on and I’ll see you below.