A June 2020 Bloomberg interview with Ray Dalio:
https://www.youtube.com/watch?v=7WxfQ2zKXeA&t=90s
This my interpretation and thoughts on what Ray is saying:
The market for money is now centrally planned rather than market determined: central banks pushing the supply of money rather than the banking system distributing money on a risk/reward demand driven basis. The implication is: inefficient/wasted allocation of capital and asset bubbles. Longer term this means loss of confidence in the economies which have taken these to extremes as the bad capital decisions eventually become evident.
On valuation: the multiples have been artificially manipulated down and risk premium no longer reflects the risk of that capital. Therefore the bigger questions are: how sustainable and the new balancing point in the broader manipulation of the cost of money? And secondly what is the pricing ability of the company/asset? The later determines the durability of the asset as a store of wealth, while the former determines fair pricing of assets (considers the fair yield on real returns).
The "Limit" is based on confidence. In some part it depends on the alternatives to the financial assets represented by that system. Gold is neutral (and temporary?) but real growth only occurs from productive assets within countries/systems. In mid 20th century it was the transition from UK to US, today it's the (possible) transition of US to China. Hegemony privilege exists until it doesn't and it's normally an erosion marked by sudden historical events which catalyses quicker change. The more complex the construct, the longer the transition of dependence.
Comments