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Bridgewater's Ray Dalio Loses His Cool On China: "There Are No Safe Places Left To Invest"

Tyler Durden's picture




 

China matters after all. As recently as three weeks ago, Bridgewater - the world's largest hedge fund - was among the most effusively bullish on China deflecting fears of the stock market drop on the basis that its "movements are not significant reflective of, or influential on, the Chinese economy." However, that meme that has been spewed by endless talking heads protecting their assets under management, has evolved. In his latest letter to investors, Ray Dalio warns, "our views on China have changed... there are no safe places to invest." As WSJ reports, the move adds to a growing chorus of high-profile investors who are challenging the long-held view that China’s rise will provide a ballast to a whole host of investments, from commodities to bonds to shares in multinational firms, as they realize, "it appears that the repercussions of the stock market’s declines will probably be greater."

 

As The Wall Street Journal reports,

The move adds Mr. Dalio and Bridgewater to a growing chorus of high-profile investors who are challenging the long-held view that China’s rise will provide a ballast to a whole host of investments, from commodities to bonds to shares in multinational firms. For a generation, bets on China’s rising middle class have been commonplace on Wall Street and beyond as investors have looked to diversify their holdings.

 

But with the country’s stocks on a roller-coaster ride this summer, those beliefs are being tested. The world’s second-largest economy faces renewed questions about the sustainability of its growth and the government’s commitment to loosening its grip on the country’s heavily controlled markets.

And so as Bridgewater's Ray Dalio explains, our views about China have changed as a result of recent developments in the stock market.

We previously conveyed our thinking about the debt and economic restructurings being negative for growth over the near term and positive for growth over the long term—i.e., that it is a necessary and delicate operation that can be well managed.  While we had previously considered developments in the stock market to be supportive to growth, recent developments have led us to expect them to be negative for growth.  While we would ordinarily consider the impact of the stock market bubble bursting to be a rather small net negative because the percentage of the population that is invested in the stock market and the percentage of household savings invested in stocks are both small, it appears that the repercussions of the stock market’s declines will probably be greater.

 

Because the forces on growth are coming from debt restructurings, economic restructurings, and real estate and stock market bubbles bursting all at the same time, we are now seeing mutually reinforcing negative forces on growth.  While at this stage it is too early to assess how strongly the stock market’s decline will pass through negatively to credit and economic growth, we will soon have indications of this.  We will be watching our short-term indicators of Chinese credit and economic growth carefully to see what the pass through to the economy of these developments is like.

We have seen this happen  before, and as Dalio explains, this creates a not insignificant drag on growth...

The stock market and debt bubble bursting simultaneously has happened many times before in many countries.  We identified 28 cases among major economies in the last 100 years. While no two cases are exactly the same, the basic dynamics of such cases and the tools for treating them are essentially the same.  Looking at these other cases provides perspective concerning the range of possible outcomes and the most effective ways of using the available tools. The most analogous cases created a depressant on real GDP growth of 1.8% on average, annually, for three years relative to what growth would have been without these events; bad cases saw an annual drag of 4% for three years; and, well managed cases saw no drag over three years (i.e., growth averaging its potential). We would expect China’s outcome to be within that range, depending on how Chinese policy makers use their tools.

 

The negative effects of the stock market declines will come from both the direct shifts in wealth and the psychological effects of the stock market bubble popping.  Though stock prices are significantly higher than they were two years ago, the average investor in the stock market has lost money because more stocks were bought at higher prices than were bought at lower prices.  We now estimate stock market losses in the household sector to be significant—i.e., about 2.2% of household sector income and 1.3% of GDP.  However, these losses appear to be heavily concentrated in a small percentage of the population as only 8.8% of the population owns stocks.  These are rough estimates.  We don’t yet know who is experiencing what losses.  Such information usually surfaces in the days and weeks after the plunge.  Even more important than the direct financial effects will be the psychological effects.

As Ray Dalio concludes,

Even those who haven’t lost money in stocks will be affected psychologically by events, and those effects will have a depressive effect on economic activity.

 

For example, there are now no safe places to invest and the environment looks riskier, which we would expect to encourage the holding of cash and lessen the marginal effectiveness of easing monetary policy.

 

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Thu, 07/23/2015 - 10:11 | 6345086 Dr. Engali
Dr. Engali's picture

There is no safe place to invest? No fucking shit asshole. That's why they call it investing, and investing requires taking a fucking risk. It doesn't guarantee anything unless you have a central bank in your back pocket.  

Thu, 07/23/2015 - 10:12 | 6345098 y3maxx
y3maxx's picture

 Dalio is pissed he can no longer short Chinese stocks

Thu, 07/23/2015 - 10:16 | 6345118 kliguy38
kliguy38's picture

LOL that's true.......he's FOCHED

Thu, 07/23/2015 - 10:22 | 6345141 UndergroundPost
UndergroundPost's picture

International Maoist Communism must be destroyed

Thu, 07/23/2015 - 10:25 | 6345150 COSMOS
COSMOS's picture

The asian tigers learned fast, he must of gotten mauled hahah.  Fuck you Dalio.

Thu, 07/23/2015 - 10:31 | 6345180 MillionDollarBonus_
MillionDollarBonus_'s picture

I would argue that US Treasuries are still very much a safe-haven asset, as they have remained resilient in the face of global economic turmoil. Furthermore, US equities, although on the riskier side, have yielded very consistent returns over the last 6 years. Anyone who has a well-diversified portfolio including US equity indexes and US bonds has done rather well, and is positioned to weather drawdown over the next few years. It's the people who put all their money in gold that are really paying right now - unfortunately these people are going to have to be an example to everyone else about how not to invest!

Thu, 07/23/2015 - 10:39 | 6345214 BuddyEffed
BuddyEffed's picture

No safe places left to invest implies that there is no safe place to grow your money now.

To me that would imply that Richard Heinbergs analyses that indicate that we have reached the end of the growth phase or resource extraction and economic inputs may in ways be validated now by things reflected in the markets.

Thu, 07/23/2015 - 10:57 | 6345281 KnuckleDragger-X
KnuckleDragger-X's picture

If you want 'safe', screw a gun into your ear and make the world go away because life is full of risks from beginning to end. His problem is he thinks reality will follow his commands and edicts because he's "special"......

Thu, 07/23/2015 - 10:59 | 6345290 froze25
froze25's picture

Kind of like how when Obama was elected a majority of the still productive people of the US went into a depression.

Thu, 07/23/2015 - 15:57 | 6346410 monad
monad's picture

Went to the msm circus, got rolled by the Carneys. Gather your pitchforks. Its coming back around again.

Thu, 07/23/2015 - 10:43 | 6345216 Rainman
Thu, 07/23/2015 - 12:30 | 6345679 monad
monad's picture

Sphincter say "When?"

Thu, 07/23/2015 - 10:55 | 6345273 NoDebt
NoDebt's picture

MDB-  I think you suffer from the same problem that is killing The Onion right now.  Reality has caught up with your satire.

Thu, 07/23/2015 - 11:38 | 6345443 SumTing Wong
SumTing Wong's picture

Boris Alotovkrap is so much funnier than Old MDBOGUS. 

Thu, 07/23/2015 - 10:28 | 6345164 kaiserhoff
kaiserhoff's picture

No safe places left to invest?

True dat,  but it's not just China, Dude.

Thu, 07/23/2015 - 10:32 | 6345179 DaveyJones
DaveyJones's picture

So sorry Ray but the world's fucked up

Thu, 07/23/2015 - 11:00 | 6345297 froze25
froze25's picture

I am a big fan of India but will not put my money where my mouth is until after the Global correction.  It may be soon or a while, I am patient.

Thu, 07/23/2015 - 10:59 | 6345289 Dubaibanker
Dubaibanker's picture

If Dalio had half a brain, he would not be talking his book....China has received higher FDI last year than US for the first time ever! http://www.financialexpress.com/article/economy/china-receives-us-dollar...

http://www.brookings.edu/~/media/research/files/papers/2015/02/23-us-chi...

Secondly, he would stay the course in the long run.....and hold and manage stocks or investments even from an American perspective where Fidelity China fund, which is currently my favourite, has delivered over 530% since launch in 2003....

Yes, it is volatile and yes it may go down one year but not investing in the world's fastest rising economy over the last 20-25 years is simply stupid!

Of course, dont sell your house and buy this...but having 10% to 15% exposure to this fund and a few other ETF's or funds (whenever they dip) and investing in 2-3 tranches over 3-5 months (whatever the size of your portfolio) is a very good idea.....

Something really catastrophic needs to happen inside China for China to collapse because this long term gravy train has been rising for 20-25 years and just like the US started slowing down 1990 onwards...China will also do the same. (after 2030 or 2040)..but over the next decade, it will rise even further regardless of what happens around the world because China is so insulated from the rest of the world. 

Nor the oil or commodity prices, nor the Greek fiasco nor any global demand destruction nor the closure of banks in Europe has slowed China down yet but they have strengthened year over year in car sales, retail sales, real estate sales, middle class expansion, mobile an dinterent penetration, airport and power plant expanion.

If you know of any country that adds ONE India every 3 years or ONE UK worth GDP ever year then do enlightnen me!

Until then, try asking your broker if they have access to this....

You are welcome!

https://www.chartbook.fid-intl.com/FILPS/Documents/en/current/ret.en.xx....

Thu, 07/23/2015 - 11:03 | 6345309 froze25
froze25's picture

China's demographics suggest that they will be declining sooner than later.  But that is only relevant if you follow the Harry Dent school.  If not the skys the limit.

Thu, 07/23/2015 - 11:17 | 6345359 Dubaibanker
Dubaibanker's picture

It is not funny that the Chinese Govt is also thinking of the same (talk about preparing for all future outcomes) and just today news has come out that China may allow a 2 child policy....

https://news.google.com/news/story?ncl=dSdBkBSaaSf9CMMhhNAnC00Sp-hpM

Thu, 07/23/2015 - 11:28 | 6345399 Variance Doc
Variance Doc's picture

Thanks for your thoughts!!!

Thu, 07/23/2015 - 11:30 | 6345404 Dubaibanker
Dubaibanker's picture

In the last decade, the growth amongst the LARGEST 500 companies in the world from China has been nothing but EXPLOSIVE!

The numbers have risen a shocking 757% just like a Super Jumbo!

In 2004, there were just 14 Chinese companies on a global scale amongst Fortune Global 500 corporations!

Today, in 2014 data made available that probably does not include dozens of billionaires minted in 2015, the number of Chinese corporations on a global scale and beating the very best companies on their own turf have risen to 106 in of Global 500 from just 14 in 2004!

If you don't wish to invest in a country growing at this speed, I dont know what will you invest in?

Dying banks of Eurozone? QE supported banks of America? Barely surviving oil and energy companies of US, UK and Norway?.....

Thinking is indeed not a strong point of Ray Dalio and all such Harvard types who have a home bias of retardation!

From 2004:

Fourteen Chinese Firms Make their Way into Fortune's "Global 500" - State-owned enterprises continue to dominate the list

Fast Forward to today with data of 2014...

More Chinese companies become world top 500
Thu, 07/23/2015 - 11:42 | 6345458 exi1ed0ne
exi1ed0ne's picture

Which describes the market today - the downward slide of hope or climbing the wall of worry?  Any country where selling can be made illegal won't encourage me to buy, but to each their own.  Return of assets always trumps return on assets. 

Thu, 07/23/2015 - 12:58 | 6345775 Dubaibanker
Dubaibanker's picture

I don't believe selling has been made illegal.

It was stopped for only VERY LARGE investors and INSIDERS!

If you hold billions of dollars in assets, then I would agree with you, and please refrain to invest in China where 80% of all investors are retail and hence the Govt actually has a fiduciary responsibility unlike ALL countries in the West where they are busy bailing out billionaires UNLIKE China who actually bails out the poor! 

China’s securities regulator banned major shareholders

China’s securities regulator banned major shareholders, corporate executives and directors from selling stakes in listed companies for six months, its latest effort to stop the nation’s $3.5 trillion stock-market rout.

Thu, 07/23/2015 - 11:06 | 6345319 Groundhog Day
Groundhog Day's picture

how many of dalio's chinese stocks are frozen...hhhmmmm

Thu, 07/23/2015 - 10:13 | 6345102 PartysOver
PartysOver's picture

but, but, but the government will take care of us.  I trust the government to do the right thing.

Thu, 07/23/2015 - 10:14 | 6345108 Rocco the stiff
Rocco the stiff's picture

If i'd "invest"....meaning, give my money to some coked up hedge fund manager, if he wouldn't deliver what he promised one year ago, i'd have some liver and kidneys to sell very soon to make up for the losses. Would accept lower premium for liver, as up to that point it would have to filter much cocaine and thus it's efficiency to work in another organism would be diminished.

#SuchIsLife!

Thu, 07/23/2015 - 10:11 | 6345094 JustObserving
JustObserving's picture

How about Macau casinos?  There as so many more uses to Macau casinos as Sheldon Adelson demonstrates:

CIA used Macau casino to trap corrupt Chinese bureaucrats - report


US intelligence may have used Macau casinos owned by an American tycoon to set a trap for Chinese functionaries who gamble with public money, in order to blackmail and recruit them.

The “highly confidential” report on the gambling industry exposing the possible CIA operation in Macau, was prepared by a private investigator in 2010 and remained secret until it was uncovered by the Investigative Reporting Program at the University of California, Berkeley, the Guardian reports.

The document dated June 25, 2010, was presented by Sands China Limited, the Macau branch of the gambling empire of Las Vegas tycoon Sheldon Adelson, as part of an ongoing lawsuit filed by Steven Jacobs, former head of Sands Macau casinos, who is suing the company for wrongful dismissal. The civil action hearing is being held at a Las Vegas court.

The report reveals that Beijing suspected CIA and FBI operatives of using Macau casinos belonging to gambling billionaire and Republican Party funder Adelson to entrap and blackmail Chinese officials.

“A reliable source has reported that central Chinese government officials firmly believe that Sands has permitted CIA/FBI agents to operate from within its facilities. These agents apparently ‘monitor mainland government officials’ who gamble in the casinos,” the report said.

http://www.rt.com/news/310559-macau-casino-cia-trap/

Thu, 07/23/2015 - 10:35 | 6345192 besnook
besnook's picture

adelson is going to learn a lesson in chinese justice. ...and he won't have his zionazi friends to protect him. lol.  sounds like a good short candidate.

Thu, 07/23/2015 - 10:13 | 6345104 fromthinair
fromthinair's picture

so, these are the people who were getting returns that were safe... i.e. returns without risking anything.... a.k.a. you know what I am talking about.

Thu, 07/23/2015 - 10:16 | 6345120 Jtrillian
Jtrillian's picture

There are places left.  Gold, hard assets, farmland.  You can also short the market but that is risky if they close and never reopen or capital controls are implemented. 

There are always places to invest.  The key is to be ahead of the herd. 

Thu, 07/23/2015 - 10:17 | 6345121 PrayingMantis
PrayingMantis's picture

 

 

... "it appears that the repercussions of the stock market’s declines will probably be greater." ...

 

... read: the stock market is definitely going to crash soon ...

Thu, 07/23/2015 - 10:23 | 6345125 The Count
The Count's picture

Modern slavery:

Take your income. Add up all the taxes one pays directly and indirectly, then subtract that and what you will lose (sooner or later) with 'investments'. Then take away what you pay as interest to the banksters. You will be surprised how little is left over.

The difference between now and 2000 years ago is that now the slaves think they are free and (by and large) are more productive. The powers that be are the ones in charge, then and now.

Thu, 07/23/2015 - 10:20 | 6345128 willien1derland
willien1derland's picture

Dr. Egon Spengler: There's something very important I forgot to tell you.

Dr. Peter Venkman: What?

Dr. Egon Spengler: Don't cross the streams.

Dr. Peter Venkman: Why?

Dr. Egon Spengler: It would be bad.

Dr. Peter Venkman: I'm fuzzy on the whole good/bad thing. What do you mean, "bad"?

Dr. Egon Spengler: Try to imagine all life as you know it stopping instantaneously and every molecule in your body exploding at the speed of light.

Dr Ray Stantz: Total protonic reversal.

Dr. Peter Venkman: Right. That's bad. Okay. All right. Important safety tip. Thanks, Egon.

--Ghostbusters (1984)

Thu, 07/23/2015 - 10:22 | 6345137 Lea
Lea's picture

Is it me or is this dude whining because there are laws that prevent him from looting China?

 

Thu, 07/23/2015 - 10:23 | 6345142 Bill of Rights
Bill of Rights's picture

My mattress begs to differ.

Thu, 07/23/2015 - 10:30 | 6345174 vq1
vq1's picture

This is ADT: we regret to inform you that your house has burned down. 

 

I hope your mattress was atop a pile of gold. Not that its worth much now anyway. 

Thu, 07/23/2015 - 12:11 | 6345207 kaiserhoff
kaiserhoff's picture

Replace your box springs with a gun safe.

   A firm mattress is good for your back.

Thu, 07/23/2015 - 10:26 | 6345155 Spungo
Spungo's picture

I'm still looking forward to one of these investment guys having a complete breakdown and using the N word on live TV.

Thu, 07/23/2015 - 10:28 | 6345168 asteroids
asteroids's picture

The difference between us and Dalio at the stawk market poker table is that he has an enourmous amount of intellectual fire power behind him when he plays. And, he plays to win. If he says "game over", it probably is. So, let the global plunge protection teams corner the markets, stop fucking playing.

Thu, 07/23/2015 - 10:32 | 6345181 besnook
besnook's picture

china's value added economy is still growing albeit a bit slower. equities are a minor part of the economy as dalio admitted so who cares?

Thu, 07/23/2015 - 10:35 | 6345198 PrimalScream
PrimalScream's picture

agree with Dalio.  The recent moves by China to prevent losses in their stock values have been appalling.  The Chinese Govt' has completely destroyed all confidence in Chinese assets - by adopting these absurd measures.  It is ironic.  If China had allowed their market to trade freely, then it is very likely that a lot of money would have poured into the Shanhai index, after it reached price targets.  As things are now .... it's a disaster.

Central Banks have turned the world's stock markets into a laughing stock. 

Thu, 07/23/2015 - 10:36 | 6345203 Chad_the_short_...
Chad_the_short_seller's picture

Even more reason to hold my ASHR calls i bought AFTER the 40% crash. Less big investors to dump and sell=easier for the chinks to manipulate the market UP. ASHR to new highs. GO CHINA, FUCK THE USA!!!!!

Thu, 07/23/2015 - 10:37 | 6345205 Bahamas
Bahamas's picture

Whenever I try to convince somebody about the importance of owning hard assets I switch off the electronic device we have before us and ask my counterpart: " where is your money now" ? ..It usually works, but only with non totally sheepbrained  kind of individuals.

Thu, 07/23/2015 - 10:38 | 6345211 FreeShitter
FreeShitter's picture

Get right with God, Dalio.

Thu, 07/23/2015 - 10:39 | 6345215 To Hell In A Ha...
To Hell In A Handbasket's picture

What he means is, "I don't have a front row seat, nor 100% insider knowledge and on those grounds, I haven't got a clue what stocks to invest". Those Asians sure learn fast. Beating us at our own corrupt game.

Thu, 07/23/2015 - 10:39 | 6345217 wedderburn
wedderburn's picture

I heard property has come off the boil also

Thu, 07/23/2015 - 10:47 | 6345236 wmbz
wmbz's picture

Having read several reports about the coming flow of billions upon billions of dollars into the USSA stawk market from overseas (China) I have to wonder if the freewheeling happy go lucky Chinese gubmint may make that illegal?

Nah, that would never happen.

Thu, 07/23/2015 - 10:57 | 6345284 NoDecaf
NoDecaf's picture

Anyone know if Kyle Bass cashed in on the Chinese implosion?

Thu, 07/23/2015 - 11:06 | 6345314 PrayingMantis
PrayingMantis's picture

 

 

... "... Loses His Cool On China: "There Are No Safe Places Left To Invest"" ...

   ... not even in China's Macau casinos ... >>> "CIA used Macau casino to trap corrupt Chinese bureaucrats - report" >>>  http://www.rt.com/news/310559-macau-casino-cia-trap/ 

Thu, 07/23/2015 - 11:14 | 6345330 TradingTroll
TradingTroll's picture

Manfred Zimmel,  award winning market timer ( tracked by Hubert) already warned his clients in 2014 that from now on there would be only three types of investments: very very bad, very bad, and bad..www.amanita.at   Mr Dalio may manage more money but I prefer analysts who are a bit earlier with their forecasts. Mr Zimmel was faster by 12 months.

 

 

 

 

Thu, 07/23/2015 - 12:40 | 6345713 redd_green
redd_green's picture

I just googled Zimmel.  OooooOOooOOohhh!!    "... a market letter based on a holistic synthesis of both unconventional and conventional methods ..."    Sounds good!    I wonder if he can forecast the upcoming earthquake said to make a mess out of Washington state?

Thu, 07/23/2015 - 11:55 | 6345514 monad
monad's picture

Hey Ray Dalio, you made yourself irrelevant. Looters are never a safe investment. Too little. Too late. Think Lorena Bobbit, you dipstick. Low entry requirements, easy money, terminal cost of ownership. You made your shears confetti. Jump fucker!

Thu, 07/23/2015 - 12:31 | 6345681 chinaboy
chinaboy's picture

Mr. Dalio`s understanding of China is no where near deep to begin with. Wonder how he got excited about China in the past.

Thu, 07/23/2015 - 16:46 | 6346635 pachanguero
pachanguero's picture

Well, here in Thailand the Thai's are buying gold........must be that Thai Baht is getting hammered?  So my long gold in Thailand is going to allow me to profit.  haha silly me!

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