"If Assets Remain Correlated, There'll Be A Depression": Ray Dalio Says QE4 Just Around The Corner

Tyler Durden's picture

CNBC’s Andrew Ross Sorkin and Becky Quick, donning their finest goose down bubble coats to remind viewers they’re reporting live from scenic Davos, generously took some time out of their busy schedules to chat with Ray Dalio on Wednesday and unsurprisingly, the “zen master” again predicted the Fed will reverse course and embark on more QE.

Dalio begins by noting that the Fed’s move to inflate financial assets by pumping money into the system means there’s an “asymmetric risk on the downside.”

The rationale is simple: the trillions in fungible, excess cash the Fed unleashed in the wake of the crisis has driven asset prices into bubble territory and at this juncture, there’s essentially nowhere to go but down.

That, Dalio says, will create a “negative wealth effect”, the opposite of Bernanke’s infamous virtuous circle wherein Americans would supposedly spend more and thus boost the economy if only the Fed could repair the damage their 401ks suffered in 2008.

In short, Dalio reiterated his contention that the Fed will ultimately be forced into QE4 and that the much ballyhooed tightening cycle will essentially amount to a one-off, “just to show you we could do it,” blip on the ZIRP radar screen. “Every country in the world needs easier monetary policy,” Dalio said, before noting that central banks now have less room to ease. He made similar comments in September of last year in an interview with Bloomberg TV.

Dalio also said he’s concerned that the Fed isn’t concerned. When Becky Quick suggested the FOMC is more vigilant than the market might think, Dalio responded with this: “I hope you’re right.”

As for the fact that the historical relationships between asset classes (volatilities and correlations) that are used to construct optimal "risk-parity" funds in order that 'risk' is balanced and hedged across bonds and stocks have all broken down dramatically causing funds like Bridgewater’s vaunted "All Weather" portfolio to sink, Dalio warned that if assets remain correlated and things continue to move in the “wrong” direction, “there’ll be a depression.”

That, he concluded, is why MOAR QE, and thus a return to the “full-Krugman” regime, is a virtual certainty.

So much for the "beautiful deleveraging."

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Arnold's picture

Hey, I do believe your QE is my money.

JungleCat's picture

You were mistaken - make sure you believe correctly next time.

The moar whores will not be denied.

 

knukles's picture

Andrew Ross Sorkin and Becky Quick are Propaganda Shills, Assholes of the First Galactic Order.

Croesus's picture

"To Infinity, and BEYOND!" - FedRes stance on QE, like it or not. 

VinceFostersGhost's picture

 

 

Time for some 1920's Calvin Coolidge action.....

 

Cut taxes and slash government dramtically....it's the only way.

SWRichmond's picture

I got some motherfucking news for you Ray:  a great deal of the world is already in a depression.  Obviously you hadn't noticed, or it didnt matter.  You rich fucks only care about your own experiences, and will not be able to see the turmoil below until it comes for you.

So it has always been throughout history.

Stuck on Zero's picture

Q: What do we have to show for the trillions in QE expended so far? 

A: Ostentatious displays of wealth at Davos.

PrezTrump's picture

a day of QE >> wealth in davos

JimT's picture

... *There'll* be a depression...

two hoots's picture

 

There’s a pill for that.

 

JRobby's picture

Of course QE! It will be needed to suck all of that bad debt off the banking system's balance sheet.

FED total assets to infinity and beyond!

Son of Loki's picture

He must be talking about the uppper 1% because the private sector middle class is already in a depression.

 

It's Soweto's "Legacy!"

Tarzan's picture

Could we please all finally admit QE is really CK? 

More CAN KICKING, WTF die already!

Polonius's picture

As long as the "QE" is of the right variety I say bring it on.  In other words, Fed-created "money" used only to bail out banks through the purchase of underwater assets helps no one but the banks.  Now, if we can get over this myth that government owned debt held on the central bank's balance sheet has to be repaid then we might be able to advance as a civilzation.  We have been enslaved by interest from these MFers for long enough.  This horrid fiat money system they've saddled us with was never structured to provide us with its sole positive characteristc, namely the fact that when the money is backed by nothing it can be created interest free.  We've been laboring for the banks from day one as all money in existence accrues interest to them.  If we are going to have a bloody central bank then make the thing do something useful, like buy up government debt and pay all the interest back to the Treasury.  (Central bank purchases of anything other than government debt is nothing more than a bailout of some private party.)  Better yet, shut out the primary dealers and sell the government debt directly to the central bank at an interest rate of zero.  We need to wake up to the lie that banks are doing us a favor by purchasing government debt, when in fact the money with which the banks purchase the debt is created by nothing more than a keystroke.  How difficult is this to understand?  Sadly, our controllers marvel at how long we have fallen for this shit.

Beam Me Up Scotty's picture

"when in fact the money with which the banks purchase the debt is created by nothing more than a keystroke"

Ironic isn't it?  At least if they made a trillion dollar platinum coin, the trillion would at least be backed by a few ounces of something, not just electrons on a hard drive somewhere.

Stainless Steel Rat's picture

He meant what he said: "They'll be a depression"...  because: "Better them than us!"

StychoKiller's picture

Wasn't it you that said: "Neither a Borrower, nor a Lender be?"

jeff montanye's picture

Neither a borrower nor a lender be;

For loan oft loses both itself and friend,

And borrowing dulls the edge of husbandry.

This above all: to thine own self be true,

And it must follow, as the night the day,

Thou canst not then be false to any man.

 

imo we got some dull-ass husbandry worldwide.

TeamDepends's picture

New from Pfizer, Economic Depression Strength Zoloft. It'll get ya through, or so you'll think!

foodstampbarry's picture

Now with even more hair loss!

mtl4's picture

Sounds like he is concerned about his fortune vanishing quickly.........just triple down like Buffett, you'll come out just fine Ray, trust me.  ; )

SWRichmond's picture

Unlike most rich people, the mundanes understand that the world requires cooperation.  It is a worldview which over time becomes its own paradigm.  The paradigm makes it hard for mundanes to change their minds, stop cooperating and start defending themselves.

The overt acts of criminality, corruption, murder, looting etc by the overlords, such as we have witnessed especially since Lehman Brothers, are attendant on a collapsing society.  They are paradigm-breaking, and it is why I applaud them as much as I do.

Train.

mkkby's picture

Dalio is talking his book, and he is WRONG. 

The fed IS NOT going to QE to save idiots who gambled in netflix or some shitty biotechs.  Equity is for speculators.  You take your chances.

The fed will only QE if banks get in trouble again.  And as we've seen here on ZH, the energy bust is a small fraction of sub prime -- $17 billion for wells and $25 billion for citi.  This is chicken feed for banks like that.

The fed warned they are raising rates, then they did it.  They will keep doing it -- about a percent a year -- unless one of 2 red lines is crossed.  Either TBTF banks are in danger, or US/european govies can't sell debt.

Beam Me Up Scotty's picture

A percent a year??  I LOL'd.  Sorry.  The market is having convulsions over .25% (one quarter of what you are proposing).  What makes you think they will get to raising at a 1% PER YEAR rate?  Not gonna happen.

whstlblwr's picture

Dalio, the rent is too damn high. No more fucking QE.

richcash8's picture

$17 B wipes out three years of EPS at WFC

$25 B wipes out five years of EPS at C

Not chicken feed, clucker

Janet Shalom Bernanke's picture

Rumor is: Yellen is planning to STREAK through Davos, screaming that she will do whatever it takes!!! will print whatever is necessary to keep asset prices propped-up!!

Seeing her streak, now that would be a depression,

Georgiabelle's picture

My take on Dalio is that he is far more concerned about his clients, most of whom are sovereign wealth funds and pension funds, than about his own personal wealth. He is not an ostentatious person, dresses very casually, is generous with his employees and is deeply involved in philanthropy. His point in the interview is that the central banks have injected so much excess liquidity into the markets that nearly every asset class is in a bubble, which makes it extremely difficult to create and implement any kind of hedging strategy. If all asset classes (except gold and silver, of course) go up in unison the chances are good that they will fall in unison, which is what we are seeing now. When you are forced to operate in manipulated markets the rules of investing go out the window and your only play becomes "don't bet against the Fed". 

Troglodyte Erudite's picture

The problem with modern economists is that they don't look at overall debt levels and increases in income in relationship to increases in asset prices.  Think about if all our incomes were double or a debt levels were cut in half would asset prices be too high or just right?  They keep bailing out banks to keep the lending system safe and profitable for the priveledged few.  The only way to solve this global problem is to cut debts drastically through a jubilee type system and this will stimulate demand with the freed up income.  Wages have been flat for years so this too will prolong the depression unless something drastic is done.  I say we cut everyone a check for X amount and it has to be applied to debt to keep the financial system and your moms 401K solvent and anyone without debt can spend it however they like.  This thought was originated by Australian economist Steve Keen.

https://twitter.com/ProfSteveKeen

Itchy and Scratchy's picture

Yeah sure sweetheart! My take is that you are a paid sell-out PR shrill. You and 'ol extorting fascist and hypocrite Ray boy can fuck right off!

FreedomGuy's picture

SWR, I agree. I still believe we never really recovered from 2008 and we really never fixed anything. Nothing.

I do not think it is about "rich fucks" as much as about government elites and financial elites close to them. What they see is their personal game which is a mix of politics, funding bloated debtor states, and keeping the game going.

I also believe a QE4 short of helicopter money will have no effect at all. There is not a shortage of money or high interest rates. There is a demand shortage and productivity misallocation. All those ghost cities in China needed a lot of misplaced concrete, steel, fuel and labor. Resetting all that is a really painful task.

The U.S. is the same. The Iowa Republican governor does not like Cruz because he does not favor continued ethanol subsidies. Ethanol-alternate fuels is actually energy wasteful, capital wasteful but farmer-voter profitable. So, what do you think wins out?

We are screwed.

Temporalist's picture

We are still recovering from 1999-2000 and then 2001.

FreedomGuy's picture

That seems a bit far off but not unreasonable. What I would agree on is that the game has not changed since then. All the things that created the bubble-crashes are still in play. What do they call it when you keep doing the same thing over and over, but hoping for a differemt result???

markpower49's picture

Poor people are evil losers who always want more gov't services, but the bulk of that gov't money goes to connected rich people. Just get rid of gov't and taxation.

ersatz007's picture

fucking poor people.  if they'd just stop being poor, they wouldn't need gov't services.  why is that so hard for them to understand?  fuckers.  why don't they just get some assets and equities?

even Janet said so...better yet, if they'd just follow Janet's advice and get some rich parents, then the dumb fucks wouldn't even have to start out poor!

Freddie's picture

Ray Dalio is about the only person at Davos that I would not want to see hanging from a lamp post.  He is a bright guy and is not a total scum bag. 

99.5% of the attendees at Davos need to be buried under a Swiss avalanche of snow, ice and debt. 

Tall Tom's picture

Do we have any Hedgers manning the ICBM silos?

 

Can one of those be armed, targeted toward Davos, and accidentally, of course, launched?

 

Just a thought...

ersatz007's picture

blame it on the same error that required the GS Chart showing we are in a recession to be revised...

Nero_Hedge's picture

Or on the same malfunction that sent our marines into Iranian waters

SuperRay's picture

If he's at Davos he's a scumbag. It's an entry requirement. If he's hyping QE, he's a scumbag. You're either with the financial truthers of against us. Make your choice. :)

Georgiabelle's picture

He is at Davos every year because he runs one of the biggest hedge funds in the world and people are interested in what he has to say. He was there last year warning about government debt levels : "In the conversation, Ray Dalio hit on a topic that made him a leader of sorts behind a quant movement that has done the math on government debt and wants to change the future. In previous speeches his shocking mantra was that if things don’t change, 1933 Germany could be around the corner. While his tone has changed slightly, and when speaking in more mainstream venues the talk in code appears to increase, the message is the same."

http://www.valuewalk.com/2015/01/ray-dalio-davos/

 

bigkahuna's picture

When those people close the doors, theres no telling what they are saying or doing.

Itchy and Scratchy's picture

Enough of your paid PR bullshit about good 'ole friendly Ray boy! He is nothing more than an extortionate fascist parasite! So please go fuck yourself!

Chris88's picture

Here comes the class warfare and envious bullshit.  You should research Dalio and how much he gives to charity, not to mention he's actually a very humble guy.  I wish I was nearly as intelligen,t wealthy, and successful as he is.

MiltonFriedmansNightmare's picture

@Vincefostersghost,
I"ll tread lightly knowing that it can't possibly be pleasant to be "Arkancided" by Hitlery, but consider that our "shadow government" that presides over the predominantly foreign owned US corp. functions as a board of directors of a private company rather than a government of a sovereign nation . Consider that and realize that it is filled with treacherous, psychopathic, Luciferian pedarasts and also realize that the only real solution that can lead to a positive evolutionary event for humanity is the abolition of government and taxes.

redd_green's picture

It sounds really nice in republican paper, but what effect will this have on the broken monetary system again?   The government is too big, but taxes are not getting paid by the corporations that should the paying the bulk of taxes, so just cutting taxes will have zero effect on the economy.  

Fixing the Fed, now that would help, but no one is talking about that.

two hoots's picture

Interesting: Likely where we are headed:  NIRP (Rogoff in Davos, Boomberg)

http://www.bloomberg.com/news/videos/2016-01-20/central-banks-need-to-th...

Borrow Owl's picture

Fuck Trump.

He's nothing more than a fourth rate circus clown.

His job is to pacify those who are just smart enough to understand that shit ain't right... but aren't quite smart enough to actually think for themselves.

PrezTrump's picture

Oh, and i am sure the other candidates are much better...