This page has been archived and commenting is disabled.

Ray Dalio: Don't Assume That Germany Will Bail Europe Out; Consider The "Fat Tail" A Significant Possibility

Tyler Durden's picture


Lately, more and more professional investment "advisors" and newsletter recommendations boil down to just one catalyst: wait for either Germany, the ECB or the Fed to step in, as usual, and bail the world out, because, well, they have to, and any additional thought is rendered moot as fundamental analysis is meaningless under central planning (plus it is actually more work than just repeating the same stuff over and over while charging $29.95/month for it). Of course, when these same snakeoil salesmen are asked the simple question: what if said bailout does not happen, or if it happens late (for the purposes of this exercise let's assume one is not a central bank that can print its own money, have an infinite balance sheet, and can afford to be wrong almost into perpetuity), they give a blank stare, start mumbling something and walk away, especially if one mentions Lehman brothers and the simple detail that, oh, it failed. Which is why if Ray Dalio, head of the world's largest hedge fund, is correct, it may time to summarily fire and stop subscribing to each and every broken record Oracle whose template is "X will bailout Y" for the simple reason that it is wrong.

From Bridgewater's Daily Observations:

Be Careful When Betting Against Human Nature


Alliances are shifting in a logical manner. The German-French alliance is breaking down in favor of contributor (higher rated credit) countries aligning against recipient (lower rated credit) countries. Similarly, the terminology to describe who is reasonable and who is unreasonable reflects these parties' respective interests. Those who don't have to contribute use terms like "inflexible" and "irresponsible" to describe the contributors' reluctance to "do enough" to prevent collapse by lending more to recipients who can't service their existing debts, while those who have to contribute use terms like "inflexible" and "irresponsible" to describe the recipients' reluctance to "do enough" cutting of their spending and borrowing to service their debts. Students of human nature and deleveragings know that this is to be expected.


Similarly, talk of a fiscal union to resolve these problems has to be looked at in light of the question of whether it is in the interest of fiscally strong contributors to have a fiscal union with fiscally weak recipients in which the majority rules how the money is divided.


For this reason, we think the popular assumption that the Germans and the ECB (which requires agreement of the key factions within it) will come through with the money to make all these debts good should not be taken for granted. Said differently, we think there are good reasons to doubt that European bank and sovereign deleveragings will be prevented from progressing to the next stage in a disorderly way, without a Plan B in place. This "fat tail" event must be considered a significant possibility.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 06/27/2012 - 02:41 | 2564198 newengland
newengland's picture

Germany cannot afford to bail out Europe without selling itself to the rootless cosmopolitan gangsta bankstas who created the EUSSR, their Frankenstein.

Wed, 06/27/2012 - 05:07 | 2564303 janus
janus's picture

yeah,'s basic math.  they and we know they can't bail out the insolvent banks/soverigns.  i just wanted them to try...and, really, it has less to do with my fear of encroaching germanic systemization of every goddam aspect of our lives and more to do with my concern for those just now waking up to the New Reality.  there is so little time remaining, and there are countless good-folk the world over who need a bit more of it to exit the puss-filled blister of worthless risk assets.  time is so very short.

seems to me, the following is now almost inevitable:

1) the ecb will flood with liquidity.

2) the eur/usd will settle below parity -- see point one.

3) the swiss will finally abandon the peg -- the pressure on the yen and the dollar will snap back hard against it.  furthermore, canton-confederates, if your concern viz. the chf, its relative strength and your 'native industries' (read: milk and milk products) viability are thought all the way through, you will come to the very logical conclusion that such industries can be easily subsidized for a century or more with a single month's worth of free floating eur/chf.  are you really gonna allow 500 years of fierce independence to fold in a suicide pact with the continent?  fine.  just know that russian-roulette never ends well for its fact, it can get a bit messy.  


a rapid and cataclysmic breakup ensues immediately after the announcement.  the two sides are most definitely at loggerheads.  soros is right; this summit does seem to actually count.  

to me, this gets to the 'core' of german thinking.  it assumes that its systems are flawless...that individuals matter not (they are but cogs and constituents of the Systematic God of Homogenization)...that all things are esteemed only in terms of their utility...that humanity's only meaningful metric is productivity...and, most of all, that all peoples should attain to be more german.  academics also suffer under a similar delusion; only, academics aren't themselves productive -- but that's another subject.

i think 'the can' just clunked up against a brick wall.  any more kicking will only stub toes...but, then again.

and that's the fucking point: the world must again be able to 'know' some things.  it must be able to place its head on its pillow under some measure of certainty -- that, all things being equal, capital is not a vaporous fart fanned about by central planners.  it is not, nor can it be, subject to central diktate.  it must have some goddam intrinsic VALUE.  until such a time, there will be no 'recovery'; for 'recovery' is a psycological thing, not the machination of some fuck-nuts flashin his PHD badge at all who feign to care.  recovery requires the firm footing of a 'bottom'; so that mankind can regain a toe-hold on reality and set to climb.  when he's staggering aloft in some bizzaro-world of tea-leaf reading with only the assurances of control by those who have revealed themselves to be in possession of anything but...well, all this renewed pseudo-positivity is just the carnival barking of pentacostal tent-revivalists and snake handlers.  atavistic bull-shit if you ask janus.

"when i was a child, i spoke as a child, i understood as a child...when i became a man, i put away childish things.",




Wed, 06/27/2012 - 02:38 | 2564194 newengland
newengland's picture

Some jerk said earlier on this article that he lived in a country where everything was 'free' from cradle to grave. He didn't name the country. No surprise in that. It doesn't exist, except for scroungers lounging off others.

Dalio is correct, and anyone who thinks otherwise is a loser or a liar. That would be the politicians and their fans, mostly. The EUSSR is a freak political construct, a liar loan; the Emperor has no clothes. End of.

Wed, 06/27/2012 - 03:06 | 2564226 resurger
resurger's picture

"X stops bailout Y"

That's Reality Check

Wed, 06/27/2012 - 03:11 | 2564231 Bastiat009
Bastiat009's picture

I will die tomorrow. It is a bold prediction, hopefully wrongly timed but definitely accurate ... someday.

On a long enough timeline ...

My point is that timing is everything ... but difficult.

Wed, 06/27/2012 - 03:12 | 2564233 Alejandrito
Alejandrito's picture

Germany has a problem. This problem is called Europe. Clearer here:

Wed, 06/27/2012 - 03:17 | 2564240 poldark
poldark's picture

Merkel is a main player in the NWO. She will do every thing in her power to create a federal Europe, even if it is not good for Germany. To do this she will have to remain in power, so she cannot upset the German people before next years election. Then she has four rears to make a federal Europe irreversible.

Wed, 06/27/2012 - 07:23 | 2564410 JuicyGrabs
JuicyGrabs's picture

I`m sick of hearing the paranoid NWO bs. David Icke and Alex Jones are 2 retarded bozzo clowns and so is this NWO paranoid fantasy.

A federal Europe benefited Germany the most so far due to their export driven economy. Ofc, now that things are changing doesn`t look like that.

Also, Merkel failed so far in trying to force EU contries to impose responsible budgets and fiscal discipline which you call "NWO agenda". If Merkel can`t make other EU contries balance their budgets(move which they`re not willing to make apparently), Germany might exit the Euro or join a 2 speed Europe, meaning joining in a fiscal Union of strong Euro with Holland, Findland, Austria and possibly France(question mark here).



Wed, 06/27/2012 - 03:58 | 2564265 Tum
Tum's picture

What happened the last time Germany was made to pay for all of Europe? I can't remember, but I'm pretty sure it was bad.

Wed, 06/27/2012 - 06:31 | 2564362 Sandmann
Sandmann's picture

You mean when Eisenhower handed everything to Stalin ?

Wed, 06/27/2012 - 08:18 | 2564490 Lebensphilosoph
Lebensphilosoph's picture

Nothing happened. The wealth extorted from the castrated Germans following Churchill/Stalin/Roosevelt's war far exceeds anything appropriated from them in the aftermath of the Great War.

Wed, 06/27/2012 - 04:06 | 2564271 ripper
ripper's picture


Charts and setups. Looks like a major move in yen pairs is coming up.

Wed, 06/27/2012 - 04:19 | 2564277 Hermann
Hermann's picture

'Germany not playing ball' is a fearmongering meme, just like 'Germany will save the euro', and 'China will save the world' are comforting memes. Inflation is the method by which the world will be subjugated, but there needs to be an intermediate crash first, so that the co-orindated hyper-print is justified - because the consequences of this will be huge inflation, starvation for billions, rapid dollar devaluation, and hard assets taking a moon shot. And, who wants to take the blame for that? If they wait for a crash, then the cause of the crash is to blame.

The best scapegoat would be an attack made to look like it came from a country who we have been conditioned to believe is an enemy. That would be the perfect 'first' domino.

Wed, 06/27/2012 - 05:05 | 2564302 magpie
magpie's picture

Everyone expecting Frau Nein's backbone or the courageous Greeks to annihilate the Eurolira - though it's only the greedy ponzi participants seniority question... 

Wed, 06/27/2012 - 06:04 | 2564330 falak pema
falak pema's picture

over my dead body : Merkel on Euro bonding. She doesn't like the idea of getting into bed with Hollande. Same treatment as for Sarko. "Run little frenchman, run and get lean and mean like us in the process if you want to stay in the race; or you'll end up like a true club-med shill and we'll own you along with the Qataris." 

Awesome capitulation in view for EL SUD Europa; and after that as austerity spells it name, watch the repercussions in Club-Anglica! Long hot summer! 

Wed, 06/27/2012 - 06:10 | 2564338 disabledvet
disabledvet's picture

The Germans are watching the value of the euro and "saying nein in PUBLIC" for fear of a collapse in the currency igniting some type of "firestorm" or "event horizon." and Mr Dialo is right "they should be afraid of a Fat Tail event" as they in fact are. I believe it's all a forlorn hope actually as the political dysfunction simply overwhelms whatever monetary creativity the ECB can come up with. this still doesn't mean "the market doesn't keep getting cleared" however. don't like gold, DEFINITELY don't like oil, don't like nat gas, starting to get pessimistic on the softies like corn and wheat. DON'T like government debt outside of Treasuries. Since Treasuries are the "only game in town" now and going forward we like equities because on a relative value to Treasuries "they're a bargain."

Wed, 06/27/2012 - 06:14 | 2564340 IMA5U
IMA5U's picture



food for da bearz

Wed, 06/27/2012 - 06:24 | 2564350 TNTARG
TNTARG's picture

Monti (Italy) has nationalized Monti dei Paschi di Siena bank. The bank "helped" the State by buying 20 bn BTP's and now Italy "helps" Monti dei Paschi by buying 9,3 bn bonds. It's a nationalization: Monti dei Pascho worths, in the markest, 2,5 bn (all Euros).


Wed, 06/27/2012 - 06:25 | 2564354 elwu
elwu's picture

How stupid is that? Germany is by far to small to bail out the rest of the eurozone banks and nations.

So would you 'experts'  pls. finally stop to discuss if Germany bails out or not? It is not going to happen because it is not feasible.

Ah, and even if it would be feasible, it shouldn't be done. There are no free lunches.

Wed, 06/27/2012 - 06:30 | 2564361 Sandmann
Sandmann's picture

The US Debt increases by German GDP every 2 years. The EU GDP = US GDP so how is Germany big enough to support European Debt when Bank Deposits are 139% EU GDP and Loans are 144% EU GDP ?


Has arithmetic gone out of fashion ?

Wed, 06/27/2012 - 06:38 | 2564367 m111ark
m111ark's picture

Ray Dalio has risen to the top of the credit game without understanding how the credit game works.  Not so unusual when your success depends on you not understanding the real process.

The monetary system is a ponzi scheme.  It requires ever more money creation to pay the debt created by debt in the first place.  It fails when people can no longer borrow money.  It's then called a credit crisis and governments are forced, thru central banks, to be the the money creator of last resort - QEx.

Once on the back of the debt money tiger it's impossible to get off.  Without a complete collapse.  Since the whole world (minus the Islamic countries - which is why we're at war with them)  is burdened with a debt money monetary system, this collapse will be spectacular.

Wed, 06/27/2012 - 06:59 | 2564380 shovelhead
shovelhead's picture

"We're outta ammo and they're comin' through the perimeter...

Every man for himself. Good luck Private."

Wed, 06/27/2012 - 06:59 | 2564381 AE911Truth
AE911Truth's picture

How can any CB whose assets are frozen bail out anyone?

Wed, 06/27/2012 - 07:14 | 2564393 reginald
reginald's picture

Godwin's Law never fails.i

Wed, 06/27/2012 - 07:35 | 2564423 magpie
magpie's picture

'But you Sir are worse than Hitler !'

Wed, 06/27/2012 - 08:36 | 2564507 TrumpXVI
TrumpXVI's picture

It's going to be interesting to watch.  

On the one hand, the German middle class is the entity which will have to shoulder the pain of the tax levels which will be required to support a German led bailout of Europe.  And they cannot afford it.  They aren't that well off.  Too much is made of how "rich" Germany is, but it isn't; at least not in terms of the people who will have to foot the bill.  The German middle class is "middle class" because they are frugal and willing to make hard choices.  By embracing tough priorities they are able to live well enough, but there isn't all that much wiggle room.

This lifestyle will contribute to making them even more resentful of the tax demands which will be made of them.  Merkel understands this dynamic which is not appreciated by observers outside of Germany.  The German voter WILL reach a breaking point.

On the other hand, one must not underestimate the level of collective German guilt over the horrendous mistakes and crimes perpetrated by Germans in the recent past.  Germany will bend over backwards in an attempt to accomplish "wieder gut machen".

When an irresistible force meets the immovable object.  I wouldn't pretend to be able to predict the outcome, but it should be interesting.


Wed, 06/27/2012 - 09:08 | 2564568 Sandmann
Sandmann's picture

one must not underestimate the level of collective German guilt


I think you will find on reflection that people don't feel "collective guilt" any more than Americans do for actions of the US Government over the past 50 years

Wed, 06/27/2012 - 08:35 | 2564511 luckylongshot
luckylongshot's picture

The sooner the Franken currency (Euro) is put to death the better. When the Euro fails the plans of the NWO to introduce a single currency and turn us into serfs take a serious hit as well.

Wed, 06/27/2012 - 10:44 | 2564985 cuxxy
cuxxy's picture

Still, nobody bothers to mention the havoc Germans are causing in eastern Europe by EU subsidies. Especially by pushing the "green" energy. Free money (in the end the Germans will find out it's their money) are pouring into the mid/eastern Europe via EU subsidies and corrupting our society up and down.
Down with German, bitches, I say. Stop this socialist madness.

Sat, 06/30/2012 - 13:56 | 2577269 Grand Supercycle
Grand Supercycle's picture

Any traders predicting a multi month equity rally apart from me ?

As of today I am.

Last week was the turning point.

Significant equity upside expected this year according to my analysis.

However the SPX big picture remains very bearish and unfortunately this will not change.

Do NOT follow this link or you will be banned from the site!