Maggie's Farm

Jim Rogers has predicted this too. So has Ron Paul. So have a number of writers on ZeroHedge. It's nothing new.

The problem is, nobody is listening. There is a distinct belief, amongst those who control the system, that printing money will create the illusion of wealth (can you say Mississippi Bubble?), and somehow stave off the ultimate disaster.

I think Dalio is intriguing. All traders have principles which guide them. Tom, if you haven't read "Reminiscences of a Stock Operator", I highly recommend it. It is the fictionalized account of the life of Jesse Livermore.

His rules were part of what led to today's world of stock charting...and eventually to the computer programs which guide traders on a daily basis.

There is a problem with all the computer models, though. If everyone does the same thing, nobody makes any money. The KEY to a market is having people doing slightly different things, focusing on different values, possibly even opposite values.

Markets are win/win. The concept that "one man's trash is another man's treasure" plays out in this fashion:

A stock which is declining in value does not mean that those who hold it lose value, thus leading to complete degradation of the market. Short sellers make money in this environment. Short sellers cannot "force" the market down (as some people think - though there is one situation where they can and it's supposed to be regulated but usually isn't), they merely make money by betting against the move of the market, like a craps player putting his money on the "Don't Pass" line (most people put money on the "Pass" line). Short sellers, in a market decline, provide a bottom - they set the bottom of the market by reinvesting their money and helping the market recover.

When the government bans short selling (as it has in the mistaken attempt to stop a falling market), it eliminates the baseline bottom. There will be nobody to stop the market when it hits the bottom because there will ONLY be losers.

As a result, the much maligned stock operators play a beneficial and important role in helping the market find equilibrium and balance, while providing much needed liquidity.

Dalio is a very smart man, and I respect what he's accomplished.

The "issue" I have with him has nothing to do with him, personally, but with the system, which has placed a greater value on finance as a tool for making money than on creating usable capital for productivity. Markets have always been designed to make money, but they've primarily acted as a means of providing capital to increase productivity of business and fuel new ideas. Today, finance exists for the purpose of finance and little else. It's a self-interested market without a clear relationship to the economy, and this is because (entirely because of) government intervention and the creation of the state capitalist system.
Dalio is doing what any smart person should try to do - benefit from the system which exists. People complain that "the market failed". Hardly - the government failed the market and people like Dalio are merely doing what they do, much like a vulture feeding on the carrion by the side of the road. He sees things, and seeks to profit from it. We need people like him in the system.

What we don't need is the government gaming the system, which just makes Dalio's job all the easier.

Alpha is, basically (assuming you don' t know) the pool of money in the market at any given moment of time. So, as you trade, at that moment, there is "growth" which can produce a win/win arrangement - only a winner and loser. It is the net result of that transaction which produces Beta - the ability of a market to grow (or shrink).

So he is absolutely correct, and it is precisely why so many hedge fund workers are poker players. Poker is the ultimate Alpha game. Everyone in the game has a limit on not only each hand - but for the entire match.

Other games, where you play against the house, have a built in Beta (the house's bank), rather than an alpha at risk. Poker is pure Alpha - a winner and other losers.

Yup. And you'll be impoverished. But that's OK, as long as the government debt is paid.

By the way, that's exactly what they are doing - and Dalio mentioned this when he discussed the need for the US to print money in huge amounts in order to keep the economy out of a classic Depression.

As I point out to people who ask "where's the inflation?" - we are in a DEFLATIONARY environment. Prices SHOULD be falling. But they are still rising, however moderately. This means we are in a DE FACTO inflationary environment. It's an illusion, created by the government, to help people FEEL richer when in fact they are not. It will get out of control.

As Dalio noted, the price of gold is equivalent to ALL CURRENCY active in the global market DIVIDED by available gold. I did that calculation, and you know what the value of gold should be? $6,000.
It's trading at $1,900.

Ron Paul is right.