Ray Dalio is founder and co-chief investment officer of Bridgewater Associates. Ray is regarded as one of the greatest innovators in the finance world, having popularized many commonly used practices, such as risk parity, currency overlay, portable alpha, and global inflation-indexed bond management.
Ray Dalio’s talk covers the following topics:
- Six features that make a bubble and whether the stock market is in a bubble.
- Comparing interest rates to assess how the total market is functioning
- Which markets are in a bubble and how to evaluate individual stocks
- Liquidity, debt monetization, and new IPOs (high price to revenue) as indicators of a bubble
Episode Notes:
00:48: Introduction to the stock market in a bubble.
01:08 What is a bubble? What does it mean to have a bubble and the six things that make up a bubble?
01.34 1st How high prices are, relative to the traditional measures. E.g. Bond yields
02:55 2nd How Prices are discounted in unsustainable conditions by the nature of buying i.e. describing the nature of the buying.
3:28 3rd The entry of new buyers in the market and how they are attracted. e.g. Real Estate.
03:45 4th Broad Bullish sentiment. i.e. not having an item makes one feel foolish.
03:58 5th Purchases financed by high leverage. e.g. for apartment price hike speculations.
4:20 6th Extended forward purchases made by buyers and businesses.
05:32 First chart depicting ‘USA aggregate bubble gauge Percentile’ depicting rates from 1910 to 2020; comparing interest rates and the printing of money
6:00 Second chart depicting share of Market Cap in a bubble comparison between 1995 and 2000 with top 100 companies and S&P 500
6:38 Third chart ‘Total return since the start of 2020’ depicting performance of 2020 Bubble stocks with the performance of S&P 500
7:05 Last chart ‘Long term debt cycle’ showing debt to GDP, interest rates and the printing of money
08:19 New IPOs with no earnings, high-priced revenue, and their impact on making money; distinguishing stock markets’ position, whether in a bubble or previously in a bubble.
