
A Template for Understanding How the Economic Machine Works (2011) [pdf] - yarapavan
https://media.economist.com/sites/default/files/pdfs/A_Template_for_Understanding_-_Ray_Dalio__Bridgewater.pdf
======
apo
The "Business Cycle" section on page 17 is basically a blueprint for money and
finance in decade-sized chunks.

1\. Early Cycle. Low interest rates and lots of credit increase sales of big-
ticket items.

2\. Mid-Cycle. Slowing economy, low inflation and interest rates, consumption
falls.

3\. Late-Cycle. Capacity constraints surface and interest rates rise. "The
stock market stages its last advance."

4\. Tightening Phase. Central bank raises interest rates in anticipation of
rising inflation.

5\. Early recession. GDP, inflation, stocks, and hedge assets fall as central
bank keeps money tight.

6\. Late recession. Central bank lowers rates, stocks rise. Cycle complete.

According to this roadmap, step (4) began about one year ago. In addition to
increasing interest rates the Fed has committed to unwinding its QE assets
from the 2009 aftermath.

The take-home message is that the Fed causes recessions according to a very
predicable pattern. This came as quite a shock when I first read about it in
the book "Secrets of the Temple."

Also, there are a lot of gems tucked away into various corners of this essay,
including this one:

 _... a big part of the deleveraging process is people discovering that much
of what they thought was their wealth isn’t really there._

~~~
shostack
If your above assertion is correct, what should Joe 401k do to best weather
the pending storm?

Presumably buy and hold still rings true as A Random Walk Down Wallstreet
shows us that ultimately, it's just best to ride it out without selling.

~~~
apo
_...it 's just best to ride it out without selling._

Maybe, but psychology will work against you. Would you be comfortable sitting
on a 70% loss of your life savings with no end in sight?

If so, buy and hold might work. It doesn't for most people.

~~~
alexgmcm
It's not a loss until you sell.

------
yarapavan
Ray Dalio's LinkedIn post, with context and summary of the new book (available
as a free PDF) - [https://www.linkedin.com/pulse/understanding-big-debt-
crises...](https://www.linkedin.com/pulse/understanding-big-debt-crises-ray-
dalio/)

Direct link:[https://principles.us13.list-
manage.com/track/click?u=f81713...](https://principles.us13.list-
manage.com/track/click?u=f817138263fa3d3dec4ad231d&id=1881b360ad&e=557baf7749)

------
cryptozeus
I find this very useful, every now and then i make it a point to watch his
video to remind myself of the macro view on things
[https://m.youtube.com/watch?v=PHe0bXAIuk0](https://m.youtube.com/watch?v=PHe0bXAIuk0)

------
jedimastert
The title made me thing of the MONIAC:
[https://www.wikiwand.com/en/MONIAC](https://www.wikiwand.com/en/MONIAC)

------
m3kw9
Without a peer review, if I were to base financial decisions on this, it could
be dangerous, especially the finer points.

