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Ray Dalio "Captivates" The Policy Makers

Updated on September 30, 2012
Ray Dalio
Ray Dalio
The Forum
The Forum

Ray Dalio Captures His Audience

On September 12th 2012, the legendary hedge fund manager Ray Dalio sat down for a conversation with CNBC's Maria Bartiromo and an audience. Ostensibly this was a normal event, in which a skilled market practitioner gets to share his wisdom and experience with lesser mortals; and CNBC can accrue kudos and advertising revenue. TV audiences are accustomed to such a set up; as is seen annually from Davos. What was interesting about this forum, in addition to what Mr. Dalio had to say, was the forum sponsor; the Council on Foreign Relations (CFR).

Mr. Dalio discussed his template for understanding the global macroeconomic cycle; and specifically the current focus on the US Debt Crisis, the European Debt Crisis and China. All of these subjects are considered to be issues of American national security; and are hence of interest to the CFR.

During his discourse, Mr. Dalio opined and re-emphasized the need for a policy mix; that balanced some austerity, with growth and also debt monetization. His practical observation is very reminiscent of the "Minds and Hands" approach of the MIT alumni who currently chair the Fed, ECB and Bank of England.

From the reverence and esteem with which he was treated, it was clear that Mr. Dalio had captured the audience and the chair. By his own admission, he is a great student of history; and seeks to apply historical precedents in his worldview and investing strategy. He is also presumably aware of the historical precedents of the relationships between finance men and policy makers.

Secretary Rubin and President Clinton
Secretary Rubin and President Clinton
Stephen Friedman and President Bush
Stephen Friedman and President Bush
Secretary Paulson and President Bush
Secretary Paulson and President Bush
Governor Corzine and Vice President Biden
Governor Corzine and Vice President Biden

Capturing The Policy Makers

In American political history, there is a strong historical precedent of financial interests capturing policy makers. President Andrew Jackson railed against these interests; but as the American economy has grown, his voice has been muffled.Financial interests have not always been a force for bad; indeed it was J.P. Morgan who rescued the economy after the Great Crash of 1929. Financial interests may not be malign, however they are self-serving to the exclusion of all else; so they must be watched closely. In the last twenty years or so, the self interest has grown to such an extent that many observers have opined a capture of the Government by financial interests. This capture has often been enabled by the linking of the financial interests with the national security policy makers.

One particular institution that has come to symbolize this capture of the policy makers is Goldman Sachs. The arrival of Robert Rubin, from Goldman to the US Treasury Department in the Clinton Administration heralded this move. The arrival of Stephen Friedman at the National Reconnaissance Office and President's Intelligence Advisory Board sealed the connection between finance and national security. Controversy involving the relationship between Goldman and the Government eventually came; with the involvement of Secretary Hank Paulson in the Wall Street bailout. Matters were inflamed, when it was reported that Goldman had profited from the "Big Short" at the time Secretary Paulson was in office; and his Goldman Shares were in escrow.The Obama Administration recently was touched by controversy; with the relationship of Jon Corzine and the Democratic Party.

As history shows, the relationship between the financial sector and Federal Government is a controversial one. Controversy is created by the perception that the financial sector will serve itself before the people; and at the expense of the people.

In the latest iteration of capture, Mr. Dalio is the subject. At this point in time, it is unclear who is capturing whom; in his dialogues with the CFR. Cynics and competitors,will observe that a powerful Hedge Fund Manager, with the ear of policy makers, is in the perfect position to create Alpha; either through privileged access to information, or by the provision of advice to policy makers. Mr. Dalio may need to tread carefully. This could be a great marketing technique to get assets under management; who would not want to have money managed by someone who's in the policy loop? When things go wrong for the people and right for the Hedge Fund however; this relationship becomes a liability.

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