A must-watch video produced by Ray Dalio, founder of Bridgewater Associates, the largest hedge fund in the world. Bridgewater has managed over US$160 billion! You can predict the next economic cycle and understand the economy more by watching this video.
CLICK here to watch> https://www.youtube.com/watch?v=PHe0bXAIuk0
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Here is our summary of this video:
1. The economy works like a machine. We can predict economic cycle based on the historical patterns.
2. There are short debt and long debt cycles. A short cycle takes about 5-8 years and the long cycle takes 75-100 years.
3. Credit matters most in the short run and drives the cycle up and down. With more credit, people spend more and boost the economy. On the other hand, with less credit, people spend less, leading to an economic recession, e.g. the 2008 financial crisis.
4. There is always an economic cycle happened and cannot be avoided.
5. With more credit, people’s spending and incomes grow faster than the production of goods, so the price rises and inflation happens. If inflation causes problems, Central Bank will raise interest rates gradually, which may lead to the economic recession at the end. Then Central Bank may lower the interest rate to stimulate the economy. With a lower interest rate and more credit, people’s spending and incomes grow faster than the production of goods again, leading to a cycle and the economy will be up and down.
6. To conclude, we think economic boom and recession must happen in future. Just like Warren Buffett said, “Be fearful when others are greedy and greedy when others are fearful”. There is no need to worry so much during the economic recession and no need to be so euphoric in economic boom.