It takes a while to digest Big Debt Crises, the latest thought-provoking tome from Bridgewater Associates founder, Ray Dalio - the hedge fund multi-billionaire who these days focuses on the bigger picture of investing rather than day-to-day management.
His research team have painstakingly analysed the big debt crises of the past 100 years, finding remarkably repetitious patterns in how they develop and how central banks handle these cataclysmic phenomena.
Basically the conclusion that emerges from this huge pile of data is that the 2007-9 debt crisis was remarkably like the one that led to the Great Crash of 1929, and the subsequent Great Depression of the early 1930s; a crash like the one that happened in 1937 may be what comes next for us now; back then stocks fell by 60 per cent and did not recover for a decade.
However, the major difference between 2007-9 and the early 30s was the way the authorities responded to the crisis. In the first crisis they took several years before they got to grips with it and took an appropriately scaled response.
Thankfully by the time the 2007-9 debacle came around Ben Bernanke, Tim Geithner and Henry Paulson proved to be uniquely qualified trio to deal with the problem. Federal Reserve chairman Mr Bernanke was a lifetime student of the Great Depression, Treasury Secretary Henry Paulson, as a former chairman and chief executive officer of Goldman Sachs, knew markets and Wall Street backwards; New York Fed President Tim Geithner was a star of the regulatory community. They also got on well.
By acting fast, furiously and mobilising trillions of dollars there was not a second Great Depression, rather a somewhat frustratingly slow but very long recovery.
Author Ray Dalio admits he was impressed at the time, but did not know whether the trio would succeed in their quest - and he was quite the commentator.
At one point in the financial crisis, the three aforesaid gentlemen took one of Mr Dalio’s daily notes - which said they were doing all the right things - to show President Obama that they were on the right track.
It could have all turned out very differently. Mr Dalio recalls how close the economy sailed towards complete disaster. He actually stayed well-hedged and missed early opportunities because he was not that sure that it would work out.
How many experts got their commentaries right at the time? It was easy to reason that those now running the show were the same guys who had got us into trouble, and that did not give good reason to believe they would be any better at managing the crisis.
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Other experts were overly concerned about the inflationary effect of money printing on such a humungous scale. In truth, the hole in the US national balance sheet was so big it could absorb almost any amount of money for many years.
Still, the famous trio were right. The more important question is where we are going from here.
In television interviews to launch the book, Mr Dalio is quite circumspect: no major crash for a couple of years but corrections possible; the US dollar ‘could easily’ devalue 30 per cent from here; but a recession will follow.
Nonetheless, in the book he provides a historic parallel by looking at the debt crisis of 1937. It occurred when the Fed began to raise interest rates as the economy began to recover strongly from the 1929-33 crisis.
In 1937 the US stock market dropped 60 per cent, and it did not return to the same level for a decade.
Industrial commodities were the place to be after that with global rearmament for the Second World War, not equities, and other real assets that benefited from inflation such as land, property and precious metals.
If that sounds an unlikely scenario today, then don’t forget that Chinese stocks have already dropped 60 per cent over the past three years. The oil price has almost doubled over the past year. Dr Copper is around 10 per cent more expensive than a year ago.
World War III is thankfully not a realistic scenario. But the rise of nationalism and populism is very much a by-product of debt crises and their creation of inequality and social stress: today we have Trump, Brexit and Putin.
Meanwhile, warnings about the massive overvaluation of Wall Street, and by extension European stock markets, are not hard to find, and the high volatility in markets so far this October is ominous.
Still with new all-time highs being struck again and again this year, the mythical Greek forecaster Cassandra has lost most of her credibility. Yet the cyclical nature of stock markets is a fact of life, not sorcery.
What goes up and up, will eventually come down. It always does. Knowing exactly when this will happen is impossible. But you can prepare for it, and not leave yourself hopelessly exposed with debts up to your eyeballs, when the inevitable happens.
Ray Dalio is an old master with a $17 billion fortune to prove it.
Yet even he does not pretend to have all the answers, or to know the future. But he does know the past, and in the book he casually mentions how well this has served him before.
What I liked most about Big Debt Crises is its clear and logical analysis of historical events from a global macroeconomic perspective with investment in mind.
Normal history books understandably do this in passing, not as a central focus. If nothing else I thought Mr Dalio’s account of the last financial crisis about the best I have read.
How far his review of the 1937 crisis will help in understanding what may lie ahead for us today is harder to say, and Mr Dalio does not really try.
He looks across the probability of various scenarios and attempts to successfully hedge them, while leaving the maximum potential upside.
It’s what any successful hedge fund manager would do, and Mr Dalio is arguably the most successful of them all as he runs the biggest hedge fund in the world.
Peter Cooper has been writing about Gulf finance for more than two decades
if you go
The flights
Emirates flies to Delhi with fares starting from around Dh760 return, while Etihad fares cost about Dh783 return. From Delhi, there are connecting flights to Lucknow.
Where to stay
It is advisable to stay in Lucknow and make a day trip to Kannauj. A stay at the Lebua Lucknow hotel, a traditional Lucknowi mansion, is recommended. Prices start from Dh300 per night (excluding taxes).
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The years Ramadan fell in May
Dhadak 2
Director: Shazia Iqbal
Starring: Siddhant Chaturvedi, Triptii Dimri
Rating: 1/5
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UAE currency: the story behind the money in your pockets
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What the law says
Micro-retirement is not a recognised concept or employment status under Federal Decree Law No. 33 of 2021 on the Regulation of Labour Relations (as amended) (UAE Labour Law). As such, it reflects a voluntary work-life balance practice, rather than a recognised legal employment category, according to Dilini Loku, senior associate for law firm Gateley Middle East.
“Some companies may offer formal sabbatical policies or career break programmes; however, beyond such arrangements, there is no automatic right or statutory entitlement to extended breaks,” she explains.
“Any leave taken beyond statutory entitlements, such as annual leave, is typically regarded as unpaid leave in accordance with Article 33 of the UAE Labour Law. While employees may legally take unpaid leave, such requests are subject to the employer’s discretion and require approval.”
If an employee resigns to pursue micro-retirement, the employment contract is terminated, and the employer is under no legal obligation to rehire the employee in the future unless specific contractual agreements are in place (such as return-to-work arrangements), which are generally uncommon, Ms Loku adds.
The biog
Name: Abeer Al Shahi
Emirate: Sharjah – Khor Fakkan
Education: Master’s degree in special education, preparing for a PhD in philosophy.
Favourite activities: Bungee jumping
Favourite quote: “My people and I will not settle for anything less than first place” – Sheikh Mohammed bin Rashid.
One in nine do not have enough to eat
Created in 1961, the World Food Programme is pledged to fight hunger worldwide as well as providing emergency food assistance in a crisis.
One of the organisation’s goals is the Zero Hunger Pledge, adopted by the international community in 2015 as one of the 17 Sustainable Goals for Sustainable Development, to end world hunger by 2030.
The WFP, a branch of the United Nations, is funded by voluntary donations from governments, businesses and private donations.
Almost two thirds of its operations currently take place in conflict zones, where it is calculated that people are more than three times likely to suffer from malnutrition than in peaceful countries.
It is currently estimated that one in nine people globally do not have enough to eat.
On any one day, the WFP estimates that it has 5,000 lorries, 20 ships and 70 aircraft on the move.
Outside emergencies, the WFP provides school meals to up to 25 million children in 63 countries, while working with communities to improve nutrition. Where possible, it buys supplies from developing countries to cut down transport cost and boost local economies.
Scores
New Zealand 266 for 9 in 50 overs
Pakistan 219 all out in 47.2 overs
New Zealand win by 47 runs
Killing of Qassem Suleimani
The specs
Engine: 2.5-litre, turbocharged 5-cylinder
Transmission: seven-speed auto
Power: 400hp
Torque: 500Nm
Price: Dh300,000 (estimate)
On sale: 2022
Prophets of Rage
(Fantasy Records)
THREE
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Keep it fun and engaging
Stuart Ritchie, director of wealth advice at AES International, says children cannot learn something overnight, so it helps to have a fun routine that keeps them engaged and interested.
“I explain to my daughter that the money I draw from an ATM or the money on my bank card doesn’t just magically appear – it’s money I have earned from my job. I show her how this works by giving her little chores around the house so she can earn pocket money,” says Mr Ritchie.
His daughter is allowed to spend half of her pocket money, while the other half goes into a bank account. When this money hits a certain milestone, Mr Ritchie rewards his daughter with a small lump sum.
He also recommends books that teach the importance of money management for children, such as The Squirrel Manifesto by Ric Edelman and Jean Edelman.
More coverage from the Future Forum
Milestones on the road to union
1970
October 26: Bahrain withdraws from a proposal to create a federation of nine with the seven Trucial States and Qatar.
December: Ahmed Al Suwaidi visits New York to discuss potential UN membership.
1971
March 1: Alex Douglas Hume, Conservative foreign secretary confirms that Britain will leave the Gulf and “strongly supports” the creation of a Union of Arab Emirates.
July 12: Historic meeting at which Sheikh Zayed and Sheikh Rashid make a binding agreement to create what will become the UAE.
July 18: It is announced that the UAE will be formed from six emirates, with a proposed constitution signed. RAK is not yet part of the agreement.
August 6: The fifth anniversary of Sheikh Zayed becoming Ruler of Abu Dhabi, with official celebrations deferred until later in the year.
August 15: Bahrain becomes independent.
September 3: Qatar becomes independent.
November 23-25: Meeting with Sheikh Zayed and Sheikh Rashid and senior British officials to fix December 2 as date of creation of the UAE.
November 29: At 5.30pm Iranian forces seize the Greater and Lesser Tunbs by force.
November 30: Despite a power sharing agreement, Tehran takes full control of Abu Musa.
November 31: UK officials visit all six participating Emirates to formally end the Trucial States treaties
December 2: 11am, Dubai. New Supreme Council formally elects Sheikh Zayed as President. Treaty of Friendship signed with the UK. 11.30am. Flag raising ceremony at Union House and Al Manhal Palace in Abu Dhabi witnessed by Sheikh Khalifa, then Crown Prince of Abu Dhabi.
December 6: Arab League formally admits the UAE. The first British Ambassador presents his credentials to Sheikh Zayed.
December 9: UAE joins the United Nations.
The biog
Name: Capt Shadia Khasif
Position: Head of the Criminal Registration Department at Hatta police
Family: Five sons and three daughters
The first female investigator in Hatta.
Role Model: Father
She believes that there is a solution to every problem
Killing of Qassem Suleimani
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
