Ray Dalio Whats Going on in the World Presentation.pdf

Ray Dalio President & Chief Investment Officer September 13, 2010

One Glendinning Place Westport, CT 06880 (203) 226-3030 www.bwater.com

If you’re talented, don’t go into a business in which the macro environment will determine your success.

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What each decade is like is determined by the excesses of the prior decade.

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If you can understand the linkages and not get carried away by the excitements of the times, you can maneuver strategically.

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Whenever there's a boom and debts are rising faster than incomes, a bust will follow.

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Governments will always choose to print money rather than tighten their belts, if the pain of debt gets bad enough.

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Whatever career has the highest percentage increase in HBS grads going to it is probably headed for trouble.

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You can’t chase the good things – you have to be ahead of them or early on their waves.

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-8-

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Whenever economic conditions are extremely one way and most people are sure that they will continue, they will probably reverse.

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The most common mistake of investing is to assume that investments that had the highest returns over the past few years are the best investments rather than they have become expensive.

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INVESTMENT PRINCIPLES



A portfolio is nothing more than the weighted average of its return streams.



There are only 2 types of return streams: Alphas and Betas.



You need to have a well thought out game plan that is based on knowing what your return streams are like and knowing how to combine them.

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15 UNCORRELATED RETURN STREAMS – THE HOLY GRAIL OF INVESTING Probability of Losing Return-to- Money in a

60% correlation

Risk Ratio

Given Year

40% correlation 10%

1.00 0.25

40%

0.90 0.28

39%

8%

0.80 0.31

38%

7%

0.70 0.36

36%

6%

0.42 0.60

34%

5%

0.50 0.50

31%

4%

0.63 0.40

26%

3%

0.83 0.30

20%

2%

1.25 0.20

11%

1%

2.50 0.10

1%

20% correlation 10% correlation

Annual Portfolio Standard Deviation

9%

0% correlation

1

2

3

4

5

6

7

8

9

10

11

12

13

Number of Assets/Alphas in Portfolio

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14

15

16

17

18

19

20

Our Alpha

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DECISION RULES ARE CONVERTED INTO RETURN STREAMS 18%

1.60

Inflation/ Unemployment 1.40

16%

T-Bill Rate 14%

1.20

12%

1.00

10% 0.80 8% 0.60

6%

0.40

4%

0.20

2%

0.00

0% 60

62

64

66

68

70

72

74

Inflation/ Unemployment Pressure

76

78

80

82

84

86

88

90

92

94

96

98

100%

18%

80%

16%

06

08

10

Avg Annual Ret: 3.7% Std Dev: 5.3% Ratio: 0.70

14% 150%

12%

20%

04

250% 200%

40%

02

Cumulative Profit

T-Bill Rate

60%

00

10% 100%

0% 8%

-20%

50%

6%

-40% -60%

4%

-80%

2%

-100%

0%

0% -50% 60

60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11

63 66

69

72 75

78 81

84 87

90 93

96 99

02

05 08

11

Please refer to Note 1 for relevant disclosures. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. - 15 -

COMBINE UNCORRELATED RETURN STREAMS Aus Equity Indicator Cum Return

Aus - UK Equity Diff Cum Return

US Bond Indicator Cum Return 200% 150% 100% 50% 0%

160%

130%

60%

140%

110%

50%

120%

40%

100%

30%

80%

20%

60%

10%

40%

0%

20%

-10%

-50% 70

74

78

82

86

90

94

98

Copper Indicator Cum Return 500%

7%

60% 50%

400%

6%

4%

20%

3%

10%

2%

0%

1%

100% 0% 91 92 93 94 95 96 97 98 99 00 01 02

US Yield Curve Cum Return

-100% 70

3.0%

3.0%

1.75%

2.5%

2.5%

1.50%

0.5%

1.00%

1.5%

0.75%

1.0%

0.50%

0.0%

0.00%

0.0%

-0.25%

-0.5%

88

92

96

00

82

86

90

94

98

86

90

94

98

91

02

93

95

97

99

01

CHF vs EUR Cum Return

Swiss Franc vs Euro

2.0% 1.5% 1.0% 0.5%

Average Alpha = 0.09% 0.0%

-0.5% 84

82

0.5%

0.25%

80

78

2.0%

1.25%

Average Alpha = 0.14%

78

Nominal vs IL Cum Return

2.00%

1.0%

74

US Bond Diff Cum Return

3.5%

74

80

84

88

92

96

00

-0.5%

80

Please refer to Note 2 for relevant disclosures - 16 -

02

IL Indicator Cum Return

200%

0%

70

90% 80% 70% 60% 50% 40% 30% 20% 10% 0% -10%

300%

5%

1.5%

10%

Opportunistic EMD Indicator Cum Return 8%

2.0%

30%

-10%

70%

81 83 85 87 89 91 93 95 97 99 01

50%

80 82 84 86 88 90 92 94 96 98 00 02

Aus Bond Diff Indicator Cum Return

-10%

70%

80 82 84 86 88 90 92 94 96 98 00 02

80%

30%

90%

0%

02

40%

JPY/USD Indicator Cum Return

70%

84

88

92

96

00

80

84

88

92

96

00

03

Our Beta

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CONVENTIONAL ASSET RETURN/RISK PERSPECTIVE

Expected Rates of Return For Various Asset Classes 18%

16%

Private Equity

14%

Expected Total Return

Emerging Equities

12%

10% U.S. Equities

8%

Real Estate

6%

Non-U.S. Equities

Non-US Fixed Income (Hedged)

Emerging Market Debt

4% High Yield Debt

2% Cash

0% 0%

Inflation Linked Core US Bonds Fixed Income

5%

10%

15%

20% Expected Risk

Please refer to Note 3 for relevant disclosures. - 18 -

25%

30%

35%

40%

0%

Asset Class

Please refer to Note 3 for relevant disclosures. - 19 -

Real Estate

Private Equity

Emerging Equities

Non-U.S. Equities

U.S. Equities

Emerging Market Debt

25%

Non-US Fixed Income (Hedged)

High Yield Debt

Inflation Linked Bonds

Core US Fixed Income

Expected Excess Return

RISK-ADJUSTED RETURNS Leverage-Adjusted Expected Excess Returns (Standardized to the Risk Level of the S&P 500)

20%

15%

10%

5%

BALANCE RISK (NOT CAPITAL) EQUALLY ACROSS ECONOMIC ENVIRONMENTS

GROWTH

INFLATION

RISING

FALLING

Please refer to Note 4 for relevant disclosures. - 20 -

The Economy: How it Works & What it Looks Like Now

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My Template • Long-term Productivity Growth • Long-term Debt Cycle • Business Cycles

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LONG RUN GROWTH DRIVEN BY INCREASES IN PRODUCTIVITY Real GDP per Capita (2008 dollars, ln) 4.5

4.0

0.7% 2.1% 2.1%

3.5

2.2% 3.0% 3.0

2.4% 4.1%

2.5

0.2% 1.9% 0.8%

2.0

2.7%

1.5

1.0 00

10

20

30

40

50

60

Source: Global Financial Data Inc. and Bridgewater Analysis. - 23 -

70

80

90

00

10

WE HAVE REACHED OUR DEBT LIMITS USA Total Debt %GDP

400%

350% 60 Year Credit Expansion 300%

250%

200%

150%

100% 1920

1930

1940

1950

1960

1970

Source: Global Financial Data Inc. and Bridgewater Analysis. - 24 -

1980

1990

2000

2010

THE SECULAR FALL IN INTEREST RATES KEPT DEBT SERVICE STABLE USA 3m Interest Rate 18%

16% 1982

14%

12%

10%

8%

Hard landing

Hard landing

6%

4%

2%

0% 1920

1930

1940

1950

1960

1970

Source: Global Financial Data Inc. and Bridgewater Analysis. - 25 -

1980

1990

2000

2010

DEBT LEVELS ROSE RAPIDLY WHILE DEBT SERVICE DID NOT USA Household Debt % Disposable Income

USA Household Interest Payments % Disposable Income 20%

140%

18% 120% 16% 14% 100% 12%

1982 80%

10% 8%

60% 6% 4% 40% 2% 20%

0% 20

30

40

50

60

70

Source: Global Financial Data Inc. and Bridgewater Analysis. - 26 -

80

90

00

10

MASSIVE PRINTING OF MONEY US M0 as % of NGDP

20%

18%

16%

14%

12%

10%

PRINTING

8%

6%

4%

2% 1920

1940

1960

1980

Source: Global Financial Data Inc. and Bridgewater Analysis. - 27 -

2000

BIG BUDGET DEFICITS US Federal Budget Surplus as a % of NGDP

6%

4%

2%

0%

-2%

-4%

-6% even bigger deficit -8% wartime deficit goes to -30%

-10%

-12% 1920

1930

1940

1950

1960

1970

Source: Global Financial Data Inc. and Bridgewater Analysis. - 28 -

1980

1990

2000

2010

FISCAL AND MONETARY STIMULATIONS ARE OVER Developed World Purchases of Financial Assets (annualized) %PGDP

9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Oct-12

Jul-12

Apr-12

Jan-12

Oct-11

Jul-11

Apr-11

Jan-11

Oct-10

Jul-10

Apr-10

Jan-10

Oct-09

Jul-09

Apr-09

Jan-09

Oct-08

Jul-08

United States Trailing 3 Month Growth Impact from Stimulus (%PGDP)

4% 3% 2% 1% 0% -1% -2% -3% Oct-12

Jul-12

Apr-12

Jan-12

Oct-11

Jul-11

Apr-11

Jan-11

Oct-10

Jul-10

Apr-10

Jan-10

Oct-09

Jul-09

Apr-09

Jan-09

Oct-08

Jul-08

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THERE ARE TWO WORLDS Developed World Industrial Production (GDP-w eighted) 105 100 95 90 85 80 75 00

01

02

03

04

05

06

07

08

09

10

08

09

10

Emerging Market Industrial Production (GDP-w eighted) 120 110 100 90 80 70 60 50 40 30 00

01

02

03

04

05

06

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07

SECULAR IMBALANCES HAVE NOT CHANGED Creditor Countries (const. basket) Curr Acct % NGDP

Debtor Countries (const. basket) Curr Acct % NGDP

8%

6%

4%

2%

0%

-2%

-4%

-6% 00

01

02

03

04

05

06

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07

08

09

10

Appendix

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Our Principles • People and culture • Truth and excellence at all costs

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BAD

GOOD

…Allow pain to stand in the way  of their progress. 

…Understand how to manage pain  to produce progress. 

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BAD

…Avoid facing “harsh realities.”

…Face “harsh realities.”

GOOD

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BAD

…Worry about appearing good. 

…Worry about achieving the goal. 

GOOD

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BAD

GOOD

…Make their decisions on the basis of first‐order consequences. 

…Make their decisions on the basis  of first‐, second‐ and third‐order  consequences.

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BAD

…Don’t hold themselves accountable.

…Hold themselves accountable.

GOOD

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Disclosures

Please read the following notes and disclosures as they provide important information and context for the research and performance presented herein. Additional information is available upon request except where the proprietary nature of the information precludes its dissemination.

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NOTES Note 1 : This slide is meant to show an example of how Bridgewater’s active market views are formulated and is purely for illustrative purposes. The charts are not intended to reflect what actual Bridgewater valuation, signals, and performance were during the periods outlined. Charts are created using backtesting of a portion of Bridgewater’s systems. Note 2 : For illustrative purposes only. The example does not necessarily indicate the actual historical or current implementation of Bridgewater’s strategies. Markets listed may or may not be currently traded and are subject to change without notice. Note 3 : Based on return and risk expectations from an independent study by Rocaton, a third party consultant. Note 4 : For illustrative purposes only. The example does not necessarily indicate the actual historical or current implementation of Bridgewater’s strategies.

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Research/Outlook Disclosure: This research is based on Bridgewater Associates, LP proprietary research and analysis of global markets and investing. Bridgewater research utilizes (in whole and in part) data and information from public, private, and internal sources. Some internally generated information may be considered theoretical in nature and is subject to inherent limitations associated therein. External sources include the International Energy Agency, International Monetary Fund, National Bureau of Economic Research, Organisation for Economic Co-operation and Development, U.S. Department of Commerce, as well as information companies such as Bloomberg Finance L.P., CEIC Data Company Ltd., Emerging Portfolio Fund Research, Inc., Global Financial Data, Inc., Global Trade Information Services, Inc., Markit Economics Limited, Mergent, Inc., MSCI, Standard and Poor’s, Thomson Reuters, TrimTabs Investment Research, Inc. and Wood Mackenzie Limited. While we consider information from external sources to be reliable, we do not assume responsibility for its accuracy. The views expressed are solely those of Bridgewater Associates, LP and are subject to change without notice. Reasonable people may disagree. You should assume that Bridgewater Associates, LP has a significant financial interest in one or more of the positions and/or securities or derivatives discussed. Bridgewater Associates, LP employees may have long or short positions in and buy or sell securities or derivatives referred to in this research. Those responsible for preparing this research receive compensation based upon various factors, including, among other things, the quality of their work and firm revenues. The research in this presentation is for informational and educational purposes only and is not an offer to sell or the solicitation of an offer to buy the securities or other instruments mentioned. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. Investors should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, where appropriate, seek professional advice, including tax advice. Investment decisions should not be based solely on simulated, hypothetical or illustrative information. The price and value of the investments referred to in this research and the income therefrom may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. Bridgewater Associates has no obligation to provide recipients hereof with updates or changes to such data. No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of Bridgewater ® Associates, LP.

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