No one in the world has figured out the true theory of history. If they did, we’d know: they’d be extremely, visibly, powerful.
Hedge fund billionaires like George Soros and Ray Dalio might have the biggest collections of puzzle pieces—they’ve got the best track records of betting their beliefs.
Some fun quotes from this interview with Dalio (btw, the Financial Times is one of a small list of news publications that hasn’t yet given me reasons not to trust it):
Dalio thinks inequality is rising so fast that it has created multiple “economies”: although the elite live in an expanding economy, “for the bottom 60 per cent, 80 per cent, there is a depressed economy that is not growing well”. This means we need to think how we talk about “economics”, he says. America needs a “national commission to rethink our economic metrics”.
But this vision has also changed how he models the future: he thinks this inequality is creating so much strife that it will be political conflict — not economics — that drives markets in 2018 and beyond. “[These days] there’s not the same volatility of inflation, growth and interest rates. So political issues are more important than macro [economic] issues,” Dalio says. “The world was driven by central bank policies [before]. That’s not the case now,” he adds, noting that what investors should watch is not (just) Fed statements, but “the next election in France or in the UK, or how hospitable will Jeremy Corbyn be to capital?”
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“You can convert whatever you are thinking into an algorithm,” Dalio insists. “We’ve created a conflict gauge looking at words [in the media] and things. We’ve done examinations of all political conflicts in the past and their impact on markets [for models].”
This number-crunching produces some alarming conclusions. Last year, Dalio’s geeks calculated that the proportion of the vote captured by populist candidates had risen from about 7 per cent in 2010 to 35 per cent in 2017. This swing has apparently only ever happened once before, in the 1930s, just before the second world war.
So do the algorithms predict another war? Dalio ducks the question, but admits that he cannot see anything to reverse this trajectory. That is partly because he thinks digital technology is inexorably exacerbating inequality, by eliminating jobs. “We’re headed for a world where you’re either going to be able to write algorithms and speak that language or be replaced by algorithms,” he observes. Another problem is the ever-rising level of global debt. “I am not predicting anything like the type of debt crunch we had in 2008,” he says. “But there is a tightening financial squeeze which is going to hurt the bottom 60 per cent more and more, particularly when we have the next recession.”
Dalio believes that some heavily indebted countries, including the United States, will eventually opt for printing money as a way to deal with their debts, which will lead to a collapse in their currency and in their bond markets. “There hasn’t been a case in history where they haven’t eventually printed money and devalued their currency,”
Personally, I suspect that no neat theory of history will ever be found, because human societies are too complicated and idiosyncratic to compress easily. Warren Buffet’s partner Charlie Munger stresses the importance of multiple mental models. Phil Tetlock’s research suggests that “fox” style thinking beats “hedgehog” style thinking in political judgements. Hedgehogs can be super useful to foxes by building theories for them to use, but in machine learning we see that ensemble models virtually always outperform. I actually think the best way to predict the course of history is to take the problem up a meta level by first becoming an expert on statistics/machine learning. This is a great paper.
Well put.
Hedge fund billionaires like George Soros and Ray Dalio might have the biggest collections of puzzle pieces—they’ve got the best track records of betting their beliefs.
Some fun quotes from this interview with Dalio (btw, the Financial Times is one of a small list of news publications that hasn’t yet given me reasons not to trust it):
Another fun quote:
Personally, I suspect that no neat theory of history will ever be found, because human societies are too complicated and idiosyncratic to compress easily. Warren Buffet’s partner Charlie Munger stresses the importance of multiple mental models. Phil Tetlock’s research suggests that “fox” style thinking beats “hedgehog” style thinking in political judgements. Hedgehogs can be super useful to foxes by building theories for them to use, but in machine learning we see that ensemble models virtually always outperform. I actually think the best way to predict the course of history is to take the problem up a meta level by first becoming an expert on statistics/machine learning. This is a great paper.