Ray Dalio’s Debt-Driven Business Cycle (9/13/2018)

These past few days, I’ve continued research on various different themes. One super interesting recent article I found was on CNBC, which mentions an interview with hedge-fund manager Ray Dalio (potential interviewee, maybe…). Dalio, an outspoken believer in cyclic models of economic trends, mentions that we are currently in the “7th inning” of the economic cycle, suggesting that debt levels are nearing a ceiling and will eventually lead to a burst in our current financial bubble. Another interesting finding I got through this was Dalio’s general guide to the debt-driven business cycles:

  • The Early Part of the Cycle
  • The Bubble
  • The Top
  • The Depression
  • The Beautiful Deleveraging
  • Pushing on a String/Normalization

What Dalio is saying is that our bubble has grown past normal levels, and we are getting closer to the so-called “Top”, which can only last for so long.
A second interesting thing I stumbled upon this week was Renaissance Technologies, a self-proclaimed “quantitative investment management company trading in global financial markets, dedicated to producing exceptional returns for its investors by strictly adhering to mathematical and statistical methods.” The reason why I mention this company is because it is another hedge-fund, but its trading algorithms rely solely on statistical and mathematical models. Consequently, Renaissance is one of the highest-performing hedge funds in history, whose exclusive Medallion Fund has generated an astounding 72% average return every year since it was established in 1993. Even more fascinating to me is that RenTech’s Medallion Fund generated 98% profits in 2008, the year when stocks across the world famously plummeted and the U.S entered the Great Recession. Furthermore, the fact that RenTech relies solely on mathematical models implemented through trading algorithms interests me, as this is what I want to do in my independent CompSci project on the second half of the year. I will definitely keep researching this, along with Ray Dalio’s Bridgewater Associates (largest hedge fund in the world) throughout the year.
In terms of specific goals for these upcoming days, I have decided that I need, more than anything, a concrete plan laid out for this semester (and the whole year). I have found in the past that I work much more effectively when I first create a plan to follow, so this is a habit I want to uphold this year too. These next days, I will try to make a plan and will run it by Dave for approval, and will move forward from there.

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