The GiD Report#119 — Ray Dalio examines history to understand the chaos we’re experiencing today

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GlobaliD

10 min readJul 21, 2020

Welcome to The GiD Report, a weekly newsletter that covers GlobaliD team and partner news, market perspectives, and industry analysis. You can check out last week’s report here.

Some quick housekeeping:

Check out Greg’s Linqto panel appearance (alongside Uphold’s JP and others).

Greg also recently participated in a special class with Moscow School of Management SKOLKOVO and International Investor Organization INVESTORO. You can check it out here.

This week we’ve got:

Ray Dalio on the big cycle of the U.S. part 1
The world’s largest companies (and how they’ve changed over the last 10 years)
The EU’s big ruling on U.S. cloud services and data sharing
Ben Thompson on the TikTok war
The New Yorker on the history of platforms and the future of online speech
Stuff happens

1. Ray Dalio has been working on a series of reports outlining the history of big cycles to help him understand what’s going on today — which we’ve covered in the past. (Ray’s the founder of Bridgewater, one of the biggest hedge funds around in terms of AUM.)

[Check out our last report on Ray here.]

For Ray, each big cycle is comprised of 3 main parts:

the long-term debt/monetary cycle,
the wealth and political gap cycle,
and the global geopolitical cycle

So it’s pretty intuitive to see how it applies to where we are today — at the end of another big cycle. Debt is at record highs. Inflation is zero or negative. And governments and central banks around the world are borrowing and printing just to stay afloat.

We’ve also seen wealth and power accumulate at the top — expanding inequality and fueling monopolies as the winners take all. In parallel, we’re seeing the rise of populism on the left and right with people like Bernie, AOC, and Trump and movements like BLM.

With the center — socially, economically, and politically — crumbling, the U.S. has never been more divided. It’s a climate in which wearing a mask sparks intense debate, drawing social and political lines in the sand.

Geopolitically, things are only getting messier. A lot messier. And if things were feeling a bit biblical already with the pandemic, there’s also that locust plague:

Locusts in swarms the size of Manhattan have been ravaging crops through East Africa, the Middle East and South Asia and could be “a bigger threat in some of these countries than Covid-19,” according to Gro Intelligence CEO Sara Menker.

Anyway, Ray just published Part 1 of his latest report, Chapter 4, which covers the Big Cycle in the context of the U.S. Part 1 is mostly history — much of which is super interesting and detailed, but probably the biggest takeaways are the principles he outlines.

Some highlights:

Severe economic downturns with large wealth gaps, large debts, and ineffective monetary policies make a combustible combination that typically leads to significant conflicts and revolutionary changes within countries.
Deflationary depressions are debt crises caused by there not being enough money in the hands of debtors to service their debts. They inevitably lead to the printing of money, debt restructurings, and government spending programs that increase the supply of, and reduce the value of, money and credit. The only question is how long it takes for government officials to make this move.
During periods of severe economic distress and large wealth gaps, there are typically revolutionarily large redistributions of wealth. When done peacefully these are achieved through large tax increases on the rich and big increases in the supply of money that devalue debtors’ claims, and when done violently they are achieved by forced asset confiscations.

All of which leads us to today. I’ll wait for Ray’s next piece and let him outline where we’re going since this is heady stuff and really the only concrete conclusions I can make is that things are going to change and there’s going to be a lot of uncertainty.

Mostly I just have questions:

How will this change the way we think about and manage our money and our value and our wealth?
How will the rise of populist forces impact the current corporate-led political establishment? (And in turn what does that mean for the country’s most powerful companies — the majority of which are tech?)
How will this impact how society thinks about bottom-up approaches versus top down?
How do we think about trust in a world that becomes increasingly distrustful?
Who are the real winners and losers in the rejiggered landscape? (Aside from… Tesla and Moderna.)
China?

Here’s how Ray frames what potentially might come within a historical context:

What is fascism, and why was it adopted in countries like Germany and Japan? Consider the following three big choices that one has to make in order choose a country’s approach to governance:
a) bottom-up (democratic) or top-down (autocratic) decision-making,
b) capitalist or communist (with socialist in the middle) ownership of production, and
c) individualistic (which treats the well-being of the individual with paramount importance) or collectivist (which treats the well-being of the whole with paramount importance).
Pick the one from each category that you believe works best for your nation’s values and ambitions and you have your preferred approach. Fascism is autocratic, capitalist, and collectivist. Fascists believed that top-down autocratic leadership, in which the government directs the production of privately held companies in a way that individual gratification is subordinated to national success, is the best way to make the country and its people wealthier and more powerful.
The United States and Great Britain believed that the democratic, capitalist, and individualistic mix was better, while the Soviet Union believed that the autocratic, communist, and collectivist mix was best.

Of course, that was then. What comes next is still up in the air.

Ultimately, that’s the silver lining here. Everything is primed for change.

That’s scary. It’ll be messy. And I certainly don’t want to downplay the negative impact that all of this is and will continue to have on so many people around the world.

But it’s also a massive opportunity to help shape whatever comes next.

2. In terms of the consolidation of power and wealth, here’s a report from Fifth Era that highlights the cosmic shift in corporate power over the last decade.

Fifth Era (via /gregkidd):

2010 World’s Largest Companies by Market Cap

PetroChina ($329 bn)
Exxon ($316 bn)
Microsoft ($256 bn)
ICBC ($246 bn)
Apple ($213 bn)
BHP Billiton ($209 bn)
Wal-Mart ($209 bn)
Berkshire Hathaway ($200 bn)
General Electric ($194 bn)
China Mobile ($193 bn)

5 years later:

2015 World’s Largest Companies by Market Cap

Apple ($621 bn)
Google ($408 bn)
Microsoft ($347 bn)
Berkshire Hathaway ($318 bn)
Exxon Mobile ($304 bn)
Johnson & Johnson ($257 bn)
General Electric ($248 bn)
China Mobile ($243 bn)
Novartis($240 bn)
Nestle ($233 bn)

And now:

2020 World’s Largest Companies by Market Cap

Apple ($1,576 bn)
Microsoft ($1,551 bn)
Amazon.com ($1,432 bn)
Alphabet ($980 bn)
Facebook ($676 bn)
Tencent ($620 bn)
Alibaba ($579 bn)
Berkshire Hathaway ($433 bn)
Visa ($413 bn)
Johnson & Johnson ($370 bn)

3. Speaking of increasing distrust, the big news last week is that the EU ruled against American cloud services.

The WSJ reports (via /ctomc and /hn):

Thousands of companies will face restrictions on storing information about European Union residents on U.S. servers, after the bloc’s top court ruled that such transfers exposed Europeans to American government surveillance without “actionable rights” to challenge it.
The surprise ruling Thursday from the European Court of Justice, which invalidates a widely used EU-U.S. data-transfer agreement known as Privacy Shield, is a victory for privacy activists who have long said the U.S.’s surveillance practices should make it ineligible to store European data.
The decision, which pits European data-privacy concerns against U.S. national-security priorities, will create legal headaches and potentially disrupt operations for thousands of multinational companies. Depending on how it is applied, the ruling could force some of them — including tech giants such as Amazon.com Inc., AMZN +4.04% Facebook Inc., Alphabet Inc. GOOG +2.41% and Apple Inc. — to decide between a costly shift toward data centers into Europe or cutting off business with the region.

Also:

4. And that distrust goes both ways.

Here’s Ben Thompson on The TikTok War:

After all, this certainly wasn’t the first time that TikTok has seemed to act politically: the service censored #BlackLivesMatter and #GeorgeFloyd, blocked a teenager discussing China’s genocide in Xinjiang, and blocked a video of Tank Man. The Guardian published TikTok guidelines that censored Tiananmen Square, Tibetan independence, and the Falun Gong, and I myself demonstrated that TikTok appeared to be censoring the Hong Kong protests and Houston Rockets basketball team.
The point, though, is not just censorship, but its inverse: propaganda. TikTok’s algorithm, unmoored from the constraints of your social network or professional content creators, is free to promote whatever videos it likes, without anyone knowing the difference. TikTok could promote a particular candidate or a particular issue in a particular geography, without anyone — except perhaps the candidate, now indebted to a Chinese company — knowing. You may be skeptical this might happen, but again, China has already demonstrated a willingness to censor speech on a platform banned in China; how much of a leap is it to think that a Party committed to ideological dominance will forever leave a route directly into the hearts and minds of millions of Americans untouched?

…

First, data security is absolutely a concern. To that end all companies that deal with valuable intellectual property or national security-related information should ban the use of WeChat by any of their employees, as should the government; it is simply too easy to pass information, even by accident. In addition, that same group of companies and governments should not use Zoom until the (American) company has shifted the bulk of its engineering out of China and demonstrated vastly improved corporate controls.
What matters more in an ideological war, though, is influence, and that is why I do believe that ByteDance’s continued ownership of TikTok is unacceptable. My strong preference would be for ByteDance to sell TikTok to non-Chinese investors or a non-Chinese company, by which I mean not-Facebook. TikTok is not only a brilliant app that figured out video on mobile, it is also shaping up to be a major challenge to Facebook’s hold on attention and thus, in the long run, advertising. This would be a very good thing, and I fear that simply banning TikTok will simply leave the market to Instagram Reels, Facebook’s TikTok clone.

5. All of that is compounded by a general sense of distrust in technology overall. Well, maybe distrust isn’t the right word here. But the pressures of where we are in the cycle and the impact of these rapidly accelerating trends is making us reevaluate our understanding of the platforms that more so than ever define us.

Here’s a nifty New Yorker piece on the future of online speech and the history of those platforms and the relevant regs that fostered them (via /gregkidd):

Ultimately, the problems that need solving may not be ones of content moderation. In the book “Platform Capitalism,” published in 2017, the economist Nick Srnicek explores the reliance of digital platforms on “network effects,” in which value increases for both users and advertisers as a service expands its pool of participants and suite of offerings. Network effects, Srnicek writes, orient platforms toward monopolization; monopolization, in turn, makes it easier for a single tweet to be an extension of state power, or for a single thirty-six-year-old entrepreneur, such as Zuckerberg, to influence the speech norms of the global digital commons. Both outcomes might be less likely if there were other places to go. The business model common to many social-media platforms, meanwhile, is itself an influence over online speech. Advertisers are attracted by data about users; that data is created through the constant production and circulation of user-generated content; and so controversial content, which keeps users posting and sharing, is valuable. From this perspective, Donald Trump is an ideal user of Twitter. A different kind of business might encourage a different kind of user.
Nothing about the current arrangement should be treated as inevitable; the commercial Internet is relatively young. Many scholars and tech critics have begun to look beyond the issue of moderation. Some argue for legislation requiring algorithmic transparency, which would illuminate how information is prioritized and amplified; Klonick has suggested that tech companies should register as public-benefit corporations, which would be required, by their charters, to benefit society as well as make money. (The Corporation for Public Broadcasting and New York’s M.T.A. are P.B.C.s.) In an article published in the Minnesota Law Review, “The Law of the Platform,” Orly Lobel, a law professor at the University of San Diego, argues that many of the most innovative Web sites don’t sell products, as such; instead, they offer their users access to algorithms, and to “a digital system of reputation and trust” that connects them. Regulating these never-before-seen businesses effectively, she writes, may require going “back to first principles,” thinking in fresh ways about what online platforms are and how we want them to behave.

The GiD Report#119 — Ray Dalio examines history to understand the chaos we’re experiencing today

1. Ray Dalio has been working on a series of reports outlining the history of big cycles to help him understand what’s going on today — which we’ve covered in the past. (Ray’s the founder of Bridgewater, one of the biggest hedge funds around in terms of AUM.)

2. In terms of the consolidation of power and wealth, here’s a report from Fifth Era that highlights the cosmic shift in corporate power over the last decade.

3. Speaking of increasing distrust, the big news last week is that the EU ruled against American cloud services.

4. And that distrust goes both ways.

6. Stuff happens:

Written by GlobaliD