Saturday, March 21, 2015

Paul Tudor Jones & Ray Dalio channel James Goldsmith

This week both Paul Tudo Jones and Ray Dalio had comments that took the twittersphere by storm. Tudor Jones presented a thought about "Just Capital" at the Ted2015 talks while Dalio warned about the Fed raising rates too early and repeating a 1937 styled correction. The latest 1937 warning from Dalio was interesting given his other rather dark worry relating to the possibility of the rise of a 2nd Hitler.

I know what you are saying, "Geez Gubb.. nice light topic for a Saturday afternoon" - but hear me out.

While I am certainly encouraged by these two recent gentlemen sounding these warnings, I will say I'm not the least bit shocked. This was something I called at the very beginning of the Great Financial Crisis when it became clear to me that the politicians weren't going to make any meaningful reforms to try and regain control of Wall Street.

To me it was clear: Wall Street was calling the shots.

Remember this from Brad Sherman?

Martial law if they didn't bailout Wall Street? Seriously?

Sherman made some excellent forecasts as to what would happen if the US carried out the bailout..

But, the person I credit the most with calling the financial crisis, the abuse by Wall Street and generation of Corporatism is Sir James Goldsmith - who laid all of this out in an interview he did with Charlie Rose back in 1994. 

If you haven't taken the time to watch this interview in its entirety,  you are doing yourself a great disservice. 

I'm not going to provide a link to all 6 sections of this interview as I figure if you find it interesting, you will seek the rest of it out on your own. 

But - even in the first portion, what does Goldsmith say?

He calls global wage deflation, increasing profit margins, a hollowing out of the middle class, a "destruction of one's society" and the rise of corporatism.

All the same things that Dalio and Tudor Jones are warning about now, 21 years later. 

It was this interview that really helped me gel all of the ideas I had buzzing around in my head and inspired me to write "The View from 30,000 feet

and now Tudor Jones and Dalio are warning about the growing risks of unrest and market corrections. 

As you know, Ray Dalio produced a fantastic discussion on "How the Economic Machine Works"

and I agree with everything Dalio says - but have made the contention that at the 23:10 mark, Dalio's simplified machine video misses the mark.

In the video - Dalio talks about how a government increases taxes on the rich to promote a 'redistribution of wealth from the haves to the have nots" and if this doesn't happen we start to see tension rise between the wealthy and the poor. Dalio then introduces the Central Bank as the hero and suggests by printing money, it helps drive up asset prices which in turn allows more people to become credit worthy.

Unfortunately as Amir Sufi and Atif Mian have already shown, asset price increases are NOT flowing to all components of the US economy. 

moreover, politicians and regulators seem to continuing their long standing tradition of siding with Wall street at the expense of main street. 

So, when you consider Goldsmith's commentary about the unappreciated trends in the global economy, and add in Wall Street's incredible influence and on going self interests, along with the knowledge that not ALL people are benefiting from the increase in the stock market and the US's economic "recovery".. you will get a better understanding of why I've been voicing the same dark warnings as Tudor Jones and Dalio over the last 7 years. . 

Very few people have put all of these things together - and while some (like Dalio and Tudor Jones) are doing so now, only a handful made this call back in 2008.

I am thankful for Jimmy Goldsmith's warnings - as they truly opened my eyes to the direction we were heading down. 

I really do hope that I am wrong on these calls - but they seem to be confirmed more and more with each passing week.. which as I'm sure you can imagine is not great.

It is my sincere hope that at some point we get a present day Ferdinand Pecora to come in, regain control and reform the system.. but it seems that we are still a long way away from this critical step.


  1. I noticed your reply to Nanex Eric on Twitter last night. That's how I found my way here. I am EllieAsksWhy on Twitter.

    Former Morgan Stanley chief economist Stephen S. Roach was not quite as prescient as Sir J. Goldsmith, but still a lot quicker than Tudor-Jones or Dalio! I, too, wrote about this: "Old Tulsan channels a populist Morgan Stanley - WHAT emerging knowledge economy?"

    You wrote a good blog post (so was the prior one, about the parasitic financial/political class.) Thank you for sharing those videos of Congressman Brad Sherman. He is, or was, a California Democrat, but articulates the same concerns about Dodd-Frank as the Mercatus Center folks. Similarly, Sir James's warnings about off-shoring (instead of genuine free trade) were echoed by Alabama GOP Senator J. Sessions, in 2012. I only wish good lawmakers, both Democrat and GOP, would ally to restore America's middle-class, but that possibility seems less likely than ever, despite the dire predictions (including societal collapse) from many sources.

    1. thanks for the comment and link.. I appreciate it. Glad you found the blog - and hope the content is interesting. CHeers!

    2. thanks for the comment and link.. I appreciate it. Glad you found the blog - and hope the content is interesting. CHeers!