World economics and macro finance can seem like a complex web of interdependancies, especially when combined with the roller coast that is the financial markets.
As someone who has a background in Finance and Investing, one of my favourite ever videos to summarize growth, interest rates, inflation and the economic cycles is ‘How the Economic Machine Works’ by ex-Hedge Fund Manager and Best Selling Author – Ray Dalio. It’s only 30min long but a great resource for students, non-finance people and seasoned economists/investors. I highly recommend it.
Ray Dalio gave up his role as CEO for Bridgewater Associates in 2011. Bridgewater is the longest running hedge fund in the world with approximately £120bn in AUM. Dalio is one of my investment gurus as he has the ability to break things down and simplify concepts. It’s one of the cornerstones of the success of Bridgewater – which has a reputation for being a challenging but innovative environment. Their results speak for themselves.
Dalio said that the ‘How the Economic Machine Works’ model has guided Bridgewater for over 30 years.
Here it is!
Personally, I like to use this model for;
- Understanding where we currently are in the economic cycle;
- What are the macro economic features of our position in the cycle, i.e. high inflation, low growth?
- Assessing where I should position my investment portfolio in terms of macro assets, i.e equities, cash, gold, etc – in preparation for the next cycle.