Okay folks, I want to talk about Mr. Ray Dalio and what he is saying and more importantly, what he is doing. He's Mr. Bridgewater Associates and Mr.

Biggest hedge fund in the world. He has likely returned more money to investors over the course of his career than any other hedge fund manager in history. Charlie, Why the hell should we care about what he's doing right now? This is a Bear market. Well, it just came out that their flagship hedge fund, Pure Alpha 2, has made gains of 32 for the first half of this year, and I dug through their 13f filings because Charlie has no life and the filings suggest at least the disclosed portions that you can find on the filings suggest that in Q1 of 2022, their holdings increased about 44.

and based on their strategies and what they're invested in, my guess is they're going to be expanding a lot more once we see the Q2 report, and as we go through this year, they're not just making money, but they're also attracting a lot of capital to their funds because of these strategies that take advantage of the current market climate. Now, I'm not much of a suck up when it comes to hedge funds, but at a certain point you got to admit that these folks are beating the launch money out of the rest of the market. You compare Bridgewater Associates gains on the year to the S P 500. Well, the S P 500 is, of course, down 20.

You got the Nasdaq 100 down almost 30 percent, and Ark's flagship fund is down 55. Total deforestation over at the Kathy Woods. Meanwhile, you see these kinds of returns and insane amounts of capital from everywhere flocking to these people. Well, what the hell is going on here? You probably know Mr.

Ray Dalia from his famous lines like cash-ish trash or he who lives by the crystal ball will eat shattered glass. Yummy. But he's also known for his frequent coverage in financial media, usually with some big dire warning. He's kind of like a Michael Bury figure with literally 100 times the money, experienced track record, and has delivered a ton more returns to investors over a much longer time horizon.

He just doesn't get the same amount of coverage because there wasn't a Hollywood movie about him, but he and Bridgewater Associates are clearly doing something right and something the rest of the market isn't picking up on. And in this video we will walk you through step by step, what Ray Dalio and Bridgewater Associates are doing, what they are saying, and what we need to take away from this. Why is he outperforming so much in this environment? By the end of this video, you will have a completely different perspective on the market. I promise you that you may not 100 agree with him, but you will have a different perspective.

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Visit Livestream.com Ziptrader for more information. Thank you Livestream for sponsoring this video. Now back to the content. So while big institutional investors and hedge funds do have to make some mandatory disclosures and do report some things to the press, they really don't make it super easy to figure out what they're doing, especially when it comes to more complex and alpha generating hedging strategies.

But I went and I sat at a certain poorly known Seattle-based coffee chain in Malibu yesterday for about four hours and looked through almost every single disclosed position in the filings and compared it to previous filings to extrapolate changes in strategy. I then went and pinned together news article after news article from the last six months from somebody anybody at Bridgewater Associates who disclosed any new positions taken or short positions from Bridgewater. I then went and broke down the beliefs and statements that Ray Dalio and other leading members at Bridgewater Associates have made in regards to their investment perspective and overall thesis. I then organized all of that data into a Charlie Spreadsheet and let me show you exactly what I found.

So, in order to really understand what Bridgewater is doing, you have to understand the major beliefs that they are operating on. These are the eight core beliefs that I found. Number One: The creation of massive amounts of currency and debt by governments and central banks is leading to inflation. Shocking.

Number two: we are heading for stagflation. We are simply living in a world of excess demand combined with shortages of labor and commodities which they say will turn in turn cause growth to decelerate rapidly. Belief Number three: Dalio thinks that the 1970 and 1980s inflation problem was solved by raising rates too far too quickly and everyday participants in the economy overreacting by saving tons and tons of cash because they felt that prices would continue to skyrocket. So the overreacting from the Fed and everyday participants caused basically inflation to start going back down.

Mr. Dalio thinks that this cycle will have to repeat again if we want any chance of getting inflation down. Another prominent member at Bridgewater thinks that the Fed is going to have to settle for a higher baseline than two percent inflation because the economic pain to get to two percent inflation is just going to be too damn painful and the Fed is gonna have to say okay, well, we're gonna have to settle for like a three percent or four percent. Fourth belief is there is a 33 chance of a Civil war and I'm not talking the Avengers as Americans move to states that align with their political beliefs and left right divide widens the way that I'm taking.

This is this is an extreme point to say that even if you don't get an all-out Civil war, the massive divide in how we should be running this country and the massive swings from one election to the other could create a ton of uncertainty for the future of American companies and the future of the American economy if businesses are operating One way under an administration that's going to completely switch every single four or eight years, and all of a sudden the divide is just so much different. Well, companies are gonna have to spend a lot more of their time and money trying to adapt to regulations instead of actually trying to grow and create economic growth for the entire country. The overall uncertainty is also going to create an environment where people are less likely to want to invest. Fifth belief: there's a 33 chance that Russia's invasion of Ukraine is going to become a World War number six, and perhaps his most known belief is that we are due for a changing of the world order.

China right now is competing with the Us and Western countries to an extent that it never has before. He believes that this follows the many century cycle of superpowers coming and going. In fact, he has a whole nice visual presentation where he lays out the exact cycle of a big world empire. You have a big financial bubble and wealth gap towards the ending stages, and then you have the financial bust and downturn.

and then they try to bail it out with printing money and credit and that causes revolutions and wars and then eventually debt and political restructuring happens and all of a sudden, this superpower is no more and there's a new superpower out there. Usually it's the superpower that ended up servicing the economy of the prior superpower. For example, right now, China is servicing a lot of the demands for countries like the United States and in Europe, which means that we are becoming more and more reliant on other countries. And eventually, once you've become entirely reliant on other countries, well, your country is no longer going to be the biggest superpower, because all of a sudden you're switching to a completely different system.

At least that's the argument that he's making. And in fact, there's this famous video he released on Youtube I think like a year back and I highly recommend watching it if you haven't already. He does a lot of research in terms of empire after empire after empire. That went through this process, many, many great empires that started by attracting tons of people from all over the world, had insane progress and economic advancement, but then all of a sudden started extending itself to every area of the world, Started depending on every other country, started overspending and over printing, wealth gaps increased to insane levels.

Then all of a sudden you had political revolutions and all of a sudden you had huge downfalls of the entire financial system. Meanwhile, the other empire with usually completely different belief systems is now going in season on that opportunity to become the biggest. One of the telltale signs that Ray Dalio cites is trying to fund foreign wars at the same time that you're borrowing money to do so, which is something that you could see very very prevalent right now in terms of how much money we're sending to Ukraine to help support their war effort. Obviously terrible situation over there, but when you're looking at the history of other empires that did this and went and funded wars all around the globe while at the same time not being able to check their own spending at home, well, that leads to dramatic dramatic problems.

The seventh belief is that the world of falling interest rates, low inflation and globalization is over recent occurrences with insane money printing and borrowing to get us through covet and then increased siloing off of supply chains due to covid and more recently due to the invasion of Ukraine which siloed off country after country Because some countries are like yeah, we'll trade with Russia, other countries are like hell no, we're not trading with them. So now all of a sudden you have less and less globalization. You have more countries going and trading regionally instead of around the globe, right? And the eighth belief builds on that. They think that wealth and currency destruction will happen in leading countries because of this.

So what these beliefs covered? Let's talk about what they are actually doing and how they are outperforming number one. They are doubling down on shorting Europe. We haven't seen somebody short Europe to this extent since Napoleon. This shorting of Europe is perhaps the biggest driving factor of their returns this year.

As of a recent report from Bloomberg, they built a 10.5 billion short position against 28 major European firms. Why? Well, because Europe is being absolutely gutted by insanely high energy costs and shortages that are extra bad because of their insane Russia dependence. A lot of countries in Europe, especially if you look at Germany, chose to protect climate security over national geopolitical and the financial security of all of their citizens. an example of trying to achieve a good goal with really, really bad means.

And because of that, they're seeing insane implications. and it looks like this is going to get a lot worse before it gets better. Rampant inflation in the region is destroying purchasing power at the same time, where European central banks are raising borrowing costs dramatically to fight this inflation, and it's slowing down Euro area growth quite a lot. It hit a 16-month low in June, so Bridgewater is betting that it's going to get much, much worse.

Next, they have large strategic shorts on developed country currencies. I couldn't find any disclosed exact dates or open positions, but they did disclose they've done this on the Japanese Yen for mass returns in the past, betting that the Japanese Yen would lose value. They also disclosed being short Usd for certain periods, although if you look at most currency pairs, the Usd is doing better. This seems to be one of their maneuvers based on their core belief that wealth and currency destruction is almost guaranteed to happen in leading countries as the world order changes and they are putting their money where their mouth is right.

They are also betting against corporate bonds. They are shorting U.s treasuries, expecting values to dump as the Fed continues to tighten you. Also, if you really looked at their books, would probably also see them betting huge against European corporate bonds and European Central bank bonds. Although again, the transparency kind of leaves a lot to be desired, you can just connect the dots based on what they did disclose, and based on their core beliefs and based on how much money they're making.

In terms of this environment, they also have heavy positions and commodities which have aged very, very well. at least before the last month. They made a strategic decision to offload some gold in Q1 that they bought in a much lower range between 2017 and 2020, which was great timing because essentially gold peaked in Q1 at least the most recent peak was in Q1. It seems like this was a short-term macro trade to make a little bit of extra alpha on the market before gold would inevitably take a nosedive.

Sometimes for tax reasons or overall long-term strategic reasons, companies will decide to lock in profits on a short-term basis even though they're very, very bullish on a long-term horizon, but they also have some much, much longer term holdings that back up their core beliefs as well. Bridgewater has two main strategies. They have an alpha strategy and a beta strategy. The alpha strategy is all about making uncorrelated returns to the rest of the market outperforming when the rest of the market is doing bad.

And then the beta returns are all about long-term high conviction areas and economies and companies that are going to do well but usually follow the overall performance of the market. If you look at their holdings in their mandatory 13f Sec filings, you can find a lot of their beta exposure and find sort of where they're investing for a very, very long term time horizon outside of the short to medium term macro environment. This is what I found in these filings. Number one, they have dramatic exposure to emerging market stocks and funds and have 2x their positions in these.

For example, Alibaba is their second biggest single stock holding at 3.3 of the portfolio. Then you have Vwo, which is their single biggest holding. This fund is very Asia-centric with China leading the way. Then you have Iemg which is another emerging markets Etf.

I looked at their biggest holdings. almost all of them are top Asian companies, mostly centered in China or Taiwan, with Taiwan Semiconductor leading the way. then Tencent holdings, Alibaba against Samsung, Jd, and so forth. country exposure.

The main markets are China, Taiwan, India, South Korea, Brazil, Saudi Arabia, South Africa, and so forth. Certainly a lot of emerging markets here, but mostly Asia dominated. You look at Eem. The other major emerging markets fund very similar holdings, predominantly Asian, with a focus on tech, some communication services, finance, and some smaller consumer cyclical and basic materials.

Pretty much all three of these emerging market Etfs offer a similar, nearly identical exposure to emerging markets, and Bridgewater has an associated or a combined 11.4 percent invested in them. Why invest in three similar Etfs? Well, probably for tax loss harvesting and tax efficiency purposes. You can rotate things around without triggering different tax rules that prevent you from taking an accurate loss, but moving on in the emerging market. Individually held stocks with a sizable concentration are mostly centered in the China market with positions and again Baba, but also by Do, Jd, Pdd, Neo, and Lee, and then you go over to their American holdings.

The top American stocks are mostly mega value, which fit in with their expectation that inflation will remain high, and thus mega value is likely to be the best to be able to actually handle that. Procter Gamble is their biggest individual single stock holding. Their straight up S P 500 fund is their fifth biggest hold in in terms of top individual stocks held. You have your Johnson and Johnson, your Coca-cola, your Pepsico, your Costco, your Walmart, Mcdonald's and your Starbucks.

It is worth mentioning that if you look over their disclosures with the Sec, they have a lot. A lot of very small direct positions, several hundred in many, many American medium-sized publicly traded companies, seemingly trying to harvest some of the outsized performance that smaller companies to medium-sized companies tend to have as they're scaling up, which to me looks like that's a pretty strong diversification maneuver if their mega cap companies and their large cap companies end up being more value trappy. But anyways, these are the main points. and if you are paying attention rather closely, which you better be, you're probably looking at this and saying, hey, well, their biggest holdings.

I see them great, But wait a second. Emerging Markets China, the Us, value small to medium companies. Whatever. these have all done bad This year, they've all done terrible.

How can they not just be outperforming but making a profit on the market with these kinds of plays and these kinds of holdings? Well, you have to go back here to the first section. They are outperforming because of these moves they made to prepare for the current macro crisis. Again, remember, they have two different strategies. They're alpha strategies which has the goal of being uncorrelated to the broader market and outperforming during periods of time where the broader market does bad.

And then they have their beta strategy which follows the overall market, which tends to go up very well over the long run right now as the market dumps, their beta strategies and beta holdings are dumping too. but their alpha strategies that are essentially meant to hedge and fight the underperformance in the beta strategies and the overall market are absolutely killing it. So anyways, that is our rundown on what is going on over at Bridgewater Associates and in Mr. Ray Dalio's mind, it is worth mentioning that Mr.

Dalio has an extreme presence still at this firm, but there's also a lot of other really talented and insightful leaders that also help manage the firm, and he is as of recent years, been stepping back more and more still dominates with themes, core beliefs and overall execution. even though they say he's behind the scenes. pretty much every trade you see matches his core beliefs, but over time a lot of the new talent over at Bridgewater is taking over and they are bringing with them a lot of new ideas. so I 100 recommend digging into the details because there's a lot of insight that can be gained anyways.

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