Page 92 - Ray Dalio - Principles

expecting in 1982 would sink the economy—and how
painfully wrong I had turned out to be.

That experience also drove me to learn a lot more about
debt crises and their effects on the markets, and I researched

and traded through a number of them, including the Latin
American debt crisis in the 1980s, the Japanese debt crisis of
the 1990s, the blowup of Long-Term Capital Management in
1998, the bursting of the dot-com bubble in 2000, and the
fallout from the attacks on the World Trade Center and
Pentagon in 2001. With the help of my teammates at

Bridgewater, I took history books and old newspapers and
went day by day through the Great Depression and the Weimar
Republic, comparing what happened then with what was
happening in the present. The exercise only confirmed my
worst fears: It seemed inevitable to me that large numbers of
individuals, companies, and banks were about to have serious
debt problems and that the Federal Reserve couldn’t lower

interest rates to cushion the blow, as was the case in 1930–32.

My fear of being wrong pushed me to seek out other smart
folks to poke holes in my view. I also wanted to walk key
policymakers through my thinking, both to stress-test it and to
make them aware of the situation as I saw it, so I went to
Washington to speak with people in both the U.S. Treasury
and the White House. Though they were polite, what I was

presenting seemed too far-fetched to them, especially when by
all outward indications the economy seemed to be booming.
Most of them didn’t go very deep into our reasoning or
calculations before they dismissed them, with one exception:
Ramsen Betfarhad, Vice President Dick Cheney’s deputy

assistant of domestic policy. He worked through all our
numbers and was concerned by them.

Because everything we saw lined up and we couldn’t find
anyone who could refute our views, we prepared our clients’
portfolios by balancing our positions in a way that there would
be considerable upside and limited downside in the portfolios
if we were right and putting in a backup plan in case we were

wrong. Though we thought we were well prepared, we were as
worried about being right as we were about being wrong. The
prospect of the world economy going over a waterfall was