Balanced Asset Allocation: How to Profit in Any Economic Climate

Chapter 1The Economic Machine

Bridgewater Associates, the largest and most successful hedge fund manager in the world, pioneered most of the concepts that I will present in this book more than 20 years ago. Bridgewater is at the forefront of economic and investment research and has been refining and testing its concepts over the past two decades. The company has a great understanding of what drives economic shifts and how those shifts affect asset class returns. The first chapter is effectively my summary of its unique template for understanding how the economic machine functions. Bridgewater has released a short animated video that explains their template and related research at www.economicprinciples.org, and I encourage you to visit the site. The core principles presented throughout the rest of the book were also developed by this remarkable organization over the past couple of decades. I know of no one in the industry that has a better command of this subject.

In order to fully recognize today's unique economic climate, you first need to better comprehend how the economic machine generally functions. The goal of this first chapter is to arm you with a command of the basic inner workings of this machine to enable a deeper appreciation of why this topic of building a balanced portfolio is so timely. Insight into the economic machine will also lay the required foundation for an improved understanding of the key drivers of asset class returns. I will refer back to this opening ...