Billionaire Ray Dalio discusses the stock market, stimulus, bitcoin, China, and taxing the wealthy

finally the end of the pandemic is in sight but the uncertainty about what comes next and who will benefit has thrown the market out of whack you can be sure ray dalio sees through the chaos over nearly five decades the hedge fund billionaire and investing legend has built an iconic set of principles for how to thrive in the market and in life he made his first stock pick at age 12 and at 26 launched bridgewater associates now it's the biggest hedge fund in the world with about 150 billion dollars in assets under management on this episode of influencers ray joins me to talk about what the covet 19 stimulus will do to the stock market whether the government could outlaw bitcoin and what worries him about a wealth tax [Music] hello everyone and welcome to influencers i'm andy serwer and welcome to our guest ray dalio founder co-chairman and co-chief investment officer at bridgewater associates ray welcome good to see you andy uh let's start right in and uh talk about the markets ray there's been a tremendous amount of volatility uh this year why is that happening and how do you expect things to pan out well it's you know it it's simple um you know how the thing works if the pulse of the economy goes down then uh the policy makers like doctors you know rush to the patient and inject it with a whole lot of uh stimulation and so what they did is um they wrote wrote out a bunch of checks and they're writing out a lot of checks which are about about seven times five to seven times the size of the whole and they got that money out and what that did was of course the government doesn't have money the they can't print money they so they have to borrow that money but the federal reserve can print money and so the same thing that is happening um like on march 5th 1933 is the same thing now in terms of that big stimulation so the way it works is real interest rates are so bad money's so cheap and it's so abundant that it changes a lot of financial assets and it causes those financial asset prices to rise and when they rise future expected returns go down to start to approach those of bonds and the risk-free return and so that's what that's what we've gone through so you you see it domestically you see it also in the currency in the dollar you see it in um other assets gold uh bitcoin and so on so what the world has got a lot of liquidity and now we're at in a spot where we're going to have the supply demand question the big question is uh the supply demand question because we're going to have to sell a lot of debt and i don't know if you want me to go into that but we're going to have to sell a lot of debt and then the question is how that goes will the demand be there or will the fed have to monetize more that's the dynamic yeah i do want to get into that debt question but but first of all i want to go back to stimulus which maybe is before that and am i to understand then that you think there's too much stimulus coming from washington at this point right it depends like you say too much too much for what too much for the supply demand yes probably okay we'll get into that too much because um like fast a lot of people needed to get a lot of money okay if you look at the needs um and a lot of things like okay air on the side of too much there was you know we have a we have a big uh wealth gap we have a big opportunity gap we have big gaps that are issues uh we see it here i work my wife particularly in the state of connecticut works with disengaged and disconnected students high school students in poor neighborhoods and so on and you see their conditions and and what the budgets are there are a lot of needs so i'm not saying the needs are not there i'm saying just the right way the machine works the reality of it is um you know you're gonna you you're you're making this big supply-demand move but that it's not like it doesn't have risks and costs associated with it so from the markets point of view it's a real big deal yeah so does that mean you sort of flood the zone to mitigate and obviate these sort of social problems and sort of by definition you're going to overshoot and then we have to deal with those consequences yeah because like like debt at the end of the day it's going to be one way or another it's either going to be when somebody borrows or and you're using that debt is that going to produce productivity so that in hard money terms that that money can be paid back in a way where okay it it paid off in a productivity increasing way or is that not going to be paid off and somebody's always going to pay but it's going to be the bondholder it's going to be the cash holder who is going to pay if that doesn't come back with real productivity and pri right now it was an emergency situation with covet mixed with a political situation to disperse a lot of money and that's what we have but it's not ending there because that's the new policy so can i infer then that you're suggesting we're going to have an inflationary period ahead because of this what you're just outlined there are two types of inflation okay there let me just clarify supply demand inflation like if demand is pressing up against capacity to produce things and maybe that's labor maybe that's um capacity constraints and so on so forth prices rise because of that and then there's monetary inflation and monetary inflation is because the currency and the value of money goes down and um so you can see like in the 1970s stagflation you could see not inflation is not coming from the first of those types of inflation it is coming from the second of those types of inflation and the way that would occur is because people don't want to own bonds to me it's pretty crazy to unown cash or bots okay we can get into why that is but if you if you have that movement out of like that type of financial assets to other assets which we are seeing then that has the effect first of causing financial inflation in other words one investor an investor shifts it to another investment and they go up in value and then that wealth effect has an effect on those items that those acquire people who acquire the money want to spend on so maybe it's on penthouses or maybe it's on something else but it depends how that's spent i'm more worried about the monetary inflation which will which would look something like a currency defense um it means that what happens is as money let's say people don't like bonds and then they start to sell bonds and bonds then go down in value because they have a capital loss and they don't offer anything in interest rates negative real interest rates and so on they don't like that then the federal reserve or other central banks are faced with the choice of either rates rise and that is bad for financial asset prices and it's bad for the economy or they make the purchases they make money and they make the purchases of that and that then produces more of a monetary inflation so it's the second that i'm more concerned with but the supply demand of debt uh will be i think the big driving influence uh and i want to emphasize this because so many people say okay well they look at this stock or they look at this but what you saw was the v bottom in all markets and so on and that was due to debt and money dynamic happening so that's the biggest dynamic to pay attention to so with that v bottom do you mean a year ago yeah that's what i'm saying you could i think it was april 8th or 9th the exact same action was taken basically almost as happened on august 15 1971 which was also the exact same action which was taken on march 5th 1933 in other words the big jolt the separation in terms of that value of money that that dynamic and that is the new paradigm and so what does that mean so on the one hand you're seeing this rotation in equities from growth stocks to cyclicals number one is that going to continue and then number two the 10 years up 100 basis points this year is that going to continue well um what's happened is that a lot of like these cycles go a lot of um uh a lot of new ideas new technologies new things come along and they make fabulous revolutions and they and they grow things and that's great um but there's a tendency of investors to extrapolate the past and get uh and not pay too much attention to price and when that happens you start to emerge as somewhat of a bubble uh by our measures the bubble is not as what it was in 2000 and not what it was in 1929 but it's kind of like halfway there if i look at the types of uh qualities in other words and so what that means from a value point of view if you're calculating you know what can i realistically expect um you um it's expect a return shrink relative to the others however the uh kind of the meat and potatoes type of companies uh didn't benefit as much from those and and they're fairly stable and so on and so that's why you're starting to see that kind of rotation now that can change uh it can come and go in these phases like when people get stimulus checks and then you know they might be hot on you know the exciting things and they run up again and so on but that that's going on and of course uh there's bitcoin and other things that are going on so however the big thing is plenty of liquidity and ridiculously low interest rates now on you ask about the 1.6 percent i think we've been we have been in a 40-year bull market and bonds so now you look at that 1.6 percent that's a negative one percent uh about real okay that's so so you're guaranteed and you ask yourself if you're gonna hold a bond any investment the only purpose of an investment is so you can sell it to buy something you want and and so when you look at what is the length of time it's going to take me to get my money back if i uh give an investment uh nowadays in the united states i'm going to have to wait about 50 years to get to give back the buying power to start and then i'll start earning money if i'm in other countries uh some europe and uh japan i will i will have less and if i'm measured in all those countries in real terms i'm going to have less money so basically what that means if i as if i just bought anything that didn't depreciate in real terms if it just matched inflation i'd be better off than to have those things and so um now i don't think those rates those rates will only stay down there i think if the federal reserve does what it did it like in the 1930s in the war period which is to put a cap on rates to make um in short-term interest rates low in relationship to the cap like back in the 30s and the war years they made one percent was the short-term interest rate and two and a half percent was the bond yield so it was profitable to buy those bonds funding it with one percent and you got two and a half percent that could put a lid on it but because those two assets cash and bonds were such bad investments relative to other things there was the movement to those other things still and then the government outlawed them i mean things like uh gold they outlawed gold um that's why also outlawing bitcoin is um you know good probability and um and that um they also establish foreign exchange controls because they don't want the money to go elsewhere let me let me jump in right because that that comment you made about bitcoin i mean so it's a two-part question is that in a bubble maybe three-part question is it dangerous and what do you think the likelihood of the government outlawing it is and is that even feasible bitcoin has proven itself over the last 10 years um it proved um it hasn't been hacked uh it's by and large therefore worked on an operational basis um it has built a significant following it is an alternative um in a sense um storehold of wealth it's like a digital cash um and those are the pluses uh bubbles are financial assets that have imputed value it's it's an asset that doesn't have intrinsic value it has imputed value it's whatever we think it is um and if you look at some of the bubbles in the past um a great book is extraordinary popular delusions and the madness of the clock of the crowds by mckay 1845 or something um but it he talks about the south sea bubble and he talks about the mississippi bubble and so on it is when people love it um it's the dot-com bubble and so on and it um that you know that could be so when you look at bitcoin it's a possibility it you know it's an alternative um because what there aren't many um such assets there are not some so many assets that might have intrinsic value that can't be uh messed around as far as the government allowing it um the history was um you know banks always used to exist and then um with the bank of england um they decided that they it was in their interest to have a monopoly on banking at a out of country and so what we did is we every country treasures its monopoly on controlling the supply and demand they don't want other monies to be operating or competing because things can get out of control so i think that uh it would be very likely that um you will have um it under a certain set of circumstances outlawed the way gold was outlawed and you're watching that question arise in india today india today um is making the move to outlaw outlaw possession of it um okay so we have to see what that means now can they do it um now we get into the particulars uh my understanding from um people who are sort of in government surveillance and go on is yes it's a they can understand they can track it they can know who's dealing with it i don't know like i'm not an expert on that um but um you know there's a whole way is is it private wallets is it not private wallets how do you do this this and the other thing i would suspect it would be very hard to hold up against that kind of action um so that's what it looks like to me right what do you make of uh how do you assess so far the biden administration the president and in particular janet yellen well i'd say politically um it's a reality that there are two uh political parties um in both cases um that um there are um rather extreme elements to that we can call it capitalist and socialist or we could call whatever we want to call it but there's a range and there is not much in the middle it's difficult to be in the middle because they have to align with either of those so in terms of let's say economic policies generally speaking there's not much um you know it's it's tough to fight with uh both your democrats and the republicans and what does that mean things like the wealth tax might be a litmus test but in any case i think that there is um a big movement to deal with um those gaps i'm for referring to so i so we should expect significant increases um in taxes and so on in various ways um we can get into our discussion about that if you want um and and depending on whether that's done smartly or not um will affect the markets for example when we cut corporate taxes that benefited stock prices um depending on how the tax rates are changed and so on that will certainly affect asset prices and um and capital flows let me let me ask you about the wealth tax tell us what your proposal what your idea of a correct wealth tax would be i'm a mechanic i'm not an ideologue i'm basically somebody who basically thinks if you move the lever this way what will happen that's that's basically yeah what i did was um do a study of all the cases of wealth taxes in different countries that i've uh have existed um and look what happened at those and i passed that along i didn't comment on on that but there are facts um uh which is um like i looked at uh 33 cases um and in none of those cases um did they have were they sustained and raising a significant amount of money um um in some cases like switzerland has a wealth tax it's a very small tax and it was sustained norway has a tax and it was small and it's sustained um those that are big um haven't lasted because um a variety of reasons they're operationally different difficult and so on you know illiquid assets i won't get into all that but um there are different types of ways of of taxing wealth and so you'll see mock i think you'll see the easier ways to tax wealth become more popular such as stepped-up basis in other words nowadays when you die um you get your if your assets appreciated um you don't have to pay the capital gains tax on that and the inheritance tax i think that's probably in jeopardy and i think that you'll find different other types property taxes other things they may come about um but that's my thought on the wealth taxes in general it they also um have um a one the big risk is is this an environment that's um hospitable for capitalism and capitalists that affects capital flows a lot and it's not just affecting american capital flows americans think it's just americans no no no foreigners own um way more bonds american bonds than american zone so um it just the whole notion of where to go where it's safe market for capitalism and capitalist is has an effect on capital flows so those are the mechanics speaking of foreign investors right what is your take on our relationship with china right now and how do you perceive it moving forward well um every empire rises and declines uh for those who are interested i studied this i needed to study for reserve currency so i studied this going back 500 years and it's on linkedin um it's called the changing world order you could see the patterns um and you could see what's happening china is uh it has gone from uh i started going there 36 years ago they were dirt poor i would bring a calculator and give it to gifts like ceos and they thought they were miracle devices now they are in many ways in um in ai and quantum computing and so on um at a comparable type of level so china by all measures of its power and prosperity is a very very strong um competitor so now you have to the leading empire 1945 we've created the american world order because we won world war ii and so we had a new monetary system and so on and now we're having a challenge of that partially because of chinese but partially also how we're handling ourselves i mean we're not doing great in handling ourselves in a lot of the most basic ways so yes we have that conflict in china's um i i would say it's my um i've had a lot of contact there over decades and i really believe it's just it's an evolutionary process there are certain things from the chinese perspective uh you know they would believe if you can't suppress or compress me you that would be their view that the united states is trying to do that i suspect um there will be tensions and the question is whether um you know one side becomes um too confrontational to let evolution take its course but it's true that evolution is more on china's side than our side although it really depends whether we can get our basics right and our basics are things like um broad-based public education you know the quality of education civility of the people do people work together in a civilized way or are they at each other's throats um and you know uh innovation and you know those things so china um china is a very exciting place if you if you if you spend time there and you see what's going on with entrepreneurship the creation of new businesses new uh new investment in this things and there's an energy and it it's you know it's quite something let me ask you a couple questions about bridgewater and about you ray first of all bridgewater uh was a bit of a choppy year last year uh for the firm how are things shaping up these years how is david mccormick treating you oh david's a star so yeah you're um you're you're referring to this transition which is i think the most uh beautiful thing um it's uh it's not easy to start off make a founder own company let's say founder company to then be able to transition and to be sort of a mentor and see io but uh and to let uh the the talent rise and i'm very very very lucky uh to have dave mccormick in that role and we have a team the investors the um bob prince has been with me i think it's been 34 years something like that greg jensen's been with me for 26 20 i don't know a lot of you know decades uh we will fight like hell but we're together and and so on and so i'm i'm at 71. and the most beautiful thing for me is to complete that arc and you know that's that's what we're doing we're doing it together so um it's you know it's uh it's doing great and we're learning but you're right um the uh the second quarter the pandemic uh caught us we in prior years uh uh we never had um i don't know how many years we had no losses and uh again there's an alpha fund and a and a beta fund uh but anyway um and uh in the first half but uh for the most part uh that all uh rebounded and and we learned a lot so i think it's good um i think it's i think it's good on all of those fronts what about um some of the thinking that you're now famous for right meditation radical transparency your principles uh have any of those changed in recent history maybe because of the pandemic changes in society what is your latest thinking when it comes to some of those uh facets well i just want to yeah the things you mentioned um hasn't changed at all and i really want to pass that along and my stage in my life the main thing i'm doing is want to pass things along that have been valuable to me i mean that's why i'm doing the interview um and um and so meditation wow that has um you know i started that about 50 years ago and that has given me the equanimity um when things come at me to deal with those well it also uh gives creativity because one goes into one subconscious and that's where the creativity comes from um you know it's like if you take a hot shower the great ideas come to you and it's not because you muscle it so that's been valuable and this um yeah the bridgewater the culture has been and and is an idea meritocracy in other words let the best ideas win out uh in which the goals are meaningful work and meaningful relationships so you're excellent at the work and then also if you have the relationships that reinforces the work and it reinforces um you know in the mission with people you like and you care about that's powerful and through radical truthfulness and radical transparency radical truthfulness means like we're going to be totally honest with each other it may be brutally honest um but misinformation because you've got this scenario going on in your head but you don't really know what the other person's thinking is dysfunctional and it also means that uh you don't have you don't build trust if you're in a political organization and you know you know that that's that guy's acting really uh nice guy high five and so on but it's not going on the same behind the scenes that undermines trust so those have been the things the thing that i learned the best and i learned from failure i learned from my failure 1982 i expected a big debt crisis that was going to cause problems that was the back the bottom in the stock market i couldn't have been wrong more wrong and that gave me the humility to realize that what i think in my head or what any one individual thinks in their head might be wrong and the markets help you understand that and so the idea of having others stress test each other with that radical truthfulness and that strategic transparency raises the ability so i'd say whatever bridgewater's success has been it's been because of that way of operating it's a good segue to uh my final question to you ray and and that has to do with your legacy would you want to be known as a thought leader or as an investor or maybe it's maybe it's both i don't care what i'm known as i don't think anybody will will actually remember be anybody because think about like how many people do you remember from um you know a generation ago think about the rock stars the movie stars the other famous people they all disappear we all disappear the legacy the way i view legacy is what is the gift that you're passing along and the things that i want to pass along in that are these kind of principles like um how does the machine work how does reality work and how does one interact with reality to get what one wants those are what i mean by principles and they don't have to be my principles we're all in a discovery to try to find out what is reality how does it work and how do we uh interact with it well and that's what i those are things so i i wrote one book principles i wrote another book which is uh principles for understanding big debt crisis is i'm writing the other ones which has to do with the changing world order those principles um and i'm writing these actually like for my grandkids uh i mean as well as everybody else i've got them in mind like when i'm not around um you know it could almost deal with anything when you're thinking about your job or whatever here's some of the things that might be of helpful but most importantly you should have your own principles and think about them well so i pass along those principles like pain plus reflection equals progress and so on don't get caught up in your own head have radical truthfulness and radical transparency those are great important things your approach to life one's approach to life is the is the most important thing and when you start to understand that each person has their nature what do you know your nature and then once you know your nature and you're on a journey to find your clique find the fit that is the thing that allows your nature to flourish and deal with other people when they know their nature those are the most important principles i think that's what i'm trying to pass along if it lives be on me without ever me being referred to that's me that'd be great okay ray dalio founder co-chairman and co-chief investment officer at bridgewater associates thank you so much for your time thank you andy

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Id: cJ82qABNWQA

Length: 33min 36sec (2016 seconds)

Published: Thu Mar 25 2021