Ray Dalio and GMO's Jeremy Grantham on How They're Seeing the World Right Now

i'm jim haskell editor of the bridgewater daily observations and i'm so fortunate today to be joined by my longtime friend and a longtime client of bridgewater's alex shahidi alex is the co-cio of evoke advisors in based in los angeles california and together we moderated a discussion with bridgewater founder and co-cio ray dalio and jeremy grantham the co-founder and long-term investment strategist for grantham mayo and bonn otterloo otherwise known as gmo and alex maybe you can explain what we're about to do and how it all came about sure jim it's great to be with you i remember we started talking about putting this conversation together over a year ago so i'm very excited to finally get both rey and jeremy in the room together particularly given all the major forces at play today we are truly living in historic times so i can't think of a better duo to share the perspectives of the big cycles they see and what investors should do about it to help preserve and grow their wealth you know uh jim i've spent the last 23 years searching for insightful investors who have the unique ability to zoom out and see what others don't and because they're better positioned to see big waves coming i you know i always think that they're less likely to get wiped out um you know i met jeremy for the first time about 20 years ago and and ray about 15 years ago i still remember the first conversations with both and i've been following him very closely ever since and in my mind there are two legends they're both studying the past and writing about it and they've demonstrated remarkable track records as proof especially during big inflection points i totally agree and you know essentially what we did here is structured this conversation in two parts in the first part we asked both ray and jeremy to share their thoughts on the biggest dynamics they see in the world today whether it was inflation stock market bubbles political shifts or just the changing world order and then the second part covers what investors can do about these things when it comes to their own portfolios so i thought it was a really interesting conversation i couldn't agree more jim and it's a privilege to be able to share a conversation with these two investors with our clients as well so why don't we just jump right in so ray and jeremy thank you both for joining us it's so great to have you both here and just before we start you know you both known each other for a very long time and jeremy in a conversation we had before actually taping this you were talking to us about the first time you actually met ray uh it was at a kodak pension fund event and and is with the legendary investor rusty olsen uh i thought it was a funny story maybe you can just quickly recount that story i can't tell you the date but i'm sure ray cam but it was 25 years ago or thereabouts and uh it was in martha's vineyard and we had taken an earlier flight and so we had like an hour and a half before cocktails started on this two-day event and all all of eastman kodak's managers including the ancient roy newbergu were going to be there and hilda ochoa as i recall a pallet mine and maybe raised as well and so ray and i in desperation took her an hour and a half's walk along the beach and and ray as i suppose is his won't talk and i as is not definitely not my won't listen i usually do all the talking anyway this time i listened and ray expanded uh to such a fact that uh three days later we had our annual conference we were one of the first people to do that in the institutional investment business we've done it for 40 41 years and on my presentation i had a page towards the end that said how the market really works and it was just one page of numbers and at the bottom it said plagiarized from ray dalio well i i i i remember it uh almost identically except it i remember picking your brain at least in any case learning a lot from you um and i certainly remember the conversation as being really really interesting and then uh we were we'd sit together on the bus as they would move us around yeah and the conversations and that began our relationship um which has had a number of interesting conversations over uh the last few decades so i'm really happy to do this again with you ray why don't we kick off this conversation you're a student of history as is jeremy and you've both spent uh many many decades throughout your careers thinking deeply about the lessons we can all learn from the past can you take a few minutes to describe how you're thinking about the current environment and how it's similar or different from what you've seen in the past one of the things i learned uh really 1971 and then repeatedly is that surprises that happen in my lifetime time happened to me many of many cases were for things that didn't happen in my lifetime but happened in prior lifetimes such as um in 1971 i was clerking on the floor of the new york stock exchange august 15th um nixon severs the relationship between gold and the dollar so essentially defaulting um and i walked on the stock exchange i said financial crisis and um i would expect it to be down a lot it was up a lot i studied history and found that the exact same thing happened in march um 5th 1933 with roosevelt doing the same thing basically uh on the radio and then i understood things better so what happened to me over the last number of years is there are three big things that are happening in my lifetime that didn't happen and i actually found that with research five so the first is um the amount of um decreation and monetization of that and how it's carrying through the system the second is the amount of uh internal um political social economic uh conflict that is now going on and um and and the third is uh the rising of a great power um to challenge uh the existing world order in the existing well-powered china and the geopolitical um in which uh you know when i was born 1949 and uh five four years after the new world water began in 45 and the united states of course was a much more dominant country than had 80 percent of the world's gold 50 percent of the world's economy the only monopoly on military power because of nuclear and all of that and it's relative it's declined on a relative basis and that led me to do research um which i um [Music] needed to do the five last 500 years of research to follow i wanted to study the rise and decline of currencies reserve currencies and their empires that i went back and in doing that um i also discovered um that their uh acts of nature um actually had bigger effects than the first three of those or even with the wars um because of uh droughts floods and um uh pandemics um and i know that you're uh you really have uh thoughts about climate change and its effects so i'll be interested in hearing those because i think that's a factor and then number five was the greatest of course is man's capacity to adapt and invent uh because in one way or another they um if you look at that per capita income rises living standards rise over periods of time but these big cycles and these big events are dominant so those are i think almost everything can fall into those five categories you know um and uh so that's how i look at it and just to quickly get into a few how do you see those categories playing out right now is there anything specific that comes to mind i think that we're in a period in which there's a supply and demand for debt and credit um that is because one man's debts are on the man's uh assets and um there's a supply demand for credit um that is um having an effect on um making us move into a stagflation kind of environment uh in other words the trade-offs between the two will become more difficult but i think that um number two influence the political um is the most important um what i mean by that is um i think we we have been used to being in an environment um in which um economics uh ruled you know you'd have a global economy and um those who could produce items more efficiently or cheaper would get the business and they would raise their living standards and other places you know this so it's a it was a global competition largely by run by economic considerations and resources would shift that way i think we're now in um that doesn't exist as much that way and there's been a transition to um an ideological allocation of of resources and so on such as you know the um acquisition by elon musk of twitter it's not a financial transaction as much as it is uh for the purpose uh it'll have controls and when we have the conflicts such as with disney and desantis in florida and those political ideologies um it's the belief that um economics has got to fall within that agenda that'll have very big implications i think um and then of course this external so i've been rambling here a little too long through a few things on the table and i'll pass it over to you jeremy thanks ray yes let's move the discussion now over to jeremy and jeremy you've just heard the big dynamics that ray has articulated as he looks at the current environment and it would be great to get your perspective on the big things you're watching too especially considering some of your recent writing on stock market bubbles i i must say i'm in my old age reaching a point where i have a little trouble convincing myself that the stock market is that important and that we live in an age where some much more important issues are playing out and i know ray shares that view to some considerable degree but um i i view the stock market now really as a hobby and the one thing that i have kept going is resources and climate change related investing and also for old times sake investment bubbles since i've been doing that for 40 or 50 years and um and since i find myself unexpectedly in in the third great investment bubble of my career uh in in basically in the us so um i can't avoid it and this is a wonderful day to be having this discussion it's not only victory over hitler in russia day but it's it's also a day where the market is showing signs of breaking down through yesterday it's the worst opening of a year for the s p uh since i was one year old in 1939 i am a pre-war baby unlike ray and um and of course the nasdaq is down as we speak 27 and a half percent from its high and uh and the russell 2000 about 23 s p about 15 and a half so it's getting to be interesting and as we were saying before um bitcoin from some point in the last 24 hours is down 10 to 32 000 and change so that is getting interesting and arc um kathy woods wonderful instrument is back to it where it was in 2018 i'm not kidding you uh it is back below this entire event now uh which is quite remarkable down 75 percent uh from from its peak uh as is amc down 75 from its peak and and the other um meme stops are in ragged disarray so this is the real mccoy seems to be playing out pretty close to 2000 and i'm just wondering how you're assessing all this in the context of your research on asset bubbles always considered myself a fairly serious amateur historian what i've done in bubble territory is i i don't try and build models to explain every day as you guys do i i focus on the four great bubbles which are characterized by nearly hysterical behavior really seriously weird over optimism which is very rare and which are characterized by accelerated price moves on the upside um and um and and by a weird uh deviation on the upside between the blue chips going up and the risky stocks going down and that that is rare as hence teeth it happened brilliantly in 29 it happened during the year 2000 again in spades with the s p x growth continuing to go up through september of 2000 and the growth starts basically going down 50 percent and the and the internet starts dropping maybe 60 70 percent by that so that was spectacular and uh we saw a very handsome deviation between the s p rising last year and the russell 2 for example dropping quite handsomely so there was a 20 25 point spread on the upside and that for me is a pretty good indicator and i tell you what it describes it describes mr prince's i've got to keep dancing because the music's still playing and we understand that completely the enormous commercial imperative of the industry to play uh up to and over the edge but they're not complete idiots and so they say well i've got to keep dancing but i don't have to keep dancing with pumatec the most advanced stock in 99. i'm going to transfer to coca-cola and i'll keep dancing it off the edge but i'll go off with coca-cola and it works the coca-colas may be handsomely overpriced but in 1929 and 2000 2001 and so on they always go down a lot less as the bubble breaks and that's the phenomenon that causes this very rare indicator of impending doom which we saw last year and so by early this year it seemed clear to me that this was not only the real mccoy bubble which had been clear for a year or so uh in terms of pricing and enthusiasm but it had triggered this very rare uh indicator of impending doom in other words now and so our piece of a year and a bit ago was called waiting for the last dance and our equivalent follow-up this january was let the wild rumpus begin i.e we're in it dudes and i do believe we are and i i believe the declines will be very substantial ray why don't we turn it to you now i want to get your thoughts on how the trends you and jeremy have been describing and have identified are likely to play out what do you see over the next let's say five to ten years in terms of some of these big inflection points that we may be going through i think that looking at it year by year um [Music] that this is this is the third year of the expansion with a very aggressive monetary policy and um so we're in the part of the typical expansion where there's um a lot of inflation pressures because it happened in a giant big way and we where everybody's long the world is at it's the end of a paradigm because everybody believes that they want everything to go up and of course that creates a dynamic where policy is long everything goes up and of course that happens by creating money and uh credit debt and which creates debt and that dynamic means that you must have a decline in real wealth measured by that because that's the financial wealth has become enormous relative to the real wealth everybody who's holding bonds um or assets that particularly the debt assets um believes or financial assets in general which are just journal entries their their claims um but they believe that they can take that buying power and sell it and buy goods and services and they can't and by its necessity there must be negative real returns negative [Music] returns relative to um buying power so if we take it chronologically i think um there's the short term cycle which is usually the business cycle takes you know seven years on average in the give or take depending on where you start the cycle um it would take a few years i think we're moving along here quicker so we're now going to be in a very tight environment um and that changes everything um so when we look at the returns of equities um and we look at the well-being of companies um you see that um um the cost of interest relative to the expected returns of equities um creates a squeeze on equities create changes the economics a lot of borrowing has been done at much lower interest rates and so on the return on equity for a company in the versus the return um uh the cost of that of debt um is changing and all of those things are are changing and like all bubbles or paradigm shifts the mentality that uh did exist we don't have to worry about inflation cash is a safe place and so on gets a shock there's a punch in the face there's been a 40-year bull market and there's a punch in the face to the all investors we're going through it as jeremy describes and um when that happens um things that were um never supposed to happen because everybody believes in the tech companies and that that which is the same as the nifty 50 or the um [Music] um the dot-com companies they get hammered right so like you say 75 decline in um kathy woods funds and so so and so forth that um causes the adaptation so we're in the beginning of that adaptation that is most similar i think to the 1970s period um and um it becomes financial um and uh so i think um as we are in we'll come to the 2022 elections um and and that'll have economics and markets has a big impact so we'll be in the 2022 elections i think that you'll see greater political extremism coming out of that moderates are leaving um and even those are running are populists populists are people who will fight to win and will not accept losing and will fight for their constituency so you'll see more populism of the left and more populars in the right so if i look at 2023 i look at 2024 and i'm worried about the neither side accepting losing and i think that there's a big risk then nobody that this system what is in jeopardy because history has shown when the causes that people are behind are greater of greater importance to them than the system the system is in jeopardy um those types of things change the world landscape i'm emphasizing the united states and and to and certainly europe is in that type of a position so um i think that that when i look at it um it'll be very important to not only diversify well but to be able to be long and short different assets in order to perform well in in that environment jeremy ray just described how he's seen some of the risks ahead in terms of politics and the risk of rising debt inflation and the debasement of buying power anything else you would add to that listening to ray is that we we have a market today which feels superficially like 2000 and i think it's going to play out initially like 2000 and then unfortunately it's going to phase as he suggests into the 70s where the deflationary effects on the economy and the stock market will will result in a world rather like the 70s where all assets are simply much lower price than they are today um a word on on inflation too i completely agree with ray on on the short term problems which i i would summarize is monetary and and general federal reserve over stimulus for 30 35 years the war and covet all of those three influences guaranteeing that we have a relatively intractable problem in the short intermediate term what what worries me is the longer term arguments for inflation which is one we are running out of people in china where the 500 million extra farmers precipitated globalization they have now had diminishing cohorts of 20 year olds for 20 years and they are guaranteed since they're alive now we know the baby cohorts are dropping like a stone they are simply going to have a shortage of labor as is the developed world together that is not a trivial block the developed world plus china all of them will be squeezed for labor after the bubonic plague they had a hundred year honeymoon period in which wages went up so much it wasn't reached for another several hundred years in the industrial revolution and we are entering a period where labor is simply scarce which feels to me inflationary and at the same time we have a scarcity beginning in resources and we keep an original unusual index at gmo it's 36 equal weighted important the most important commodities so it's not dominated by oil and it showed a declining pattern for 102 years from 1900 to 2002. and yes it was interrupted by world war one and world war ii and opec why wouldn't it be but it wanted to go down it went down 70 it took the index down to 30. today 120 two years later the index is down 10 it has gone to 90. the average important commodity has just spent the last 20 years going from 30 to 90. it has tripled the reason is of course the growth of china but i believe fairly passionately looking at the data that it also represents uh the intrinsic scarcity the war between deeper wells worse iron ore etc the best go first the struggle is always between technology which for 100 years got ahead of scarcity it was two paces down for deeper and three and a half paces up for technology and now we've reached a phase where we've gone through that stuff and now we have two paces up for technology and three paces down for scarcity we the data is screaming at us now for 20 years that we're beginning to run out it doesn't and a war of course and covert we're so fragile all you have to do is cough now and it ricochets around the world in price spikes and and and and shortages and bottlenecks and that is the world we better get used to living in we're going to have a world of increasing number of bottlenecks and shortages and the same applies to food the un food index is higher today than any time in its history of the last 50 years since it started okay so you you you have price pressure on raw materials metals food you have price pressure long term on labor this surely feels like a new era in which inflation will be part of the background music just like it was in the 20th century and perhaps more so ray also mentioned the dangers of high debt levels and you've certainly spoken about that in the past and so could you share some of your thoughts there as well the risks of a debt bubble breaking and the risk of an equity bubble breaking have simply not been understood by our federal reserve since paul volcker they are incredibly naive they haven't even got a clue they're not even interested in the idea the idea bernanke's saying of the u.s housing markets always has never declined it merely reflects a strong u.s economy alan greenspan encouraging etc etc right through until today they don't realize that they're playing with such fire my second point high levels of debt are are just far too often seriously dangerous and should be in general discouraged actually that should be one of the responsibilities of top management including the fed etcetera and let me just give you an example why do you like low rates because it encourages debt why do you like more debt because it encourages growth that's the argument so let me give you the ultimate statistical test of that we start in 1985 and we have been modestly increasing the debt to gdp ratio all that together just drifting slightly up due to technology and then the technology i mean the introduction of more and more sophisticated financial instruments but not rising dramatically and then in 85 it kills to a 45 degree angle and shoots across any page and goes from about 1.1 times gdp to well over three so in that little window of 35 years we triple the debt to gdp ratio it's a big chunk of time it's the biggest most important economy on the planet a pretty good test so what happens to growth it inflicts downwards and from 85 we grow more slowly grant you there are many other factors at work it's a complicated picture but there is little room in that equation for the idea that more debt creates more growth it is not proven in the data it is held to be the case it is an assumption like most of modern economics but it is not proven by the data i would suggest that there is no evidence at all that increased levels of macro debt to gdp have anything to do with growth they have everything to do with higher risk from time to time ray i want to turn it back to you you and jeremy have described a very difficult environment with a lot of potential for risk and instability how as an investor how should we think about positioning for something like that my main things are first cash is trash um um and um that there's uh in bonds and and and debt um it's it's not going to be good and the claims of financial assets so either avoid those or position yourselves uh so that when those things operate and and position yourself for inflation um and um so there are um investments lots of investments pertaining to inflation i agree with jeremy's comments about commodities and and that and the big commodity cycles are reactive there's there's a giant just like the the 40-year bull market and bonds um associates with a commodity cycle where everybody adapts to that companies don't hedge um um inventories are drawn down there's less investment in those things that when that switches switches to that kind of an environment and the big overarching thing is that the amount of financial claims that exist and there's charts in my uh that i repeatedly show when i deal with the uh changing world order what is the amount of financial claims assets relative to real assets and you could see that through history when those financial claims it's like a bank as too many ious on its real money and that thing then you always get into these environments where it's undesirable to own the debt and you have negative real returns and so to position one's portfolio in a tilt that way but of course the way that we do it is to separate alpha and beta right so two parts core uh we're cause we're all talking tactical how do you create a truly well-balanced um core portfolio and we know that the typical well portfolio is not well balanced with its greatest vulnerability being in that upper right quadrant in our box which is the inflation box and we know that we're in that environment so from a starting point of view i would encourage all investors to look at that those four quadrant box that box that we have rising inflation falling inflation rising um real growth relative to discounted falling real growth relative to discounted and see what the biases are in those portfolios i believe that now you can simultaneously reduce risk and raise returns reduce risk of that portfolio by having more in that upper right quadrant rising inflation and you will reduce your risk because if you look at your portfolio typical investor's portfolio that is the environment that is missing so you start with that how do you get more neutral how do you get back better balance and you cover yourself from that exposure and then you make your tactical moves around it and the tactical moves again should not be in those debts it should be very well diversified i think that the social and political conflicts are going to be a big investment thing coming forward and so that'll mean and that way i look at it is i want to look at places that have good income statements and balances so i say places i mean countries as well as individual that make up those countries the individual people and the individual uh companies so do they have a good income statement financial stability if they have a good balance sheet so that they can weather those things and also it's a sign of their productivity are they productive and then number two are they civil with each other i really do believe that internal conflict and bad finances are going to be well uh defining characteristics of where to invest or even where to be and then if i carry that forward to the third do am i going to have in the risk of being you know in a international war an important international war because that international war will um raise um lots of threats so i want when i'm picking those locations i i want to be out of the finance of those those that instruments largely minimized on the on the financials the inflation hedge assets well diversified look to parts of the world that are not as plagued with us so emerging asia is very interesting india is interesting so diversify look at neutral countries during that period of time watch out for um government controls on capital markets because that's the logical next step history has shown that watch out for foreign exchange controls could be watch out uh for those things so those are the themes that um i think are most important and will be most important in investing jeremy ray just described his framework for diversifying a portfolio and and obviously that is so important to preserving wealth particularly an environment today so do you have any thoughts on diversification today ray made me think that when we're selling our resource portfolio we we have a wonderful exhibit that looks at the correlation between all the major sectors utilities consumption and so on consumer goods and there's only one where as the time period lengthens the correlation drops and that is resources and resources drops to such good effect that based on the last 80 years of data every rolling 10-year period that the 10-year correlation is negative so if you believe in inflation you know that resources do very well you also know that in the long run it's strongly negative it's negatively correlated modestly with the rest of the portfolio as we're seeing today when they do well it puts a burden on the rest of the economy and they do bad so there is a very strong case here for a resource portfolio um on resources just a point that um the last time we had a a super bubble in commodities there were very large new mines waiting to come online what has happened since the 2011 crunch when china slowed down in its heavy industrializer and the growth rate on on of for iron ore and coal dropped from double digit to zero dead flat for three years in a row are breaking the back of the of the resource industry they have not done any capex it takes five to fifteen years to bring on a mine they have not been doing this there are no great reserves of lithium cobalt copper nickel even iron ore to come online this time and everybody knows it if you look at the need for these particularly green metals greening metals there are it doesn't compute there are no backup resources and that applies right across the length and breadth of resources they have not been capexing even in oil and gas for for the last 10 years to a remarkable degree raid there is an important question that i want to get to and it's related to concerns that you've shared about the us dollar potentially losing its reserve currency status as an investor how should they think about constructing a portfolio given this concern that you've talked about well there are two purposes of the currency which is a medium of exchange in a storehold of wealth and we're living in a world where um we have um three major currencies are fiat uh currencies with the same kind of problems so you can't look at one currency in relationship to another i think people make a lot of mistakes of thinking you know it's an ugly contest and and so um the questions that we're going to be in is storehold of wealth okay what is your storehold of wealth and a money is a storehold of wealth that also is widely accepted in other countries so that you can move it around it's not just limited to currencies don't don't think that medium of exchange is gone is the only important thing so think about the store of your wealth that's when we deal with the quadrant of the you know the four pieces to try to find a balanced storehold of wealth and then you have to think can i move that and sell that anywhere am i going to have the free capital markets to do that or are they going to be a problem so the diversification of that and i think we are in entering a period where all currencies the traditional medium of exchange type of currencies are um going to every a lot of currencies will compete what will be the medium in which i could take something and go someplace else and cost effectively convert that into buying okay the medium of exchange so what i think we're in a storehold of wealth issue um in other words focus in on that and then okay your transaction cost of converting that store hold of wealth a balanced portfolio into buying power and then you transact because even in the worst inflations the worst environments um the currencies most of the time still could be mediums of exchange even though they're devalued so i encourage people to think about bad fiat currencies generally um and think about storeholds of wealth and what the liquidity is and think about even what capital wars look like and in terms of uh storeholds of wealth i'm wondering if you have any particular asset in mind so for example would gold serve that purpose gold um as a overlay on a portfolio on top of a portfolio works like an insurance policy gold is a dead asset it just sits there but it's always through it's open it's got characteristics that are limited in supply one of the most important things it's the third highest reserve currency held by central banks and in periods of time of war or such periods of time of credibility um it is the medium like they say it's the it's the only asset that you could have that's not somebody else's liability that means you have to be dependent on them giving you it you're they're giving you money or they're giving you something um and it's it is international it can be moved and it's tried and true so in that regard but its behavior isn't very environmentally specific um so as a hedge asset as an overlay um it's it's really like a great insurance policy because when the other assets go down and so something like that or the equivalent of um plays a role in a portfolio not as the core asset but as the effect of diversification of asset and that's if you do it as an overlay it's about 15 of the portfolio not taking away assets from other um parts of the portfolio so but i come back to my basics which is the four quadrants you know the timeless and universal the one thing that you can be sure of is that cash will not be the best asset class and when you diversify to a portfolio so you've got a belt well-balanced portfolio of other things whenever you have that diversified portfolio it will outperform cash because it's the nature of the system uh people you know the central bank puts money on deposit people with better ideas come along take elements of risk and it works when that diversified portfolio of asset classes doesn't work well that balance there are times um it works um better than the traditional portfolio in the down moves by a lot um like when the markets and those goes down 60 percent or so worst cases are like 20 maybe a little bit older than that and it never stays there because central banks can't let capitalism which is dependent on those other assets performing a higher return than cash can't let that continue so they come in there and they produce money and credit and it produces the pop so i think in terms of like again i want to emphasize what i said before think in terms of storeholds of wealth how you can move it from country to country where it's acceptable and that way and don't listen um view money just through that idea of the fiat currency because a fiat currency is cash is short-term cash and cash is trash jeremy we're coming to the uh end of our time but before we go i want to circle back to something you said at the beginning that your major focus recently has been on the environment and climate change and so can you say more about that issue and how you're thinking about it and and perhaps we can close on that um i think the world has simply been running way over its capacity and the great luxury of the last 200 years of fossil fuels coal and then oil and gas have catapulted us far above our long-term ability to sustain and it the good news is that catapulted science and research as well as income and consumption and we're going to have to rely enormously on research and uh inventiveness to save our bacon and i do believe there is a decent chance that it will um quite a number of years ago i got into studying the rise and fall of civilizations and i always like to recommend a moderate greatness by by offals oph uls he's done all the heavy lifting for us he's in a series of chapters declined all the uh uh condensed all the major reasons for civilizations failing in the past and he's read everything he knows it like the back of his hand and it's like the cliff notes very very serious well-written quotable cliff notes on civilizations failing and and he gives five or six major reasons which include uh overburdening the local environment your soil and and your nature and your water uh complexity which is very energy intensive and and so on and he concludes two things one that the current global civilization checks off every single one of them which is rather creepy and and two that humans appeared to be hardwired to self-destruct and my take on that is that like every other organism we've spent a few million years fighting for survival and we have learned to grab what we can when we can and like other organisms to grow we propagate as much basically as much as we can for our first few million years and uh we'll expand to fill the space available and um [Music] we are not programmed to think about long term slow moving consequences and so we don't and we have we have to look at things today like the president of brazil encouraging the greatest fire station in brazil's history in the last 12 months uh to everybody's shock but we also have to live in a world where uh president trump was doing his best um [Music] to undo all the good that epa and environmental movements have been trying to do it's pretty bizarre to have a couple of serious countries attempting to ignore the greatest threat perhaps for hundreds of years and i believe that we do have some escape clauses from mr opel's prediction of self-destruction and and that is a two-fold one unexpected by everybody including malthus in 1798 we are choosing despite getting wealthier we are choosing to have fewer children since 1961. it's a remarkably unexpected outcome it was not predicted as far as i'm aware by anybody uh let's say as recently as 1950 and and the degree and the speed with which fertility rates are contracting is not really appreciated by anybody including the financial community we are not only way down from replacement rate in every developed country except israel but we are if anything accelerate uh so in the u.s we're at 1.65 versus one point uh two one uh one point two for re one point two point one children we're at 1.65 and so way down a quarter below what is necessary and many countries in europe uh italy hungary are way below that and of course in the far east you culminate in south korea which has incidentally overtaken japan and individual wealth individual income i should say um they they have a fertility rate below one i mean it's just inconceivable and china japan taiwan are all down there at the 1.5 level uh quite remarkable and this is not a sufficient condition to save our bacon but it is a very necessary condition jeremy you're saying that one of the pressures working in our favor is less people so that obviously leads to less pressure on natural resources what's the second factor working in our favor the other factor is the speed of our science and the fact that if anything it seems to be maybe accelerated and we do have some getting out of jail free cards um the problems we face basically are all the cures so far have been contained within a finite um a finite world we're trying to compound on a finite planet but the get out of jail free cards have a width of the infinite and they are fusion a source of infinite energy if we can pull it off it's green we never run out and it may be cheap it remains to be seen uh i'm reasonably optimistic but it's certainly far from a probability of one um geothermal the ability to drill several miles down and tap the heat of the inner core which is more for all intents and purposes infinite and green and we have a vast learning curve from fracking to tap into but but there are massive problems of dealing with the heat several miles down but not necessarily problems that we won't learn to handle and the third one is a major breakthrough in energy storage to go through to go with the spectacular progress of solar and wind again year after year has outperformed early forecasts if you look at the international energy authorities and others you will see an almost laughable a pattern where each forecast for 2030 has been below the actual each year it's ramping up it's like a an investment model model that never learns from the past it seems but if we can take the cost of energy storage down to 10 cents or 20 cents on the dollar from today and and and blend it and and mix it with the solar and wind that will also be basically an infinite source of green energy so i like to say in all probability the lack of cheap available green energy is not the factor that will bring us to our knees so the problem is the time it will take to get there we have wasted arguably 50 years getting the point that climate change is ultimately dangerous and uh by the time we have all this cheap green energy um an enormous amount of damage will have been done and the parts per million in the atmosphere will have gone from what we need which is about 300 280 to 300 where you get a very stable world it's currently 400 420 and it is on its way for sure beyond 500. this is the kind of burden that we will have to uh to deal with and if we have fusion or one of the others we will be able to set about the slow steady business of subtracting carbon dioxide and returning the planet to a decent state so if we have that and we combine with a declining population um we we really do have a a chance of survival as i like to say jeremy i know the grantham foundation is working very hard on some of these technological solutions the climate change that you've described we are thank heavens a very inventive species and our foundation for the protection of the environment is is has a target of fifty percent green venture capital and twenty five percent other early stage venture capital the world is getting behind the need to green the economy getting behind the need to be frugal with resources and change and improve the food structure the governments are getting behind it corporations are getting behind it why would early stage new enterprises in those areas not be a candidate for highest return on the planet i think they are and it's thoroughly exciting it gives a sense of purpose and it may very well be the best investment you can make the top-line revenue of people going to solve climate change is going to dwarf the rest of the economy it's the top line of electric vehicles versus the top line of the old vehicles the top line of electricity versus fossil fuels the top line of efficiency versus business as usual that's where the growth will be all right i think we'll wrap it up there jeremy and ray thank you so much for joining us i i hope we can do this again sometime soon it was a real pleasure and it's always a pleasure jeremy thanks thanks for having me well alex that was a lot of fun i hope we can do this again also sometime soon i had a lot of fun jim and i look forward to it as well you

Channel: Bridgewater Associates

Views: 1,134,648

Keywords: Ray Dalio, Bridgewater Associates, Jeremy Grantham

Id: -qD4kqAarec

Length: 57min 34sec (3454 seconds)

Published: Thu May 19 2022

Reddit Comments

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[u/PackageHot1219]

There may be no safe place for people to run to….Except Gamestop.

[u/aquarius3737]

If you go to 43:00 and listen at 43:13.. seems like there was a cut from the video, and used camera change to hide it. Strange sudden change of flow in Dalio's sentence.

[u/Global-Sky-3102]

Bro enough with the fear mongering. I dont trust any of these talking heads at all after the whole GME saga we have experienced for the last year and a half. If their net worth is higher than $10 milly, they are sharks, and sharks do what sharks do best: hunt easy prey

You do as you wish but dont make investment decisions based on what these HF billionaires parrot or anyome else for that matter. They will always put their interest above yours, even if you are a client of them.

My oppinion is jpow will turn back on the printer to bail out these bloodsuckers. Election year...cant have the stock market at -25% or else election is lost. Or it will all go to zero and we get a nice new shiny currency