so I I have to admit to cheating a little bit when when we first proposed the idea of masters in business live Alan Dave were very supportive and I said I'm gonna bring in a ringer with Ray Dalio so I really don't have a whole lot of work to do I assume most of the viewing and audience present knows who read al you is but let me just give you a quick version of his background he is the founder co-chairman and co-ceo of Bridgewater associates the world's largest hedge fund managing over 160 billion dollars in assets for institutional clients according to Forbes Bridgewater has made more money for their clients than any other funds in history he is the author of the New York Times best-selling book principles for life and work and most recently his new book is principles of big debt crises Ray Dalio thank you for being our first guest on masters in business live let's start with the reboot of Bridgewater which you described in great detail in the first book which came about after a not-so-great 1982 for you in fact you just subscribe it as disastrous what happened in 1982 well you know I I formed Bridgewater in 75 so 18 to like 7 years later that's the reboot yeah that's the reboot right and I had in 1980 79 80 I had calculated that America that American banks had went way more money to emerging countries in those countries were going to pay back and it was about 250 percent of their bank capital and so we were gonna have a big banking crisis and I thought that was going to happen and I got a lot of attention for that and then in August 82 Mexico defaulted and there was a sequence of other defaults and there was a big debt crisis and I thought that that was going to cause an economic crisis and I couldn't have been wrong that was the exact bottom of the stock market when Mexico defaulted and anyway I received attention at the time I was on Wall Street week and I was on ask to testify to Congress and right and I was wrong and I had I think at the time maybe eight people who work for me I had to let them all go and I lost money for me I lost money for clients I had to I borrow $4,000 from my dad because I didn't have really enough money even to take care of my family at that point I was very painful but it was the most valuable thing probably that happened in my life certainly one of those because it changed my approach to thinking because it made me start to think you know how do I know I'm right how do I continue to take risk and not go through these mistakes and it made me change a lot like I wanted to find the smartest people I could who would disagree with me I wanted to build an idea meritocracy in which independent thinkers would challenge each other and I wanted to deal with risk how do I maintain the returns but diversify and do certain things to deal with risk and it was from that point really on that everything started to change so that was my terrible experience and I think that that's by the way one of those lessons like there was a book that my son gave me in 2014 Joseph Campbell here over Thousand Faces and he describes about how that crashing occurs and that changes do you have a metamorphosis so the whole approach to learning from mistakes and painful mistakes and making the most out of them and writing principles down in other words recipes for how do you deal with the circumstances learn the lesson write those principles down this is the thing that I would recommend to you know everybody write them down and I learned also that by being able to write them down clearly enough that they could be expressed in what were then called equations are now algorithms that allowed me to make decisions and us to make decisions in a very powerful way so that experience was really the turning point that's very abstract I want to describe some of the ideas and products that came out of that post 82 you described in your early history some of the products that you had a role in the creation of tips the inflation-protected Treasury bonds the US dollar futures index the entire concept of risk parity you're very humbling saying you had only a little bit to do with the Chinese stock market creation but I know you consulted with very senior people there and helped that come about and what I think is the least known thing about you but the most fascinating you helped to engineer Chicken McNuggets explain that to us because it's absolutely intriguing well I I traded commodities then back then I mean that was my big thing and I really learned you know how to make chicken and how much feed what what a chick cost how soybeans were grown how they competed with cotton and corn and that home mechanics I like that whole mechanical thing and at the time that and chicken McDonald's was a client of mine at the time and they wanted to come out with this Chicken McNuggets but it was very volatile prices were volatile at the time and they were worried about whether they can get stable menu prices or that it would have the volatility and that be disruptive and I had a chicken processing producer was I think at the largest at the time and a client and I could engineer the ability to lock in the feed prices because basically the cost of a check is not much relative to the cost of the feed and you have futures contracts on that and I was able to work a deal so that that chicken producer could get the McDonald's contract and McDonald's could get a stable price by engineering how they could do the hedge to be able to do that so that was what I did the word engineering comes up a lot for a person who's not an engineer and I I was there much reminded of that in one of the first long-form videos you did how the economic machine works so first what's the engineering background for the overall economy and what motivated you to put that together in a video and release it to the world well the one thing that I learned over the years is you know like everything has its every effect everything that happened has a reason it happened cause effect relationships and these things happen over and over again so whenever I got surprised by something it was usually because of something that didn't happen in my lifetime before but it happened you know like these financial crisis is and so on and I and what I did is I went back and I saw I started to see that if you start to see everything as happening over and over again and then you study the cause-effect mechanics behind that at a nitty-gritty level you learn how reality works and then you can write your principles for dealing with reality which are the recipes essentially for making good decisions so to me it you know history is shown like the same things happen over and over again for the same cause effect relationship so that debt book that you're referring to you know it's a good example if we don't spend time understanding the mechanics and the cause-effect relationships we just argue with each other about what should be done and it's like two doctors who have not spent time understanding and agreeing on how the body works arguing about you know what should be done for the body and so the reason I did that a video how the economic machine works and the reason that I did the book and the reason that I wrote principles is to put on the table what I think that those cause-effect relationships are so we can understand the timeless and universal mechanics behind it and that's been invaluable to me because once I understand that mechanics and we could test it we could test it in all timeframes we could test it in all countries we could understand it and then with that framework we know how to deal with it and but nowadays being able to deal with it with algorithms and technology means you can deal with it all over the world and it's been a powerful force so it's evolved from those experiences like I remember the first time I was clerking on the floor of the New York Stock Exchange in 1971 I was just between college and doing a business school mm-hmm and the stock and we have a dollar crisis we can't pay for our goods in Europe nobody's accepting dollars and on August 15th Richard Nixon gets on the television and he basically says we're severing the connection between dollar and gold back then money was like a check and in check in a checkbook has no value it only what the money is has value and so it would get you money would get you gold and that was and it was a breakdown so it was a default and I remember thinking when I was gonna walk in on Monday morning to the New York Stock Exchange this is a big crisis and I thought the stock market would fall a lot and the stock market went through the roof and I said and I realized I said well did you have currency breakdowns before and then I was I studied currency breakdowns had happen in this system and I realized why when you devalue the currency it's bullish and how that whole thing works that I didn't understand so it's that perspective about mechanics do we understand can we agree on the mechanics of how it works because once you can do that then you know how to deal with it so you mentioned principles before we talked about big debt crisis let's talk about the book a bit it came out last year it became a New York Times bestseller and you kind of went on a not quite world tour on the book you said that experience was really educational what did you learn speaking to people about the book principles well I I didn't like I didn't like I never liked being in above the in the press or above the radar you don't do a lot of media historically right although you're beginning to flower now that you're an author I'll do that I'll do that I'll do this and in my face I'm gonna phase of life which is a transition from my second phase to my third phase and so the way I look at it is in the first phase of life one is dependent on others one is learning one's basically a student in second phase of life one is working others are dependent on them and one is trying to be successful as you get to my stage in life which is a transition from the second to third stage right the way I think it is the joy is no longer as much to be successful as to pass along what you've learned that has helped you be successful the joys and seeing other people be successful and because these principles have been written down over a long period of time and they've kind of the recipes I wanted to pass those along and that's what I'm in the process of doing and then I'll phase out but to answer your question in terms of the surprises like I thought that was going to be a very uncomfortable experience I thought even the communications would be bad and I have found such a joy in the interactions that I've had with people in the in the public and so on so it's been a really pleasurable good experience a sense of relationships and I think people are now looking for principles and I want to emphasize forget my principles they don't have to be my principles but I do think that everybody would benefit enormously by being crystal clear about their principles I want to pass this this thing along number one I'm going to pass this along that if every time you're encountering your situation at that moment or right after you right down the court the criteria for making your decisions inwards and that allows you to communicate with others allows you to clarify your decision-making and you could take in from others what the best criteria is for those circumstances in the future that is invaluable because in all your relationships with people no people will know what your principles are how you will interact with them and why and then you can go even beyond that to convert those into a Asians and help them make the decision again I think that's a powerful thing in the future and I will so I wanted to pass along mine but I also wanted it more importantly pass along the importance of other people doing that and that's what I'm in the phase uh there are two things so I did the life of work principles and now I'm working on economic and investment principles that'll be the third third book in the series yeah so middle one was sort of an accident well we'll get to the middle one in a moment before we leave principles I have to ask about what I think is the most interesting approach you bring to managing the firm which you call being radically open minded having radical transparency and bringing about thoughtful disagreement tell me how that develop because that doesn't seem to be the way most of Corporate America operates that's our edge your edge is thoughtful to Superman okay yeah okay so let me give you one one sense I want an idea meritocracy in other words I want the best ideas to win as opposed to where it comes from right I don't have to be that it doesn't have to come from me I just want the best decisions to be made and I want to what I want is to have meaningful work and meaningful relationships a meaningful work meaning you're on a mission together and those relationships are deep and meaningful and they're high-quality they're all reward in and of themselves and they make an organization more effective so an idea meritocracy I'll get it out of one sentence now I'd be a meritocracy in which the goals are meaningful work and meaningful relationships through radical truthfulness and radical transparency radical truthfulness means say what you're thinking and now this will save the same and let's get away from the behind the scenes in the politics of it and the radical transparency means most people can see most everything so that they can form the opinions of what's going on themselves independent thinking and that builds trust first of all it cuts through the notion of politics and bureaucracy by everybody being able to see most things you you build trust you and you're dealing with most things without the blur of hiding stuff that's in people's heads and in the investment business I think it's a particularly special important I think it's also an entrepreneurs it's especially important because you you have to have the independent thinking in the markets the markets discount the consensus so whatever the consensus is is in the price so in order to be successful in the market you have to think differently than from the consensus and you have to be right and in order to have that you have independent thinkers and when you have those differences in independent thinkers if you can work that through through thoughtful disagreement you have the art of thoughtful disagreement if you work that through you raise your probabilities of getting at the best answer and and that's been a very very powerful thing and it also builds trust and it builds better relationships because Trust comes from you know or upping an operating in organizations who have this politics it's all behind the scenes everybody gives them high-fives and they're all happy and so on and they talk behind each other's backs so that's been it's been a big deal for us that that's your edge so let's um let's go forward to the new book which just came out navigating big debt crises you mentioned you decided to write that cuz a couple of folks asked you to put it together Ben Bernanke Tim Geithner other people I really like the way the book is assembled it's broken into three parts the template for what the big debt cycles look like then you use three detailed cases the great financial crisis the Great Depression in the Weimar Republic and then you you put together 48 case studies from the past century so let's start with the first one the template what makes all of these very different crises follow the same mechanical sort of cycle how is that even possible well everything's got these cause-effect relationships and the way you know in a nutshell I'll make try to make it simple there's productivity over a period of time our living standards rise because we learn how to do things better and the output for man our work increases and that moves at a fairly it'll go up and down its pace but but nine large it's not what causes volatility and around that we have to debt cycles we have a short-term debt cycle which we understand because that's the business cycle you know you're in a recession central bank sees monetary policy they changed the relationship between short-term interest rate long-term interest rates asset prices put liquidity in and then you have debt growth debt credit is spending power so when you extend credit you are extending spending power and when and that's good for the economy when that credit can be paid back and what it does of course is it pushes asset prices up while levels of debt continue to increase and at that part of the cycle people and everybody sort of conservative about that and it pays back but asset prices when we say pay back you mean the borrowers have the ability to service that debt even as asset prices rise that's right and everybody wins and that's good credit growth and it's a wonderful thing then as you get later in the cycle it's a very self reinforcing cycle because as asset prices go up you have more collateral people are more confident they believe asset prices will continue to rise they become a little bit less careful in terms of that kind of lending they extrapolate that into the future and then and of course as then there's the shadow banking system there's always a shadow banking system really not just a way to knowing that so don't go all the time there's always a shadow banking system there's a shadow banking system now in other words there's a banks and they're regulated and controlled within their parameters and then outside of those banks are other kind of new forms of lending and capital markets and and so on or it could be online given you have different forms and the there's a pressure to develop that outside of the system's shadow banking because the more regulated more control old one doesn't make as much money and so on and so by being at the periphery you can use higher amounts of leverage you can do certain things and so that grows so you develop this shadow banking system which is not regulated and also investors want to go to because they'll give you a bit higher return like I mean even think about how the money market funds develop because by comparison to banks and so on and so that develops outside and it becomes so self reinforcing because everybody makes money at it and also they believe it because the things go up you know everybody things things will go up so so less regulation more risk better return that's right and that's late in the cycle and then what happen and of course what that does is all that demand and liquidity causes rates to come down liquidity go out so like we see in this cycle last cycle we brought interest rates basically down to zero practically down that wasn't good enough so central bank's bought fifteen trillion dollars of assets push the asset prices up push liquidity into the system and so asset prices go up and people extrapolate and the funny thing about it is as you get to later in the cycle when there is more debt and you know that you're coming closer to the end of the cycle there is more of an extrapolating in the market prices of that moving on so if you look at what the discounted growth rates are late in the cycle they've become high they're difficult to meet and then you get the changing you get the tightening of monetary policy tightening and monetary policy has its effect first on asset prices and then it becomes a self-reinforcing effect and that's the normal business cycle a normal sort of debt cycle because debt is credit and credit is buying power and never an economy runs on that then you have this longer term debt cycle which is the accumulation of those other cycles because the world wants to be long the world wants to be leveraged long they want everything to go up so we all do you know central bank's better times assets go up businesses activity and so on and there's a strong desire to push credit and so the limitations that start to encounter is when you get close to zero interest rates like we get zero interest rates that changes the game and when you have and then the the the you need to print money and buy assets that happened in 1932 so 29 to 32 interest rates at zero the central bank's need to buy assets they buy assets they calls that carry to 1937 very similar situation that we've been in and so will we carry that from 2008 and 9 then and then you come into about you know a year year and a half ago we start to tighten the monetary policy we pull that in we have higher rates of death growth that thing goes on and on all over in all countries that same pace of dynamic there's a lot more on that in the book I think we don't have the time to go through let me let me pull you forward to today given that these things are cyclical they repeat they look very similar what parallels would you draw from history to today what what era does today most remind you of what what's the most intriguing aspect of the current set up well the most the most recent period that's analogous of this is is the late 30s let's say if you take 1937 so why do I say that I'd say we're well along in the business cycle the short term debt cycle we're in the seventh or eighth inning of that central banks are tightening monetary policy that's where we are in that cycle similar to then when we have because of the printing of money and because technologies and other reasons we have a greater amount of polarity political polarity I think this is an important important issue and that political polarity causes populism around the world in other words a strong individual to come in get control of that situation while they're having that type of polarity so the word populism for example in developed countries was not widely used until you go back to the 30s until more recently now it's course common common and so we amor also late in the longer term debt cycle meaning if you were to turn down if the economy was to turn down the ability to deal with that with lowering interest rates is very limited and the ability to deal with that with quantitative easing is very limited for a variety of reasons so it's very much like the late 30s you couldn't you can't find a time that in which both of those circumstances exist populism together with that differences wealth gaps and so on and then also we have a situation which is quite similar I think in we have rising a rising power in the form of China let's talk about that because in the 30s you had Italy in Japan and Germany rising to challenge the existing powers how parallel is a growing China today to that to that era I think it's it's not only analogous to that era but there's a concept called the Thucydides trap by the way that in an excellent book by Graham Allison called destined for wars he goes through but it you can study for war well he's dealing with China relationship and I but if another excellent book by the way is Paul Kennedy's of the rise and decline of great powers and if you study history I made a point now to study history over the last 500 years very very carefully what you see is that in the last 500 years there have been 16 times where a great power comes to challenge and existing power a rising power so like you say in Germany in within Europe or Japan within Asia that was the nature of of that beast that means that there's certainly rivalry so with a trade war a comparable power it creates an issue so at 16 previous examples of a rising power 12 of which led to actual shooting Wars so so we're gonna get into a shooting war but I am saying that the history has shown that when you have war after a war you have a dominant power and you have periods of peace because you have a dominant power after World War two the United States was powerful both economically and also it had a monopoly on nuclear power and so as a result of that power the you know the United Nations is in New York the World Bank and the IMF are in Washington DC because it determined that and in history then when you have the rising power to challenge the existing power you have elements of conflict I'm saying I don't want to overdo this but I am saying that we are entering an era in which anybody reads history and policymakers around the world and recognize this that this issue with China rising means that there are naturally going to be conflicts and how do you resolve conflicts in the world market you don't go to a court system there's not a rule of law in the world that becomes dominant so there is more of a rule of power and then and that's dynamic so all I'm saying is if I was to pick you ask me when I was most analogous and I would say that the 1930s where you take that period the late 1930s is an analogous period if you were to say cause effect relationships because how much power do we have in terms of monetary policy how much populism do we have analogous these are important things and then also you know where are we in the economic cycle our asset price is priced and so on so it looks at the most analogous period you can go back to periods and other periods in history and you can find also other analogous types of periods but that's what it looks well well we know how the 1930s ended and it wasn't well with World War two what's the implication are we at risk for a shooting conflict with China or is this gonna take more in the terms of an economic or a competitive I I think that what our circumstances lead to has a lot to do with how we deal with each other given those circumstances in other words you mean us individually you do you mean between President Xi and President Trump maybe between let's history shown that how conflict is handled is that is the big thing so there's a tendency of polarity to cause greater conflict and then hard times to cause even worse conflict in in those cases you you even had in in in Germany in Italy Japan and Spain you had four democracies that chose to be autocracies because of the would somebody get control of the situation because it was fairly the chaos of the conflict it became worse and so there was conflict within countries and there was conflict between countries and I think the real question is you know can you have thoughtful disagreement can you have strong negotiations but with the notion of reaching whether there are compromises or paths that are you know not damaging type of conflicts I don't know this is beyond me but I'm I am saying that I think I can't I can't tell you whether you go to work I think that and that you anymore I would say that it would be to not consider it as a possibility and not be worried about it internal conflict and external conflict would be dangerous hmm in other words I think it's the worry and the attention paid to it and the notion of you know how do we work together how do we work together as a country can is there is there an America that has common values and we're pursuing a common mission and and and what is the how do you deal with that polarity issue you know I mean there are issues in terms of how effectively capitalism is working for everybody mm-hmm it's it's working I think less affecting I'm a capitalist I'm professional capitalist I believe in the system but as it how do you deal with all of those those are education equal education these types of things have become fundamental and they're there they're big challenges anyway we're going before we move from that you were getting away from market so you but you point out in the book that every time there's a financial crisis we seem to run into issues of economic inequality and widening gap widening gap between the haves and have-nots is that part of the machinery is that something that always happens when there's a financial crisis history has shown that in places where there's a big disparity in conditions at the same time as you have an economic downturn there's greater levels of conflict now you could be a poor country in which there's not much difference and you have a downturn and you have less conflict or you could be a rich country you know Switzerland is gonna have less conflict down there because they're not that same element of disparity so history has shown that when there is that and there's a downturn there's more like there's more to argue about interesting we're gonna open this up for questions from the audience but first we're gonna do a speed round five questions in in a minute and then we'll and then we'll do Q&A so let's let's jump right into this tell us the most important thing that people don't know about you most important that I have a great wife for 40-plus years who is a there's a force of nature that I'm crazy about and that is also doing amazing things in her world you mentioned a few books give us your favorite book you would suggest people should read outside of your own I would I would say lessons from history it's 104 pages will Durant the Durant's wrote that who are the great one of the probably the greatest historians broke 5,000 years of five they distilled it down into hundred four pages fabulous I would say here of a thousand faces the life cycles which is great and I was particularly Joseph Campbell and then I would particularly say that now they should read which i think is a masterpiece Paul Kennedy's the rise and decline of great powers so we have some Millennials in the room if a millennial came up to you and said they were interested in a career in finance what sort of advice would you give them well let's see I think the the most important thing is as you're young is to realize that your success comes from knowing how to deal with your not knowing more than it comes from anything you know so how to be open mind how to take in the best of the around there don't think that your be humble take in the best know how to deal with not knowing and then you'll be more successful and what is your favorite philanthropic focus these days for me personally it's two things ocean exploration and particularly microfinance microfinance interesting microfinance and ocean exploration because I basically believe I believe this issue is a big issue and I think that you know the fundamentals are can-can blessings that I've had can I have a family that's a good family take care of me that that's a very important thing and sometimes that's difficult education I was able to go to a good public school you know can you have good public education and then a few bucks to get you going in terms of being able to make decisions I seen on microfinance I'm a supporter of Grameen America from from the beginning for every dollar that I give to that there's $12 in lending that gets paid back in the in the first ten years and it just keeps going round and round and it becomes self financing so I think that's an important area and then I'm you know thrilled about ocean exploration because I think it's our biggest asset and it's and it's thrilling and my final question what do you know about the world of investing today you wish you knew 40 plus years ago when you were beginning I guess it would be the same thing which is I wish I knew how to deal with my not knowing how to how to bring in the best how to deal with that thoughtful disagreement to be radically open-minded to be audacious and going after my goals to try to do great things but to know that I could change my risk-return ratio by being able to raise my confidence by the art of thoughtful disagreement and to diversify effectively my bets so that I could not have anyone that dominates my returns and you know to place those bets with both aggressiveness and humility alright so let's open this up to the audience I know there's a couple of handheld mics running around what questions do we have from the audience anywhere right over here on the corner I told you there was a plan I'm not a plant but I've always wanted to ask you this thank you for thank you for this by the way this has been great you've been one of the most successful funds ever may be the most successful a lot of funds that have had success have eventually either kicked out their investors and run house money or have drastically limited how much outside capital they've taken or had become family offices through the years is that something that you ever considered and why have you completely gone the other way and grown the firm given how successful you've been question we're we're we're there's alpha there's alpha and there's beta so this is going to probably be a little bit of a technical answered your question first but an beta which is what is your strategic asset allocation mix through timeless and universal there's a lot of liquidity a lot of capacity and so those are the only two accounts we've taken alpha we have capped our alpha we I don't think you know what we just don't take in new money that is capped and then the way that we do it is yes we invest a lot in there but there 160 billion dollars of total assets invested and we haven't had the need to not invest for other people so I don't expect it I have no expectation that that would change I saw a hand back in the corner over there I I've been lucky enough to read this book already which is very very entertaining could I just ask you to talk in a little more detail about one of the shortest most punchy sentences in the in the book which was in the end policymakers always print are we confident that they will indeed always print might there be any exceptions ah and go ahead well it just takes how much pain that gets them to bread you know I mean at the end of the day what I'm saying is when you have a debt crisis and it keeps going and it becomes painful you'll print money when you hit zero interest rates then you print that that's been true throughout history and you know there's not a case that I know of that's that that's different for that because it's the better alternative so yeah at the in the end you know when it gets bad enough they Louise bread some a question over here and we'll try and get through as many questions as we can which is by the way an interesting consideration if you take longer term not immediate but you think of what what does that mean longer term in terms of a reserve currency if you start to think where are we in the cycle hmm and and you start to extrapolate what you know what is going to have to be sold you know you know the United States is going to have to sell a lot more debt in the world because of the larger elements and budget deficits you would have to sell more and from a buyer of that that what it what a bond is is a promise to get a lot of currency that's what it is you get currency and so and we're in a Fiat monetary system so if you take you know I don't know five ten fifteen years later I think it'll increasingly be an issue you know what is the currency what is the store hold wealth we're you know those are elements that lurk in the back not immediately as as issues with the on that path of the maintaining power global economic power you know many of the economies have been on stimulus that stimuli that can be considered a little bit of steroids you know you mentioned that for those economies you know to succeed in remaining power they have to keep the growth going so given the current scenario and the trade agreements that we trying to reach do you have an expectation of which economy will fold first you I don't have it you know I think that Europe is is a is an area of conflict and there are issues that exist within Europe but there you know so I I don't know that I have I would say when we have the downturn it'll be a an issue of ain't no continuity cohesiveness I think Europe will have a greater amount of challenge because they don't have a common fiscal policy they don't have unity within the countries they don't have unity between the countries and they have big structural issues so I would say that Europe probably would be the most strained I saw a hand back over there I tend to being from Princeton and global partners question is in the long term what do you think the US market will be in what a long-term US markets where do you see them going i I think us mark is what you mean in terms of size or valuation or in terms of performance I think that we're closer we're not work long-term let's say five or ten years I think we have squeezed a lot out of the US market I think we're an environment that we are going to have low returns going forward for a very very long time because if you look at returns there is the present value effect of lowering interest rates and putting liquidity into the system and that has largely run its course and all assets compete with each other so you could almost look at the yields of those assets what's the yield on cash the yield on cash the yield on bonds and then assets equities and so on the brisk premiums of each of those and then that carries through to private equity carries through the real estate and so on and because so much money has come out and interest rates were squeezed we've brought asset prices up to very high levels in historic context but not relative to cash they haven't gone to such extraordinarily high levels and now in that tightening as we're raising cash rates and the spreads between short-term interest rates and the longer-term expected returns get squeezed that also squeezes those returns so when you're at almost a zero interest rate low in the United States a zero interest rate in Europe and a zero interest rate in Japan which are the major reserve currencies and that that has all been supported by quantitative easing beyond that I think we've squeezed out a lot of assets I think the world by and large is leveraged law meaning assets let's say the buying of debt corporate debt one of the biggest sources of returns on assets was the fact that the interest rate was low relative to the return on equity and so there's been a lot of buybacks a lot of mergers and acquisition in other words by companies buying companies and and bidding that up and that's been a factor and that's also then you had the tax boost because if you lower to corporate tax rates companies are worth more all of those things have pushed those asset prices up to levels where it's difficult to see how you can squeeze that with and so you can't get the rate structure down much and which is the wind to the back and you can't so all of that means I think you've squeezed out a lot so so going forward from here if you're an investor does that mean you just have to prepare for lower expected returns in the future or is there a place where you can I know I think like like crypto I think if you're an average investor I think that you there again there's alpha is beta you have to prepare for lower expected returns in the future because if you take all these obligations I'm talking to some extent about the debt obligations but there are unfunded pension obligations there are also healthcare obligations there's a lot of obligations and essentially a lower real interest rate and therefore lower asset returns assets are held by those who are more rich relative to that I think all of those things are going to pull that you can expect lower returns and you can expect probably more taxes those in a longer term so that's going to be the nature of the beast as far as and how to deal with it I think most people should not be making tactical movements in and out of the markets to produce alpha I think that's difficult so I think that they have to know how to balance there are accounts that's why when I refer to what we call all-weather what's risk parity how do you balance those things back you have to have a balanced portfolio unless you're going to be able to you know concentration is a risky thing and then or you have to be able to time markets and of course that's that's a difficult thing to I saw a bunch of hands up why don't we come down to the front row over here with this woman thank you hi ray so my question is actually more about management because I really think that's been that's what might eat away it was from principles was just what a incredible and strange culture you've built at Bridgewater and I love your advice you know that to deal with not knowing that's such a hard problem for most people people are uncomfortable into meaning I don't know so how do you teach someone who is either resistant to admitting I don't know or worse yet who is not aware of how much he or she doesn't know well one of the best I'm gonna just say play the markets and then you'll need realized how difficult it is to be confident that's a but honestly what happens is to make the transformation you have to explain that through them in a way where let's go through this like if I was to say do you want to know what your weaknesses are do you want to know what I think do you want to know you'd be able to tell me what you think do you want to have disagreement when we're disagreement do you want to have thoughtful disagreement because if there's disagreement there is some chance it may be you that's wrong rather than the other person intellectually you can get people they're not all people but intellectually you can by and large say you're struggling with yourself really because there's this intellectual self that said yeah I'd like to know my weaknesses I know everybody has strengths and weaknesses I can develop I'd like to have that honest relationship and then you will once you intellectually get that you want it then you're going to encounter your emotional barriers to it and emotional barriers are either your ego barrier that you know that you're gonna have to get over or your blind spot barrier I mean in other words by ego barrier means on you somehow feel challenged or whatever you feel bad about not knowing feel good about not knowing and curiosity if I can get you to see that world that way intellectually you'll want it and then the blindness barrier is you can be really curious but mine's different people's minds work differently they see things some people see the big picture some people see details and so on and when you come to see that different people see things differently and you could when you see things through other's eyes that you can see in three dimensions and color rather than seeing in this bone flat dimension black and white and you can do much better if you get them to intellectually understand that and say we're gonna go through this in an in a way where there's trust with his meaningful relationships but you can get trust because you can get to see things for yourself everything's transparent we'll talk about it and so on then you get people to want to be that way but they have to start to realize intellectually that it's really a good way of being it builds better work results of builds better relationships and that's a tremendous power to get to the right answer and also get the rewards of good work and good relationships they have to go through that and then they have to go through the experience and then when you take them through the experiences you have to help them through that experiences because some of that is differ different I think it's also how we teach kids and we teach our in our own environment that you know oh did you get the great grade in the end there and it's all kind of do you know and the life is not like this life when you leave school is not like did you get the great great life starts succeeding when you start to fail when and okay and and then it's the learning that comes from those failures that produces it so I think that whole intellectually getting that being that way is healthy in all of those respects and then once you have that in their mind and they experience it you help them through that that they know they're experiencing and that's what works for us to help people make that transition thank you how about right over here all the way this way right one of my favorite shows is this show called billions and some people have said that the character Bobby Axelrod in his office is somewhat based on you have you ever seen the show so any truth to that I I have no speak to those guys I have no idea whether it's true I I watched three episodes out of curiosity I thought it was entertaining and then I general just didn't have the chance to pursue it so I don't have much day and you're gonna guess the got the writers you read the book Teddy type or Candida book Jackson read that book Worf that book the message I take from that book it's that every great power it's because they're all were leverage to borrow too much debt the message wanted mass you're okay from the pockets now the u.s. really looks like you're deficits getting bigger and bigger do you see where we are that's where we're going and then what's the implication to the currency of the Istana so in the poll can we book over-leveraged is the US over leverage relative to historical companies yeah so there are a number of lessons one of those is and it could take the arc by the way typically is two hundred years two hundred fifty years so the arc is quite flowing and it by the way it starts off with technological advances that raises GDP and then makes them very competitive in the world markets like the Dutch was the reserve currency before the British Empire and ours and then what happens is later in the cycle there is that desire to push it and leverage usually it's a matter of they they become global they have global trade routes when they travel around they're carrying their currency then people then use that currency that's what they pay in that's what they lend in Holland essentially Amsterdam became half of world trade at that time and it became very rich because of those things and they have a world used that reserve currency so there was borrowing and lending and then the cycle goes that of course when you have a reserve currency others want to save in it because what the choice is their local currency and so on and they they believe that that's the thing to save in and when they're saving in it that means that there's borrowing in it by that country and they usually overextend and as a result of overextending they make the they get the debt problems that you're dealing with and then it becomes a challenge I think the United States is following that kind of an arc and we are overextending and that we're operating in this world reserve currency the fiat currency types assisted and so if you were to take you know let's say years in the future I think that the role of the US dollar will diminish that and the returns on u.s. dollars will return us dollar-denominated debt I think will suffer for the reasons that we're talking about here and then I think then you see the emergence of other currencies what those currencies will be exactly how that'll work is an interesting question so I that's a too big of a topic to get into an answer here you know it was brief a couple of minutes but I would say that that becomes an issue and that probably over the next five and ten years we're going to see that play more of a role right ray given in Kennedy's book each of the great powers became global powers by expanding beyond their borders what do you make of the current D globalization that seems to be taking place in the United States and the UK and elsewhere well I think we're - you're talking about there are two different things in those cases there wasn't so much the globalization there was the globalization of those countries right just like the gullible ization of China we're now seeing the one belt one road we're seeing investments all around the world that's that's carrying that forward with that you will see more lending in rem MB you will see more Chinese banks in the world and so on so forth and that will expand very very analogous regarding globalization which is the idea of producing it one place and selling at someplace else in the most efficient ways that there's not much trade barriers so that you can do that or the globalization of capital markets the free flow of money into and out of countries and all of that I think that that's peaked and that we're now in an environment in which we'll go to a you know more of a D globalization kind of environment and because of this somewhat threatening environment the perceived worry that you could have a conflict I think that that creates a force that reinforces the globalization because let's say if you're gonna produce something if you're producing things in China that we need in the United States by way of example there might be a concern about doing that so if you're producing PCs you might say I need pcs here there might be a pressure to go D globalization that sort of feeds on itself I think that we're seeing those kinds of pressures I think the same thing is true that that could happen with capital flows you know if Chinese investors are more concern that you could have a conflict there could be more sanctions of investments in the United States so they're less inclined to invest in the United States and so on so those issues I think I think we're more moving more toward D globalization in almost independent self-sufficiency is probably the more the direction and we have time for one last question let's go right over here I have two questions regarding China the first one is where do you see China's debt situation today and the second being given that China has started to increase the amount of stimulus is that an area that you would potentially increase an investment in in this at this point in time like I said applying the template to China Chinese debt is mostly in their local currency the amount of foreign currency denominated debt for China is very small okay so now you're dealing mostly with an internal issue with also the lenders to China are they within their system and the like I said the capacity to handle the debt crisis by spreading it out in one way or another is quite large they have the expertise to know how to do that to do that spreading it out so I think that when you look at debt cycles on there were four cases in which I know the United States default and had major debt crisis and won't rattle them all off and that they were able to be managed that lesson I gave four sample of the 2,000 excuse me the 1980 82 debt crisis that I was so wrong about was the ability to spread that out and lower interest rates at the same time China has that ability I think everybody's focused and on that and I'm too focused in on that and they're not focused in on their productivity growth and how they're making changes in terms of that productivity growth I think you know like a bad year of growth will be probably twice as good as a good year of growth from us in terms of that whole productivity thing and if you look at indicators of productivity over a period of time quality of education quality of infrastructure those kinds of things you know they have the reasons to continue to have high productivity so to me it looks like one of those cycles their version of a cycle to do a debt restructuring and and a debt organization they're doing it on a proactive basis before the cycle has actually caused a crisis in in most of the other cases like in our financial 2008 financial crisis we had the crisis and then you have reactive they're doing proactive so I'm very I'm not worried about the debt crisis in in China or the debt situation in China and I'm you know I believe that it's gonna be a very good place for long-term investing I think it has to be a important part of everybody's portfolio it's just opening up to foreign investors it's a different kind of place so you have to get to know it but uh you know I'm basically bullish on it I won't get into the particulars of what particular investments I would make there though so that is all we have time for I want to thank ray for being so generous with his time let's give him a nice round of applause Thank You Barry oh my pleasure Decker we're gonna hang around a little bit and sign some books for people is that right sure if you're fantastic so stick around Rael sign some books and thank you so much for coming
Comparing the current economic situation to the 30s is terrifying, though all that really says to me is that currency is going to get inflated, not so much that the market is going to necessarily drop more than normal. A proper hidden rich person tax. Sucks it will hit the middle class and their 401ks too. The last thing this economy needs is the middle class taking it in the ass more than they already are.
Does Ray even trade or is involved in the day-to-day anymore? He's more of a guru these days.
Compared to 30s, our world has now been awash with Keynesian thinking and economists - so active government intervention is a sure thing if the economic situation worsens and widespread unemployment without government support is unlikely to be case?