Ray Dalio on Changing World Order: Current Economic & Geopolitical Challenges | #𝐒𝐀𝐋𝐓𝐍𝐘

[Music] it is a privilege for me to be here with ray dalio who needs no real introduction at all to this room i'm hoping over the next 40 minutes we can spend some time trying to make sense of where we are in the quote-unquote real economy but also in the markets and i think one of the things that you've done so uniquely especially over the last 18 months during this pandemic was really spend a lot of time studying and thinking about the history of markets um and economies literally not just in the most recent period but over 500 years as we've discussed um and you've also thought a lot about the quote unquote economic machine a sort of concept that you've developed so help us understand where you think we are in the in the arc if you will well maybe i'll just briefly describe the ark and then i'll tell you where i think we are um yeah so about uh two years ago i saw three things happening that did not happen in my lifetime before but happened in the 1930-45 period and there are things i really want to talk about then we had the fourth thing a pandemic they all happened before so uh the first is um the going to zero interest rates the creation of a lot of debt and the printing of a lot of money to monetize that debt and seeing the risk that cycle happen um that happened 1933 that happened in 2008 very interesting how does that money flow matter to markets and everything the second is [Music] large wealth and opportunity gaps causing a great internal conflict of value so if i looked at the statistics i like to look at statistics like you say the mechanics i saw not only the wealth gap but the political gap and all of that operating at a and a level and it has an effect right it has an effect on tax policy it has an effect on that but i had to go back to the 1930s and actually before to see such gaps and the third was the rise of a great power to challenge an existing great power the united states china rising to challenge the united states in that changing world order because a world order is a system for operating our last one began in 1945 at the end of world war ii there's a war and then there's a new system and it was the american system and that's being challenged and those three things individually and collectively did not happen before that and then when i studied it i i wanted to study the rise in declines not only of empires but reserve currencies because we're printing a lot of money and what does that mean and so i needed to study the dutch the british and um the american and that cycle and what i saw was the same thing would happen over and over again and um if you want me i'll take a minute on what that looks like let's do it directly what happened what did you learn well um i learned um that when there is bad finances and we have bad finances right now we bad finances i mean if you're spending more than you're earning and you have a balance sheet that has a liabilities more liabilities than it has assets um that's bad finances you can fill that in by printing of money and continue to create debt but that's not sound finances central banks have the ability to do that and when they do that that's a problem so when you have let's say bad finances and by the way that's happened repeatedly in history we can see how that's worked and the consequences of it and we have to understand the mechanics of it so bad finance when you have bad finances and you have large internal conflicts that is a risky situation particularly if you have a downturn because those the rich and the poor and so on the left and the right those with different ideologies have greater internal conflict and the internal conflict has a risk politically and it has a risk in terms of the effectiveness when people are working well together to be productive that's great but if you have bad finances and you have large gaps and you have the rise of a great power challenging an existing great power and those things happen simultaneously that's a risky set of circumstances so i can get into the statistics of that you know how many times of uh rising power so you take that and and and so and then how what are the mechanics of that so for example um so what does it mean to markets um so for example if you look at every one of those movements when they immediately print money and do that you want to buy financial assets i'll give just take another minute a lesson that i learned i was clerking on the floor of the new york stock exchange and um in 1971 this was year after college and before business school on a summer job and and it was august 1971 i followed the markets a lot and um president nixon uh on august 15 1971 gets on the television and he says um basically you know that monetary system that we used to have and what money was um we're not going to have that anymore it will not not be you can't get the gold at that time it used to be that money was like checks in a checkbook they had no value they would just get you the gold and then you'd have the gold and we're not going to do that anymore and i figured okay now i walk on the floor of the new york stock exchange the next morning got there early figure we're going to have some sort of pan ammonium and the pandemonium that we had i thought it was a crisis and the pandemonium had was the stock market up um the most in decades and i went back and i didn't understand that and i went back and i found out that the exact same thing happened on march 5th 1933 it wasn't on tv it was on the radio and roosevelt did the same thing and the stock market and gold and all of those assets went up again for the exact same mechanical reason so i learned two things i learned first of all that i better study things that didn't happen in my lifetime before because they might happen again that's what helped us anticipate the 2008 financial crisis but i also learned that dynamic that when you print money and create that that's a hell of a stimulant but it also means it means you don't want cash it means that you want those other assets so that dynamic is what's is the nature of what we're going through do you want financial assets though you want um when we it depends what financial assets are different things you don't want bonds cash is a financial asset you don't want to connect cash you don't want a bond it's going to have a negative real return like who wants bonds you're going to have a negative real return you want that okay and you're not probably going to get the price appreciation through the bond in two ways you can make money it goes up or it gives you a good yield it's not going to give you a good yield negative real yield and it's not going to go up much more when you get down to that so you don't want the bonds stocks are have an asset they're they're a reflation asset through throughout history so there are things that you want you want stocks you want uh gold you want um tangible assets you want real estate you want the things that are basically anti-money and you particularly want those when there's a large portfolio of those think about it right now through history what we accumulate are a lot of financial assets and the only purpose of those financial assets is to take those and convert them into buying things and when there's a lot of financial assets and we produce a lot more financial assets then they're all claims for those other things and they're prom and if you just went through the calculations and you were to say okay how much financial assets do you have relative to real assets or how much are there there's too many relative to real assets and so you want to get into those things that have more of those intrinsic values uh a company is so and that those are the throughout history you see let me throw a new wrinkle in which was not in any of the history though and i wonder we can even ask this room how many people in this room are trying are holding some form of cryptocurrency right now and i know you own some bitcoin how many actually let's do that how many people here uh have some any cryptocurrency at all what do you think that is 80 it's like a lot okay so that crypto arguably wouldn't have been a tangible asset historically where does that fit in the uh realm of this yeah it's uh um crypto is um like a lot of um historic currencies um there are some that have intrinsic value it doesn't have intrinsic value but it has a limited supply and as long as it's accepted for payments and so on and has a limited supply if the demand grows more than the supply grows it goes up and it serves that purpose and it's and and it's done a heck of a job of programming stood the test of time meaning it hasn't been hacked and so on um and so um it's a viable alternative and i think that probably i think most of the people there are different reasons for owning it but i think most of the people would say is it a storehold of wealth that's limited in supply and maybe not controlled and is it a viable alternative to a fiat currency i mean like don't trust the fiat currency so how does it compare the fiat currency it and so is it an alternative gold kind of thing so there's probably an attraction in there and it has an attraction for me in there but then there's the question of it and you know like how many in in the audience let's ask the question how many in the audience have uh some in gold i'm curious let's do that how many people have some gold a lesser percent lesser percent i'm gonna go okay 50 or less sporty even maybe yeah so that becomes an interesting question so like for me um i um i don't have a huge amount but i have more gold than i have crypto okay and so it's and and my basic thing is rather than make it crypto or around them make it bitcoin or or the other um i would say diversification is a good thing we could get into the merits of the one versus the other i don't know where you want to go with this sure but um if but in any case like um let me tell you that either one of those you know crypto can go like that meaning uh governments can regulate it outlawed or it can be traced and certain other things so you know uh diversification and part of the argument though on crypto when it comes to the regulatory regime is or would be that it's already it's already reached escape velocity that that it's at such it's at a level now that there's there's so much value around the globe that it'll be almost impossible to shut down it's a little bit like uber i oftentimes think about it like uber because when uber started people thought regulators were going to shut it down but they grew so fast so quickly that all of a sudden regulars didn't really have a choice they just had to figure out a way to deal with it yeah okay but there are a couple of things in that first of all um no i think that um um it's easier to deal with now um if you didn't let's step back governments don't want alternative currencies okay because and throughout history we see that they want control over the currencies for all the various things especially when you have a successful currency but if you have a lousy currency that's what i mean well i mean or there are um since 1700 there have been about 750 currencies only 20 of those are still in existence and all of those have been significantly devalued at one point in another okay so we don't have to pick el salvador we can pick the german we could we can go through history and pick the most credible ones it's the norm right and so um in any case what i'm saying is that you don't want if you're holding a currency or it's an awfully good way to print money and get the money around which is going to the value because what is a debt that you're holding currency equals a debt right and it means that you receive something and now you have no interest rate on it and they're producing a lot of it right okay and so it's the way out it's ultimately the way out because when if you keep it hard if you keep it hard you have a big debt crisis and if you don't keep it hard you don't keep it hard so history has always been the devaluation so there's a point of that and they want that right because if you look at history um if they don't have that but think about that dilemma just the fact that we're talking about the possibility of that dilemma means that you're going to want something else and i don't see why one has to be there's not even enough choices of those types of things so we we could take uh bitcoin or you could take older you could take um let's say the advantage of both of those is their money if you easily transfer it it's very difficult different than real estate let's say or equities right now equities are pretty in a sense pretty poor pretty well okay and that's real value okay so it it has the same attributes as long as it's going to be real value and it's and when inflation changes and so on its value can change along those lines so equities are a very viable alternative they're a good alternative but you think of this category of things that can't be devalued so their equity bull market that we're having is an extension of that it's the same thing don't differentiate it what what did you think happened we distribute a lot more credit and a lot more money everybody's there's a flow of funds there's a mechanics to it you have a lot more money you get the money and then you buy things an investor who gets the money when there's an intervention when the central bank buys they buy a bond from an investor and the investor gets cash and what do they do they invest it someplace else and all through that process there's the mechanical part of that and that's what you're getting so i don't think we even have to split hairs in terms of the one or another just to make sure you have enough of a diversified portfolio of that and know what kind of an environment we're in and we're talking now about the money and credit part of that we also should be talking about the wealth gap part of that because that affects it because there has to be a transfer of wealth okay so that's going to affect investors how that transferred taxes and those things are going to take place and then you have to take a global view of these things which includes china and other country countries so it's all of those things i want to get into the second two pillars in just a moment but i have two just two two follow-ups one when we talk about escape velocity of a bitcoin one things you have also said though is that if it becomes too successful governments will you believe ultimately shut it down and so there therefore if you're right you want to own it to a certain point of success and you don't want to own it after that to find that kathy woods who was on the stage with me on monday night said that she believes i believe her base case five years from now is that bitcoin will be worth 10 times what it is today see i don't that doesn't make any sense to me because of the following reason like i'm no expert in this but look there is approximately let's say um if you look uh use their gold is an example and let's uh and you make the comparison there there's a certain amount of reflation turned amount of those kinds of things going up to make a price increase and then there's a certain market share that gold will have that bitcoin will have and other things might have if roughly speaking there's about um if you take gold and you take central banks ownership of gold i don't think um they're going to be owned by central banks they're not going to own debt going for various reasons i don't believe so so but if you take jewelry out of it and central banks there's about five trillion dollars in gold right if you take it for bitcoin there's a bit less than a trillion dollars right so if you were to say i'm just going to have a portfolio of those two things right now about 20 of that portfolio if you were to say the supply is there and you say well what's the right amount of that mix that's going to be something like okay it's 20 and given the volatility and the total attribute i don't imagine that the market share is going to be much greater and so the question is does that market share rise or where do you think the market share is going to go of that because so you said what i'm saying because if it was to go like 10 times as much then what will happen is somehow bitcoin not only will have to be greater than the total amount of money that's held in that kind of non-fiat currency kind of thing which which seems like a stretch too far in terms of that but it could happen if you have a problem with fiat currency as and as a percentage of one's own portfolio that those things rise more perhaps but it's very much a stretch and so when i'm looking at it i'm saying let let's just i think shouldn't we all pay attention to those not fiat currencies or those things where you can take them from one place to another and that they're accepted around the world and that they're not debt and so on so it's that category that i think is a more interesting conversation than and and do you have a diversified portfolio of those things and what is good balance that's the more interesting question i think and then the other question i think relates to where we are in the in the in the cycle if you will given that you've now studied these these periods how difficult is it to actually ascertain where we actually are and also how it ends usually leverage can be a great thing until it's not and we are now in another levered moment the question is where we are in that moment well we we know we are in uh the late cycle phase of the the cycle in which um there's a lot there's a lot you and i probably would have said that four years ago oh yeah no but that's that's and we're just advancing in that i don't mean much much of the differences in that type of thing and you could tell the increment all i'm saying is there are three there's a cycle there are three types of monetary policy you can almost judge it there's first um monetary policy when i call it interest rate policy you move the interest rates up and down then when you hit zero interest rate you don't have that anymore the next policy that you have is um what i call monetary policy 2 which is also called quantitative easing where a central bank buys bonds from investors and then it goes in the hands of investors the money goes to other investments and investments go up and those who have investments do well and so on but it doesn't trickle down in the same way okay that's monetary policy we're number two right now now we're in number three right now monetary policy three is when there needs to be a redistribution of wealth and the way that works is that only the federal government can determine where the money goes yet the federal government gets to determine how much i tax and where i distribute it and the central bank gets to determine how much there is of it how much money there is of it and so when the central bank works together with the central government to direct money to give it to others in that way which increasingly then bypasses investors to some extent and gets money into the checks that we sent the money around to to be able and so we're in monetary policy three where there's a coordination of monetary and fiscal policy to redistribute wealth to redistribute money in that way we're in that kind of monetary policy three and then you could judge the size of the deficits and how they're being met and so the debt problem is not a debt problem like we're not going to pay off those debts because uh at the end of the day they don't choose to pay them they don't choose to have a debt crisis at the end of the day it's just a question of how long it takes them to print more money to monetize those things so in 1929 to 32 um 32 was when they printed the money then stocks went up and everything went up um 1929 to 32 took a long time 2008 took a whole lot a lot less time one one took two and a half years one took um you know maybe nine months this time took like that and so the next time along those lines that's what you're going to experience in that then you have that kind of devaluation so you can see that that's where we are in the cycle each of the each of the stimulants has been greater than the one before it so if you start in let's say 1980 and every interest rate increase and every interest rate decrease has brought the interest rates to a lower level every peak every trough and interest rates down till you hit zero and then when you hit zero every qe has been larger than the one is there a way out of the cycle then well it's it's like asking what do you do with um what do you do with the debts the mechanics of it is yes the mechanics of it is have an interest rate that is below the nominal growth rate and below the inflation rate so you must have an interest rate that way because think of it this way if nominal growth in the economy in other words inflation plus real growth let's say it was three and three or two and two and that's four or five or six um and you kept interest rates at zero then you are going to um reduce your debt to gdp right because you reduce debt service so if you look at the times that it's been most stretched in history world war the world wars would be than the most if you look at the amount of debt creation and the monetization you would go back into the 30 to 45 period and you would see how that operates so they hold the interest rate down because what you have is the central bank becomes the owner and the central bank when they become the buyer they can tolerate whatever the central bank wants if the free market goes away and the central bank wants it that they could hold it and they hold that interest rate while inflation rate rises and then what you do is you see your loss of purchasing power such as we're seeing if you hold it in debt and that's one of the ways you deal with that let's talk about the second pillar for a second because one of the things you also talk about is the politics of this moment and the politics that you've seen historically especially when we've seen the kind of inequality that we have and what it ultimately does to taxes and therefore what it ultimately does to the economy so lay it out for us yeah um well uh the issue is really most importantly um a conflict in a productivity issue um if you have conflict that becomes dysfunctional in and operating historically sometimes that's the case do you think we're at that point is this just fine is this what despite i think i i think we're not no no no we're not at that point okay uh we are going there we are drifting there okay that the conflict so there's a certain amount of and that has a political implication um and so there's then there's a range of possibilities um but i think that the system is going to change greatly because there are irreconcilable differences in some way about how do you deal with the money wealth distribution kind of thing and there's a battle and right now that battle has been diminished because a lot of people have received checks and it's not as contentious if all the money goes and we're all now feeling pretty good it's okay it's one that happens in 2022 and 2024 if we start to look at 2022 midterm elections or 2024 and that's also the part of the cycle where um you know it's it's so easy when you give it a good stimulant and everybody's high and it's great okay it's a different thing when that wears off and that stimulant will wear off and it'll produce some other consequences and you get father church 2022 and 2024 and so on it's going to be a somewhat different picture okay a little bit more and then the politics around that in terms of the polarity depends how bad it gets for example there's talk about the possibility that there's talk about the possibility that elections would be contested and if they're if you can't and if you can't go by the rules of how do you who gets to sit in the seat you have to resolve that kind of thing then you take the 24 election now in the meantime you're also having other things going on in the world so for example china in this case is having its political changes in november it's going to have its political changes not probably xi but the politburo and the other political jobs and so on those things are going on and so that clock continues to move and as we start to imagine it over two three four five years as investors we should think about we we should think about beyond the immediate we have to think two three four five years ahead i think you've long argued uh that the critics of china misunderstand china especially i think the investor class recently that has looked at a lot of the regulatory crackdown and said you know we can't be in here we can't be here anymore yeah i i think i've been going to china since 1920 uh since 1984 and for the first 20 years of going there i didn't do any business i didn't have it i went there because i was curious in them because i liked the people and then it was an exciting place in terms of the things that were happening and i got to know from the lowliest people to other people senior people um what the what the thing is and um and i think it's not understood and it's understandably not understood meaning um i think you have to answer the qu the riddle uh if you unders if you could answer this riddle you understand china the riddle is um how is it possible for a communist uh marxist um economy right to be capitalist have the second largest capitalist produce billionaires and create the capital markets that's not a new thing that's been something going on since 1978 so you better have resolved that and if you can't resolve that and understand why that is then you don't understand china if you can't give the answer to that riddle and the answer to that riddle was made clear by deng xiaoping and and so on when in 1978 um and like he said um it doesn't matter if it's a white cat or a black cat just as long as it catches mice and what he means by that is get rich he said also it's glorious to be rich to raise the living standards and then to redistribute wealth simultaneously to make them both operate together and it's called and and if you look at marxism it's dialectical materialism what is dialectical materialism dialectical means it's two things that seem inconsistent and are at odds and when they are in that produces product that produces progress and so what it means is okay here it is uh marxism and capitalism and then they're very practical people and so to understand that it is not what your you know it's not your grandfather's communism in that same way it's something that's been going on there and so where it is in terms of that evolution if you take this that any measures of capitalism in china and you and i use a lot of measures um how much is wealth distribution what are the tax rates and so on so forth and you take capitalism under equal measures across countries what you have is about the same amount of capitalism going on in china as you have in the united states and way more than is going on in europe or is going on in other places so i think it's important to understand them in other words what would they say and what are they doing and i think that you're getting a move toward their number of things going on we could talk about data management and so on depending on how long you want to talk about it but one of the things is the broadening of the benefits the move to the left and the move to the left is like a move to the left here so if you were to look at let's say their move to the left i don't think is going to be a bernie sanders move to the left or those types of things but there is a movement to redistribute or to deal with that kind of issue in various ways without knocking that over so don't mistake it for um what might be a return to something else certainly unto xi because if you follow she and you follow the policy and you know the policymakers around she that's not what's happening now you also have to understand that there's a whole different way about regulation so um one of the uh one of the leaders described it as um that in in the united states he was saying this not ideologically just matter-of-factly um is saying in the united states it's a country of individuals and individualism and that's a paramount importance and so it's a bottom-up type of place in china it's an extension of the family and the hierarchy and it goes back to confusion and it's very much a top-down type of thing and so it's much more regulated and so when you see things like let's say do they regulate um how much time your kids will be on video games we would say um okay that's really a parental decision a lot of people would some parents might say i i would rather the government do that than me try to have a struggle with my kids all the time but anyway so you have to understand the approaches different people can have different approaches but that's basically what's going on and then the question is when i'm thinking as an investor i i admire uh their thinking the quality of the thinking there are the choices that each makes and there are pros and cons the main thing is that each country our country is it going to be strong is it going to be capable and there are basics of what that means do you educate your children well is there civil behavior and so on that's what we have to focus on i think if we have a diversification of a portfolio it's dangerous to be in any one place you want a certain chips there certain ships there and some other chips what do you say what do you say to the china critics who say china represents an almost existential threat to the united states and that actually anyone here in the united states shouldn't be doing anything to help them get to that place well i i think that um china could be an existential threat to the united states and the united states could be an existential threat to china and so on and i think that the more we move in that direction and don't understand and don't have contact and don't have into relationships the more likely that's going to be an existential risk um we only have about five more minutes and i wanted to actually talk to you a little personally because one of the things that i've been fascinated about during this pandemic and even before then you had published a book called principles which i've written about but in addition to that book and we've talked a lot about the culture inside bridgewater and um this sort of idea of radical transparency you've tried to take that radical transparency concept and bring it outside the four walls of bridgewater to the public if you will there's software you can now anybody in the room can go do it where some of the same technology that you use inside bridgewater is now available to the public to use on zooms to effectively rate or judge other people on the zooms i'm curious in the in the sort of post-covered world i don't know if hopefully we're past or getting past it what what the last uh 18 months has made you think about in terms of that culture that that you've been trying to create and what it means elsewhere well i'm i'm at a stage in my life i'm 72 years old i'm in a stage of my life where my goal is not anymore to be more successful myself but just to try to pass along and then i'll do that for a year or two and then i'm done i'm basically um you're done in a year or two yeah i mean basically what are you doing in a year or two um go quiet do the things i like to do and and so on i think that there's a life arc you know um there's a natural with transitions in the first third of your life you're dependent on unders you're going to school your your parents are there second phase of your life others are dependent on you you work you try to be successful and then the third phase of your life the natural thing is to help other people being successful and try to pass along the things that are worthwhile and i'm in that particular transition phase and um so one of the things was that um that our culture which is um say it in one sentence it's a long sentence an idea meritocracy in other words the best ideas went out without hierarchy an idea meritocracy in which the goals are meaningful work and meaningful relationships through radical truthfulness and radical transparency and that's that's worked for me in other words if you can be honest with people and you realize that there's there's that both the great relationships but you can be truthful radically truthful like you could talk about the things in that way then you can um know what's true because if you don't know what's true in everybody's head and you have the politics not only is that inefficient but it also undermines trust if you can have that trust and you can also use data collect data so that you could speak up about what's important to you and you can collect the data that helps you up make an idea of meritocracy anyway there was those things that work i won't go explain at all and so what i wanted to do was to pass that along and so yes i've passed along two things um on zoom there's now the dot collector a way that people can um pass along with their thoughts and also collect information data so that let's say if you go into an annual review rather than an annual review you have a daily review and so on and you learn and bosses should uh be doing that all the time with their people in an honest basis or vice versa people who work for somebody should do it with their bosses i think um that process has worked for me and i believe it works very well and then i put out um also i found that personality profile tests are really great you know things like myers-briggs and so on so about 20 years ago i started doing these i had four or five that i would use and then i decided i wanted to make one and i wanted to that sim that's a simpler cast all the information so on so i put out one called principles you it's available for everybody it helps people understand themselves and others you took it i did your wife took it a lot of people take it and so on i just made it available for everybody for free and then there's a component of that principles you if you want to take it it's online and then there's a part of um that that also if you put in yours with somebody else's or even your whole teams it'll tell you about uh the group dynamic principles us and that's why you know like knowing what you're like and knowing what others are like allows people to play to their strengths and avoid their weaknesses rather than to try to cover them up with politics what do you think of uh zoom life and the reason i ask is because i know you tried to create a specific unique culture at bridgewater how much easier or harder you think it is i mean maybe it's actually easier because you you got you used to always film film meetings that was always part of it now we all film our meetings um well i think what you know i don't know that i have unique reviews but i do think that um there's there's pros and cons and that it's a great alternative the capacity to then make conscious choices of whether you're doing things on zoom and then do you collect data or not and that that's a real benefit time benefits and so on so i think we're going to a world where then the in person will be part of that but it'll be more tailored to in person and we'll now have a more tailored mix for everybody and they'll pick their tailored mix and the other thing that you have coming up is this new book that you have coming up in november this is the order oh okay that's the um yeah you can order it if you want it's um you can order it um and that's the study that i needed to do to understand where we were and then because it was completed as a study and i want to pass things along uh that's it the changing world order and uh it's a study of last 500 years it brings it right up to the moment and it shows the patterns ray dallah everybody thank you thank you for the conversation appreciate it thank you

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Keywords: Ray Dalio, bridgewater, bridgewater associates, andrew ross sorkin, Changing World Order, economics, economy, geopolitics, SALT, SALTNY, SALT NY, Investing, Finance, Politics, Tech, Technology, Business, Crypto, Bitcoin, btc, Cryptocurrency, NFT, blockchain, Financial Education, Venture Capital, VC, Leaders, Leadership, News, SALT Conference, SALT 2021, SkyBridge, Scaramucci, Anthony Scaramucci

Id: CVWAxZU89Ys

Length: 40min 8sec (2408 seconds)

Published: Wed Sep 29 2021