much, and we've got a very distinguished guests here this morning. Ray Dalio is one of those individuals is not only one of the greatest investors of our time. But he also is a individual who also realized and we're going to discuss it that what Mark Twain said was right. Mark Twain once said, History may not repeat itself, but it rhymes. And Ray, Why don't you start off? You will always been interested in investing. But then in 1971, you're a clerk. The exchange. Nixon goes on TV on Sunday. Tell us what happened then and what you learned. Ah, okay, well. I'm clerking on the floor of the exchange 1971. Um President Nixon. Announces to the world that the United States is the faulting on its obligation to take that paper that they have, which was like checks in the checkbook and give them the gold. Close The gold window closed the gold window. So he defaulted on the obligation to pay the money because. The gold was running down. They didn't have enough and it was like a bankrupt Hmm. So I walk onto the exchanging Floor expecting you went early because you thought, Yeah. I expect that there's going to be a chaos and things would be bad and the stock market went up the most in decades. And I didn't understand it. And that's because that was the first time in the evaluation happened. I never went through one of those. And I studied history. And I found the exact same thing happened on March 5th 1933, except it was with Roosevelt and a radio rather than a TV. And the exact same thing and the stock market went up a lot. For the And so what I learned and I had this repeatedly in my life. That things that surprised me often. Surprised me because they didn't happen in my lifetime. But they have been many times in history. So for example, by studying that 19, the 19 twenties to the 1945 period. I saw that. The same. I understood the nature of the 2008 financial crisis. When We anticipated the 2008 financial crisis because what happens when you have a lot of debt and interest rates at zero? How does that work? And that dynamic is what happened in 2008. And so it's very much emphasized in my mind how in order to understand things that never happened in my lifetime. I have to study history and with three major things, there are three major things. That are now happening in our lifetime. That didn't happen. Other than you have to go back in history. Those three things are We're producing an enormous amount of debt, particularly government debt, but a lot of debt and monetizing that in amounts that you would have to go back to the 1930 to 45 period. Hmm. Number two We have a level of internal conflict. The largest wealth gaps since back then the largest internal conflict and populism of the left and the right in our country, and it warrant a populist is an individual who will not accept losing their win at all costs. So that dynamic is new. You have to go back really, to the thirties around the world or before And the third is the great power conflict. In other words, The rise of a great power in the form of China that is a comparable power in the world and that dynamic so in order to see that I needed to then study past 500 years of history now I know people think it's odd because here I am. I'm just trying to make money in the markets and the practical guide dealing with that, But But we would not understand that and the picture of the world is a very different picture. Then we have grown used to because of the nature of these longer term cycles. So you studied 10 empires for in particular particular relevance to us, the Dutch, the British, the US and China. And you have come to the conclusion that there are these . These empires are great powers go through cycles. And as you say, even though times and circumstances of changed the cycles don't and be prepared, even though it has not happened in your lifetime. Big disruptive things can happen. I think it's not adequate to just assume that because it happened in the past that it's going to happen over the cycles. What the cycles do as they shine light on the cause effect relationships, so let's take a basic dynamic. If you have a financial crisis. And there's we can get into what causes it. At the same time as you have large wealth gaps. And therefore a big disagreements. You are likely to have populism . And if you have those two things coming together It's an explosive combination, it was said in the earlier session, for example, capitalism. What about capitalism? It's becoming unpopular. Now imagine a bad situation with capitalism. And then there's and that's played out through history for good reasons. If you combine that with the external conflict, the war of the extra What When I say war It is a reality. That there are measures of health in an economy is rising and declining. And so when you have that geopolitical conflict, and you put that on top, you have a dangerous set of circumstances. In doing that examination of those Periods. I found also that they were Two other big factors that mattered. Those were, um interestingly. Um acts of nature , droughts, floods and pandemics. Killed more people in toppled more of the civilizations than the first three. I mentioned inventiveness. And then number five is inventiveness, which then takes technology. Um, the technology. So when I look at these, all of these five coming together I think we're going to go through. Like it'll be almost a Like a time warp. That we're going to go through that over the next 5 to 10 years the world is going to be very, very different than it is today. So let's quickly touch on you talk about the rise of power and empire. It peaks and then it declines. Uh walkers picked the Dutch or any empire walk us through. Those kinds of phase and what we can do what we can expect, Okay? An order when I say a world order or domestic order is the way your operating system that you're operating on people and they change another words. 1945 would begin a new World order or in some countries . They change their domestic order. They have a revolution. But there's always a war at the beginning, some kind of conflict at the beginning and the system changes. Okay 1945. We have a war their new winners of the war, Whether that's domestic or internally, there's a war and now the new folks are in charge. And they then determine what's going to happen. They set the rules United States Since 45. We've been the American world Order. The reason the United Nations IMF world banker in what a new the United States would system. The reason the current dollar as the world's reserve currency is because of that they set the rules over that period of time. Then you don't go into a war. You have a period of rebuilding and then usually a period of prosperity. Because nobody wants to go into war again. And then they so you begin this cycle and then that cycle then Take you through very quickly that has higher levels of productivity, and so on basics matter things like education, and when I say education, we'll just for the audience sake raise come up with 18 metrics of measuring health, eight particular very important ones. You mentioned education. I just want you to touch quickly on. It's not just knowledge and learning, but also you talk about character and other aspects to define that for us, that's very important. Uh, education. Of course of the abilities. Do your Reading, rhythm tick and all of that. But it also is character development . In other words, you do you build certain types of people. Who are capable and also understand characters. The ability to get themselves do the difficult things to, um, and to work in a community for a better purpose. That is a fundamental ability. So all of these early stages have those elements and then they have capital markets in the early stages. Always it's a great benefit if you can put resources in the hands of those who are capable and make those things happen. But over that period of time, debt rises relative to GDP, and there's a mindset change from mindset of conservativism. You know those who went through the war. My dad who went through the Depression was not going to be quick and easy speculator in the stock market. So and then they paint get paid, and you get rewarded because the environment Improves , and then you become a world's reserve currency because when you're dominant in the world and trade, let's say the United States had the highest percentage of trade. It was half the world's economy, Half world GDP, and it dominated trade. So through all of these cases, they bring their currency alone. And they ended. That becomes the vehicle. That others want to save it. And when they save in that currency, then, of course they are lending. You money. And so that compounds in other words, one a foreigner buys a bond. What they're doing is lending you money, and so the debt tends to compound over a period of time. And then new powers come along, They learn from the great power. You know, the British learned from the Dutch how to build ships that would take them all around the world, so that learning and that rise in their capabilities produced as its competitors in the world. And so you start to see the new empire becoming more competitive. And also having that those aspects and the British also learned capital markets when William of Orange became King of England and the Bank of England, right each one of these empires, then has the financial center, so the Dutch had the world's financial center. They had the world's Reserve currency. They had the best education system. They had these elements. The first British change first London So Amsterdam was the world stock market financial hub. Then in the British Empire, London was then in the United States Empire of New York was or still is. And then what Now what you're having is a change in that dynamic, Of course, where there's then that competition, the great power confrontation when those things operate in line together, That's important. So now there this is a bigger cycle. Within that bigger cycle. There's a shorter cycle. Okay, Look, we all know what the classic business short term debt cycle is because There have been 12 since 1945. We're now 12.5 cycles into them. They're the ones you know you have a recession. High unemployment, low low inflation , central banks produce a lot of money and credit. You have that improvement productivity. It's the sweet spot of the cycle. Then you get past the sweet spot . You produce inflation, Then they tighten monetary policy. And then, with the tightening monetary policy, they pulled the money and then things slow up, and then you have the downturn and you do that over and over again. So we know where we are in this cycle where you are in 12.5 cycles into this. We're about halfway through this cycle . Where so we're in the part of the cycle where the central banks have tightened monetary policy. Probably close to enough , But maybe, but not in my opinion, not that term structure of interest rates has too much of it, easing built into it, where there will need to be interest rates will need to stay higher for a longer period of time putting that in perspective, let's say If we use some That with that level of tightness Um. You're you have to have a real rate. Which is high enough for the creditor. Without having a real rate that's too high for the debtor. So if you take about a 1% real rate Which is Um, I would say that Rule of the unmet. It should be in that. Probably that vicinity 1% real right. And then you take a core you're going to. If you're lucky you get the 3.5% probably 4% inflation. I think it's going to be sticky and it's gonna come down very slowly in an orderly, cyclical fashion. Then you're looking at a 4.5 or 5% interest rate. You have that close to that in the short end of the yield curve and then but you have a big build, and you have a bond yield, which seems too low . And so I think you're going to keep relatively high interest rates. That is, if there's a normal supply to mend condition. If more, but there's also a risk. Okay What's the risk of the two? Just let me get this last punchline point out because I think it's important. Um What is the risk of too much that? How does that work? Well um mechanistic Lee, the more debt you have the more debt service. You have to pay, and it starts to encroach on your other spending, like in Singapore. 20% of the income of the government comes from net savings that they haven't interns. United States it's about 20% goes the other way. We have to pay it. That increased but the big risk and the and the risk that we have to watch out for is when the holder of that debt doesn't want to hold that debt anymore, or let's say the supply demand balance. So for example, right now we have to sell a lot of debt. And the holders of that debt. Globally are holding a lot of government debt, so the bottom line is when the potential buyers decide they don't want to buy. Government has two choices . Central Bank either raised the interest rate to bring the buyers in which is going to hurt the domestic economy or print the money. They always go for printing the money. Now in terms of in these metrics that you have the us you'd make the case is a declining power. China is a rising power. But you have spent a lot of time in China have spent a lot of time talking to leaders there and around the world. You said you believe that U. S and China on the brink of war and beyond the ability to speak beyond the ability to speak is crucial because in the Soviet Union Cold War days, we had mechanisms in place. Where if something went wrong, you could make sure this thing didn't spin out of control. There's almost did in 1962. Today In terms of two kinds of wars. One is economic sanctions , war and the military and the economic sanctions. War We tend to think. Oh well, that's just few tariffs and things like that. Talk about how this can spin out of control, starting with Micron technology with China's threatened with destruction, let me first make clear. I'm just describing what has happened. The relative position of the United States says declined. The relative situation in China has risen. They are now comparable powers. I am not saying that the Chinese are going to win over the Americans or anything like that. I'm just trying. I don't know how how this game is there going to be comparable powers in a conflict and that those conflicts are multidimensional so that they're they're about Taiwan chips Russia Capital Red Lines and red Lines. We are now at a spot in that relationship. Where they're at close to each other's red lines. And they recognize that. Almost talking is counterproductive because there's so much blaming and trying to untangle how we got here, that it talking so they are at the red lines there at the Brinks and talking is a problem. Both sides are very concerned about the possibility of war. Ah different types of war. Economic war. Certainly chips, war and economic war is a very big, um, risk. And that that is happening at a time of that probably conditions might get more contentious because of the political season. We're in. So in other words, between now and two years from now, when the new administration comes in You're going to have. There are a lot of hawks that want to push those lines to. And so there's that that edge. I'm saying simply, that that is a highly risky situation and on many things, you will see a tough game being played because there's in world affairs. There's not a judge and jury that you plead your case to And resolution. It's purely a matter of brinksmanship and pushing each other so that that issue is an important issue. It's a it's an existential economic issue. I mean, if we start to think, where do where would a chips war lead, or where? Those even in good times. It's a big issue because of the fact that supply line changes were no longer in a world In which producing most efficiently wherever it can be done is the primary goal. It's instead. Self sufficiency to prepare for war and that has an inflationary consequences has an economic consequence. So we're kind of very close to that. I want to just in closing, because I know we're about to run out. I just want to emphasize That something particularly that Mary Erdoes said, Um I think when you throw in the new technologies, um Um. I'm deeply involved with, um Generative AI Technologies and so on. And if you move that forward and you start to the world is going to change in ways that we cannot anticipate and going to be. It's going to be a different world. And the emphasis of a few points that I were made and I want to reemphasize is a few things first. Um that diversification. To understand how you can diversify well without reducing your returns. Because if you buy equally good things that are not correlated, and then you can do that. You can reduce your return your risks by about 80% If you can know how to do that so diversification and knowing how to do that, and looking globally in terms of the differences is very, very important. Um, I would also say that I think the new toxic debt is government debt. So if we look at that, and where we're looking at, what are the bank? What's the real problem with the bank that the problem with the banks is the same as the problem with the Federal Reserve if the Federal Reserve was a commercial bank, it would be in the same position because it's lost a lot of money and its bonds and it's sort of liabilities. And that's true in Europe. That's true around the world. So um, so these are certain themes. I know we're running at them were over time, So I just want to make sure I got those things, huh? Well when you make a study history as you have and made so much created wealth for clients, you have earned extra time and you can go economic principles dot com to get raise a constant insights award, But I'm not sure I think it's can't. But anyway, we're not. I'm not your probably right to argue with you. Um ah. You're on the Forbes list. I'm not so but but but But but in turn terms of the investing David talks about quads, you can look it up. Whether it's a high inflation, low inflation, high growth, low growth If you go around the quads that you talk about, you can have an all weather portfolio, which has been one of the hallmarks. But also to In terms of the future. While there's a very real chance of war, economic war or Bad military war. It's not as David . I mean, Ray makes very clear in his riding is not inevitable , but patterns of the passion caution you because it hasn't happened before. It does not mean it won't happen. Yeah, just an echoing that. In part of the book I wrote Read the From 1900 to 1950 what it was like. And just make some comparisons today and That might have implications for the future that just trying to pass that along. S
