Bridgewater Associates Founder Ray Dalio Talks Principles for the Economy & Investing

well the debt, money and economic system works. So we'll find out how well it's working, and and you know, answer the question, do the principles for investing change in times of high rates and low certainty? So we have Ray Dalio. I think we have him on video there he is ready to go and to interview him as Bloomberg TV anchor and correspondent Sonali Bossik. So welcome them both to the program. Sonali.

But going back to those five forces that you believe are shaping the global economy, perhaps you could just get us started here on what underpins those five forces and how you're thinking about them today.

office in Greenwich, Connecticut. And so, as you know, I'm a macro, global macro investor, global macro and through it is that many times we look at things that surprise us because they didn't happen in our lifetimes before, but they happened many times in history. And so I'm not a book writer, I don't intend to. I'm a very practical guy who's got a bet on global macro. And what I found was that by studying history, I could make better bets today. And so whenever anything happened that

I didn't recognize, so I went into history. By studying, studying Great Depression, we were regularly which was that happened? Like quantitative easing. So anyway, the fi five things that I saw and studying this five hundred years of history, it's five and and so on, is that these it would repeat. It would happen over over again almost once a lifetime on average. GIBOUTI the years every eighty give

or take twenty five or thirty five years. Of course there's fat ease is mot but interest rates makes credit more available. People have more buying power. That produces debt. Then the debt has to be paid back, and so the economic goes up and down. We're used to the debt cycles. Okay, So and how does that work? And what does it mean when we have the highest and an enormous amount of debt and that you are increasing that debt at a fast pace? What does that mean

or does it mean nothing? So of course it has a big effect on the economy. So that's number one. Number two is when I studied history, and I was prompted by what's happening now is internal order and disorder, particularly conflict. What I saw thought now was that there's populism of the left and populism of the right, and ear record incilable different. This is the amount of since

nineteen hundred. The great studied history I saw of time, and number three is of course the world global great power conflict, conflict internationally where there's no longer just a single dominant power power and so the rise of allah light and access power. Or number three. What I then studied and saw was number four is that having killed more people and toppled more orders, was acts of nature droughts, floods, and pandemics, and climate change is certainly a big, big issue.

At pandemics, of course we sperience one, but also climate change. It costs eight trillion dollars a year is the estimated cost of climate change, and we're seeing it happen around us, and uh, that's our eight percent of world. GD five throughout history is man's inventiveness and technology particularly and so if you see that over time, everything.

so particularly relevant relevant today as we head into the elections cycle.

that you should have? The inflation rate that you'd probably pick, and there's nothing precise about it in terms of the future. You might say two and a half percent, you know, give or take a half a percent. But let's say that plus two percent or one and a half percent gets you about where we are now in bond yields. Then there's the supply demand. But basically, if you were to just say where do bond yields belong? Treasury bond yields,

they're not way out of line. They're not like it used to be when they were very negative in real terms or very positive in real terms, and so you take that that level. But that's the if this but we have an unusual supply demand situation in that the supply is going to come at a lot, and there's globally is there's a big issue with the digesting of

that supply. For two reasons. Besides being so large and the fact that it constitutes such a high percentage of institutional investors portfolios or central banks portfolios, they feel overweighted. There are also political and geopolitical and uncertainty factors that enter into it. Foreign countries worry about holding bonds because it could be sanctioned. Let's say China doesn't want to feel the same way about holding treasury bonds. Others don't

feel the same, and so there are those risks. So there's a supply risk, there's a demand risk, and whenever we have the demand, the supply and demand. One man's debts another man's assets. Whenever you have a lot of debt, that balancing act becomes very different difficult because you have to keep interest rates high enough that the creditor gets in adequate return without having them so high that the debtor gets squeezed. So we're in that position if I

look at then other markets and risk premiums. So first of all, I don't think you're going to get significant cuts in rates. I think the economy buy and large right now itself is in relatively good balance. So if you look at where growth is, where inflation is, and so on right now, and you have a political year, I think the markets are getting ahead of themselves with expecting that, and I think the risks are more on

the upside than the downside. If I take then the marketplace as let's say equity markets, equity markets are relatively attractive against bomb markets, but you can't deal with them in general because there's a very limited portion of them. We all know the concentration in particularly certain types of tech and AI type of related stocks. And if you look at markets as a whole around the world, about half of the markets are not above where they were in twenty twelve, so and so you have a very

concentrated market and that segment is getting more expensive. So for those reasons, I think that we're about at equilibrium while we have this essentially ticking time bomb with the debt situation. And then so then I bring it into the second factor, which is politics. So yeah, so when I look at the that issue, I think there's a very big difference between the candidates. The first question in politics, Well, maybe you don't want me to go there, but I

think politics you're dealing with capitalism versus eight. You're dealing with left and right and varying degrees of left and right. That's going to have implications for tax policy, which you'll have implications economic policy, which we'll have implications on markets. But I'm going I'm answering your question too long, so I'm going to stop.

the differences in economic policies. Trump's economic policies are more classically capitalists in a in a way in which it's nationalist protectionists, lower regulations, more lower taxes for corporations, less wealth taxes or related to those taxes, less targeting for that population, so it's more capitalist. The ability to He makes a very good point on the ability to raise tariffs and what that means it used to be in the old days, tariffs were the main source of revenue.

And I've calculated that roughly speaking, if he went through with his protectionist increases and tariffs he could, he would raise about eight hundred billion dollars a year, which is a significant amount of money. For example, by comparison, the proposed wealth tax and other taxes would be about one hundred twenty five billion, And that would be to then

become very protectionist. And in terms of the taxes that when for the markets, I think about the markets, when you raise taxes, then the prices go down because everybody's looking for the after tax returns, and so the tax policy would be more favorable. And what his idea is is to be much more protectionist, much more nationalists, much more anti regulations. And so for the marketplace, that would be better than the Harris bills. There's much more than

marketplaces that enter into the consideration of which candidates. So I'm not commenting on the candidates. I'm commenting more on which would which would be better or worse for the mar So either would be meaning I think that we're going to have a problem with bonds. I talked about this before the supply of the bonds, the need to monetize those bonds because they're not going to be paid back in hard dollars. Those are the things that I

would be particularly concerned. And then there's capital flows. What also matters to the world that is holding our bonds is how we are Are we operating effectively? And so there's two questions on the political First question is do you have an orderly transfer of power? It seems inconceivable that we're asking and that I would ask that question, But there is some question of whether you would have the acceptance of a loss and an ord orterly transfer

of power. And if you, let's say you do have an orderly transfer of power and we operate on those elements of voting, I think you have irreconcilable differences. They're not just budget and economic differences, but the situation in Washington has become such that they are also social differences, big social differences that have to do with all sorts of issues how the cities are run, and you know, and can a should a ten year old child decide on their sexuality? There are I mean, there are issues

like this abortion, other things become almost irreconcilable differences. So we're starting to see movements not starting, it's been a while, and they could accelerate to the States. So I think you could see very big differences in the States, and you could see situations where we're questioning the rulings of the Supreme Court or the central government dealing with it.

In terms of the politics, I do think both sides it's a win at all costs, and compromises perceived as a weakness, and so I think that we're going to find out in very short order these policies. I don't think the policies have been as clear and or as well known. That may not be as clear and well known, particularly for Kamala Harris because we haven't seen her Pepper policy.

One person's productivity equals one person income, and for the country as a whole, we need productivity. And I believe, as was said earlier, that we need broad based productivity. And I don't see a plan for broad based productivity, but I think that both I think either of those policies are going to end up being more inflationary than is expected.

of the following. You know, how do I I'm a market player. They have a situation in which they have a lot of debt and operating in provinces in which those provinces used to raise their money by selling ill estate and also borrowing money that they can't do anymore, and so they have to provide money for those provinces,

which they will do in the process of doing. But at the same time, those provinces own loans, so there needs to be I've been through these many times, four times in the United States, many times globally, there need

to be two things. There need to be a debt restructuring, which will happen along those lines, and there needs to be a monetary policy in which interest rates are lower than the nominal growth rate, and there's real interest rates are lower, and that there's a disincent to hug money that right now there's almost a pushing on a string because they're

holding that. And what classically the bottoms like our two thousand and eight bottom or any of those major bottoms take place when the assets get very cheap and then you have a reflation policy and they're going to do it. I would say that don't don't watch day by day. You know, today's up, today's down. And of course people nuance that there's something big going on, that they had a debt crisis and they also had a capitalist crisis. Is they are they reflect favorable to capitalism as we

knew it before. I do not believe they are in the same way, so that there are structural changes that are taking place that have to do with the government's desire to retain complete control. So and that affects the economy. So in any case, I think what you're going to see in China is I'd have a I'd be long the action they're going to follow through. There will be bounces. I think you should think the risks are five percent below the bows, and I think you have to pick

the right companies. We've done very, very well in China. But the question is, really I think you're for most of your listeners, what percentage of your portfolio should you have in any place? And I believe the most important thing in your portfolio is if you can have fifteen

good uncorrelated return streams ten to fifteen. That means that as a default, that you start to think, I don't want more than something like seven and a half percent of my risk in any one place, seven maybe ten percent in any one place, And so I think that becomes the issue of diversification. I think that some of the places that are the good places. There are three things that I look at, generally speaking for the good

places internationally. First is their finances. Does the country as a whole and the government or earn more money than it spends. Does it have a country as at home mostly does it have a good income statement in balance sheet and financial stability? Second is how does it operate internally? Is it efficient? Are they operating well? And number three,

are are they at risk of an international war? We have to pay attention to this international war because as we get to that third influence, we have a different world. Now there's a much greater risk. Just like there's a much greater risk of an internal conflict of the sort that we haven't seen, there's a much greater risk of an external conflict of the sort that we haven't seen. So we need diversification and we want to be in places I think where those risks are less. So that's mine take on Chu.

In these cycles where there's a lot of debt and you're growing it, one man's debts are a lot another man's assets, what that means is that you're increasing the supply at a fast rate, and inevitably, like in Japan, the value of the bonds have decreased because interest rates were kept below inflation rates and below nominal growth rates in order to reflate, and the government bought those bonds relative to US bonds over the last fifteen years because

of their debt, have decreased by about ninety percent ninety percent in value relative to holding a US Treasury bond, and Treasury bonds have not been a great investment. So that issue of debt, I do not believe that those bonds will end up being that bonds will end up being a good investment. I do not want to. You know, I have a certain basic amount of diversification, so I have some little bit of bonds, but I would say I think we have an interest rate risk in that bond market.

to you know, pay attention to. When interest rates go down, the prices of things go up and people think it's a better investment rather than it's a worse investment because its yield is going to be less. So when I look at the rate structure, I think that they can't lower it too much otherwise they're going to have the same sort of problem that they had when they had

it too low because you get a zero. As you get closer to you know, a one or one and a half percent or a zero real yield, you're going to have all that problem. It's going to be encouraged to borrow and so on. So right now cash is is you know, so so it's not trash, but it's not you know, after tax returns on that are not very attractive. Equity by and large, as a whole is better, but there is such a concentration of the type of equities you buy.