Ray Dalio Live (Replay) with Barry Ritholtz (Podcast)

My guest was Ray Dalio of Bridgewater and dear Lord, he was just spectacular. He knows exactly what he thinks. Uh. He understands his own philosophy, and he knows how to articulate it in a way with tremendous clarity and transparency. Uh. He spoke for about an hour, or at least two questions for me for about an hour. Then we opened it up to the audience and we did another thirty minutes of Q and A. And I gotta give Ray

huge kudos. He sat and signed a copy of his book for every single person who was in the audience that were over a hundred people there. He didn't have to do that. It was just charming and delightful. I could ramble about how much fun that day was. But rather than listen to me, Babel, why don't we simply say the premier episode of Masters in Business Live with Bridgewaters Ray Dalio, This is Masters in Business with Barry

Ridholts on Bloomberg Radio. So 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 going to 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 value is. But let me just give you a quick version of

his background. He is the founder, co chairman and co c i oh of Bridgewater Associates the world's largest hedge fund, managing over a hundred and sixty billion dollars in assets for institutional clients. According to Forbes, Bridgewater has made more money for their clients than any other funds in history. Uh 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 dally Out, thank you for being our first guest on Masters in Business Live. Let's start with the reboot of Bridgewater, which you describe in great detail in the first book, which came about after a not so great two for you. In fact, you just subscribe it as disastrous. What happened in too well, you know, I I formed Bridgater in seventy two, is like seven years later. That's the reboot. Yeah,

that's the reboot, right, um. And I had in I had calculated that America, that American banks had went way more money to emerging countries in those countries were gonna pay back and it was about two of their bank capital, and so we were going to have a big banking crisis. And I thought that was going to happen, and I

got a lot of attention for for that, um. And then in August two, Mexico defaulted and there was a sequence of other defaults and there was a big dead crisis, and I thought that that was going to cause an economic crisis. And I couldn't have been more wrong. That was the exact bottom of the stock market when Mexico defaulted.

And anyway, I received tension. At the time, I was on Wall Street week and was on as to testify to Congress, and 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 um I borrow four thousand dollars from my dad because I didn't have really enough money even

to take care of my family at that point. And it 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 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 um maintain the returns but diversive I 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 two thousand fourteen, 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 um 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 in a very powerful way. So that experience is really the turning point, and that's very abstract. I want to describe some of the ideas and products that came out

of that. Post eight two. You describe 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 humble and 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 help 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 traded commodities then back then. I mean that was my big thing, and I really uh learned, you know, how to make chicken. And I'm much feed what what a chick cost, how uh soybeans were grown, how they competed with cotton and corn, and

that hole mechanics. I liked that whole mechanical thing. Um and at the time that and and McDonald's was a client of mine at the time, and they wanted to uh 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 they would have the volatility and that being disrupted.

Um and I had a chicken processing UH producer was I think at the largest at the time, and a client, and I could engineer UM the ability to lock in the feed prices because it basically the cost of a chick 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 UM 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 UM, and I was very 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 it's every effect, Everything that happened has a reason that happened, cause effect relationships, and these things happen over and over again. So whenever I got surprised by something UH, 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 what I did is I went back and I saw I

started to see that. If you start to see everything is happening over and over again, and then you study the cause effect mechanics behind that at a nitty grady 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 has shown like the same things happen over and

over again for the same cause effect relationships. So that debt book that you're referring to, you know, it's a good example. Um, 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 spend 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 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 time frames, we could test it in

all countries, and 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 UM in UM. I was just between college and going to business school and the stock and uh,

we have a dollar crisis. We can't pay for our goods, and you if nobody's accepting dollars and UM On August fifteen, uh, Richard Nick's and gets on the television and he basically says, we're severing the connection between dollars and gold. Back then, money was like a check and then checking the 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, um, when I was going to 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 and I realized, I said, well, did you have currency breakdowns before? And then I was. I studied h currency breakdowns that happened in this system, and I realized why when you value the currency it's bulls 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, you know how to deal with it. So you mentioned Principles before we talk about big debt crisis. Let's talk about the book a bit. He 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 didn't like I didn't like. I never liked being in above the U, in the press, above the radar. You don't do a lot of media historically, although you're beginning to flower now that you're an author. I'll do that, I'll do that. I'll do this in my face. I'm in a phase of life which is a transition from

my second phase to my third phase. And so the way I look at it is uh, in the first phase of life, one is dependent on others, one is learning, one's basically a student. Um in set and 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, 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 have kind of the recipes, um, I wanted to pass those a log 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 and

so on. Um So it's been a really pleasurable good experience, a sense of relationships, and a 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 will pass this along that if every time you're encountering your situation, um at that moment or right after you write down the court the criteria for making your decisions in words, 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, know 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 equations and help them make the decision that I think that's a powerful thing in the future. And so I wanted to pass along mind. But I also wanted to more importantly pass along the

importance of other people doing that. And that's what I'm in the phase of. There are two things. So I did the Life and Work Principles, and now I'm working on Economic and Investment Principles. That will be the third third book in the series. So middle one was sort of an accident. Well, we'll get to the middle one

in the moment. Before we leave principles, I have to ask about what I think is the most interesting approach you bring to managing a firm, which you call being radically open minded, having radical transparency, and bringing about thoughtful disagreement. Tell me how that developed, because that doesn't seem to be the way most of corporate America operates. That's our edge. Your edge is thoughtful. Okay, yeah, um okay, So let me give you one one sentence. I want an idea

of 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. It doesn't have to come from me. I just want the best decisions to be made, UM, 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 are deep and meaningful in their high quality, there a reward in and of themselves, and they make an organization more effective.

So uh, an idea meritocracy, I'll get it out of one sentence. An idea meritocracy which the goals are meaningful work and meaningful relationships through radical truthfulness and radical transparency. Radical truthfulness means say what you're thinking and others will say the same, and let's get away from the behind the scenes and 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. UM. 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, UM, 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. Um, the markets discount the consensus, so whatever the consensus is is in the price. So in order to be successful in the markets, you have to think differently than from the consensus, and you have to be right. And in order to have that, you have to 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 trusts and it builds better relationships because trust comes from you know, opting, operating an organizations and have this politics. It's all behind the scenes. Everybody gives them high fives and they're all happy and so long, and they talked behind each other's back. So that's been um,

it's been a big deal for us. That that's your edge. So let's some Let's go forward to the new book which just came out, Navigating Big Dead Crises. You mentioned you decided to write that because a couple of folks ask 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 forty eight case studies from the past century. So let let's start with the first one to template what makes all of these very different crises follow the same mechanical sort of cycle. How how is that even possible? Well, everything's got these cause effect relationships and the way you know, in a nutshell,

I'll try to make it simple. Um, there's productivity over a period of time, our living standards rise because we learn how to do things better, and the output per man hour work increases, and that moves at a fairly um it'll go up and down its pace. But by nine and 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 banks E's monetary policy.

They changed the relationship between short term interest rates, long term interest rates, asset prices, but liquidity in and then um, you have debt grow. The 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 um conservative about that and it pays back. But asset prices when you mean, the barrowers have the ability to service that debt even as asset prices right, that's right, and everybody wins, and that's good credit growth and it's a wonderful thing. Um. 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. It and then um and of course as um, then there's the shadow banking system. There's always a shadow banking system really, not just a way or nine. All the time, there's always a shadow

banking system. There's a shadow banking system now. Um In other words, there's a banks and they're regulating 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, could have different forms, and the there's a pressure to develop that outside of the systems shadow banking because the more regulated, more controlled 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 the 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 developed 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 when things go up, you know, everybody thinks

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 happens, 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, um last cycle, we brought interest rates basically down to zero,

practically down. That wasn't good enough, So central banks brought 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 discount of growth rates are laid in the cycle, they 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 economy runs on that um 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 leverage long. They want everything to go up, said we all, do

you know central banks 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 had zero interest rates, that changes the game. And when you have UH and then the the you need to print money and buy assets. That happened in so te to thirty two interest rates at zero that central banks need

to buy assets, They buy assets. They cause that carried to very similar situation that we've been in, and so will we carry that from two thousand and eight and nine? 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 mean, we don't have the time to go, so 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 eras is 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 a now guess of

this is the late thirties. Let's say if you take so, why do I say that, I'd say, Um, we're UM, well along in the business cycle, the short term debt cycle. We're in the seventh or eighth thinning of that. Central banks are tightening monetary policy. That's where we are in that cycle. UM. Similar to then, uh, when we have because of the printing of money and because technologies and other reasons, we have a greater amount of UM polarity,

political polarity. I think this is UM an important important issue UM. 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. UM. So the word populism, for example, in developed countries, was not widely used until you go back to the thirties, Until more recently now it's of course common and so we and we're also late in the longer term death cycle, meaning if you were to turn down, if the economy was to turn down, UM, 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 thirties. You can't you can't find a time that in which both of those circumstances exist. Populism together with that difference is wealth caaps and so on. And then also we have a situation which is quite similar, I think, and we have rising, arising power in the form of China. Let's talk about that, because in the thirties you had Italy and Japan and Germany rising to

challenge the existing powers. How parallel is a growing China today to that, to that era um? I think it's it's not only analogous to that era UM, but there's a concept UM called the fucidities trapped by the way that in an excellent book by Graham Allison Um called Destined for War, he goes through but you can study for war well, he's dealing with China relationship. And but if another excellent book, by the way, is um UM

Paul Kennedy's The Rise and Decline of Great Powers. And if you study history, I've made a point now to study history over the last five hundred years, very very carefully. What you see is that in the last five hundred years there have been sixteen times where a power UM comes to challenge and existing power arising power. So like you say, in Germany, UM in within Europe or Japan within Asia, that was the nature of of that beast. That means that there's certainly rivalry. So a trade war

a comparable power creates an issue. So sixteen previous examples of a rising power, twelve of which led to UM actual shooting wars. So I'm not saying we're going to get into a shooting war, but I am saying that, UM, the history has shown that when you have wars after a war, you have a dominant power and you have periods of peace because you have a dominant power. After World War Two, UM, the United States was powerful both

economically and also it had a monopoly on nuclear power. UM. And so as a result of that power, the you know, the United Nations is in New York, the World Bank, and the IMF in Washington, d C. Because it determined that. And in history, UM, 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, um, anybody who reads history and policy makers 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 that's a dynamic.

So all I'm saying is, if I was to pick you asked me when is most analogous, and I would say that the nineteen thirties, where you take that period, the late nineteen thirties 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, um, you know where are we in the economic cycle, how our asset prices priced and so on.

So it looks now the most analogous period you can go back to periods in other periods in history you could find also other analogous types of periods. But that's what it looks. But well, we know how the nine 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 going to take more in the terms of an economic or competitive I think that what our circumstances lead to has a lot to do with how we all deal with each other given those circumstances. In other words, um, do you mean us individually? Do you mean between President she and President Trump? Between? Let's history is shown that how conflict is handled is the is the big thing. Um so Uh, there's a tendency of polarity to cause greater conflict and then hard times

to quasi and worse conflict in those cases. Um. You you even had in Germany and Italy, Japan, Um 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 um, whether they're compromises or paths that are you know, not damaging type of conflicts. I don't know. This is beyond me, but I am saying that I think I can't. I can't tell you whether you go to world I think that um and that you were I would say that, ah, it would be to not consider it as a possibility

and not be worried about it. Uh, internal conflict and external conflict would be dangerous. 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. Is there is there in America that has common values that we're pursuing a common mission and and and what is that? 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. Um, it's it's working, I think less effective. 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 they're they're big challenges. Anyway we're going before we move from that,

you're getting from markets. 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 halves and have nuts? Is that part of the machinery? Is that something that always happens when there's a financial crisis. History is shown that, Um, 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 poorer 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. Um, you know Switzerland is going to 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. Uh, and then we'll and then we'll do Q and 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 forty um plus years, who is a is a force of nature that I'm crazy about it, and that is also doing

amazing things in her world. Um, 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 a hundred four pages. Uh. The Durance wrote that who are the Great? One of the probably the greatest historians, brought five thousand years of five They distilled it down in to onion four pages. Fabulous. I would say, here of a thousand faces the life cycles,

which is right? And I particulate 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 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 you're be humble, take in the best, know how to deal with not knowing, and then you'll be more successful. And um, what is your favorite philanthropic focus these days? Um? For me personally, it's two things, UM,

ocean exploration and particularly micro finance. Microfinance interesting micro finance and ocean expedition because I basically believe, I believe this issue is a big issue, and I think that you know, the fundamentals are 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. Um. 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've seen on micro finance. I'm a supporter of gramin America from from the beginning. Uh. For every dollar that I give to that UM, there's twelve dollars 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 um an important. 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 forty plus years ago when you

were beginning. UM, 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 um 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 uh, you know, to place those bets with both aggressiveness and humility. All Right, So let's open this up to the audience. I know there's a couple of handheld mike's running around. What questions do we have from the audience anywhere? Right over here on the corner, I told you there was a plant. I'm not a plant, but I've always wanted to ask you this. UM, thank you for thank you for this,

by the way, where this has been great? Um, you've been one of the most successful funds ever, maybe 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? Um?

Given how successful you've been, UM, good question. We're we're there's alpha, there's alpha, and there's beta. So this is gonna probably be a little bit of a technical answer to your question first, but UMU beta which is what is your strategic acid allocation? Next, you're timeless and universal um. There's a lot of liquid and 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 UM. And then the way that we do it is, yes, we we invest a lot in there, but there's a hundred and sixty billion dollars of total assets invested, and we haven't had the need to not invest for other people. So I don't expect that I have no expectation that that would change. I saw her hand back in the corner over there. I M. I've luckily 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 and go ahead? Well, it just takes how much pain

that gets them to print? You know? I mean, at the end of the day, what I'm saying is when you have a dead crisis and it keeps going and it becomes painful, you'll print money when you hit zero interest rates, Um, then you print. That's been true throughout history. And you know, there's not a case that I know of that's that's different from that, because it's the better alternative.

So yeah, at the in the end, you know, when it gets bad enough, they'll always bread some question over here and we'll try and get through as many questions, 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 reserve currency. If you start to think where are we in the cycle, and and you start to extrapolate what you know, what

is going to have to be sold? You the United States is going to have to sell a lot more debt in the world because of the larger elements of budget deficits. You're gonna have to sell more and from a buyer of that that what 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 monetary system. So if you take you know, I don't know five, ten, fifteen years later. UM, I think it'll increasingly be UM an issue. You know, what

is the currency, what is the storehold wealth? Where you know, those are elements that lurk in the back, not immediately. As as as issues with on on that path of the maintaining power, global economic power. You know, many of the economies have been on nine stimulus, that is, stimuli that can be considered a little bit of a steroids. You know. You mentioned that for those economies, you know, to succeed in remaining power, um, they have to keep

the growth growing. So given the current scenario and the trade agreements that we're trying to reach, do you have an expectation of which economy will fold first? Um? You I don't have it. And I think that Europe is um is a is an area of conflict and there are issues that exist within Europe, but there you know, so I don't know that I have I would say when we have the downturn, it will be an issue

of you know, continuity, cohesiveness. I think Europe will have a greater out 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. Um So I would say that Europe probably would be the most strained. I saw handback over

there to Tende being from Forrinstan Globe Partners. The question is in the long term, what do you think the US market will be and what the long term US markets where do you see them going? Um? I think US market what you mean in terms of size or valuation or in terms of performance, I think that we're closer, we're not. Long term, well, let's say five or ten years. I think we have squeezed a lot out of the

U S market. I think we're an environment that we are going to have low return going forward for a very very long time. Because, um, if you look at returns, there's 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 can 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 um um in a storic context, but not relative to cash. They haven't gone to such

extraordinarily high levels UM. And now in that tightening, as we're raising cash rates um and the spreads between short term interest rates and the longer term exp active returns get squeezed, that also squeezes those returns. So when you're at almost a zero interest rate low in the United States, zero interest rate in Europe, and a zero interest rate in Japan, which are the main 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 leverage long um meaning assets. Let's let's say the buying of um 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 buy backs, a lot of mergers and acquisition. In other words, by companies buying companies and bidding that up,

and that's been a factor. And that's also then you have the tax boost because if you lower corporate tax rates, uh, it's 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 um lower expected returns in the future or is there a place where you can hide. No, I think like like crypto UM, I think if you're an average investor, I think that you again, there's alten this beta um. 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, they're 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, um, I think most people should not be making tactical movements in and out of the markets to produce alf I think that's difficult. So I think that they have to know how to balance their 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 balance 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 too. I saw a bunch of hands up, Um, why don't we come down to the front row over here with this woman? Thank you hi, Raight, So my question is actually more about management, because I really think that's been that's from what my hataway it was from principles was just what an incredible and strange culture. You've built a bridgewater and

I love your advice. You know that to deal with not knowing, that's such a horror problem for most people. People are uncomfortable to admitting 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 was gonna just say, play the markets and then you'll needalize how difficult it is to be confident. That's a but honestly, what happens is to

make the transformation. Um, you have to explain that through them in a way where let's go through this, Like if I was to say, um, do you want to know what your weaknesses are? Do you want to know what I think? Do you want to know 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's some chance that

maybe you that's wrong rather than the other person. Intellectually you can get people there, not all people, but intellectually you can buy 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 wanted, then you're going to encounter your emotional barriers to it. And the emotional barriers are either your ego barrier that you know that you're going to have to get over, or your blind spot barrier. I mean, in other words, by ego barrier means um 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 you'll want it. And then the blindness barrier is you could be really curious. But minds, different people's minds work differently. They see things. Some people see the big pictures, 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 others eyes, that you can see in three dimensions in color rather than seeing in this one flat dimension black and white, and you can do much better if you get them to intellectually understand that and say we're going to go through this in a in a way where there's trust, where there's meaningful relationships. But you can get trust because you can get to see things for yourself.

Everything is transparent, will 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 different different. I think it's also how we teach kids, and we teach our in our own environment that you know, did you get the great grade? In there? In 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 grade? Life starts succeeding when you start to fail.

When 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, then they know they're experiencing and that's what works for us to help people make that transition. Thank you have about read on here all the way this way?

H got it, Hi rate. One of my favorite shows is a show called Billions, and some people have said that the character Babby as Rod in his office is somewhat based on you. Have you ever seen the show? Any truth to that or what do you think of that? I have no idea you speak to those guys. I have no idea whether it's true. I um. I watched three episodes out of curiosity. I thought it was entertaining, and then I, you know, just didn't have the chance to pursue it. So I don't have much to had y.

I guess they got the writers. When you read the book that you talk Paul Kendy, the book that Act, and read that book well. Of that book, the message I take from that book is that every great Paul it's because they're all leverage. They borrow too much. At that the message you wanted the massive from the focus. Now the US really looks like, oh, defice getting bigger and the bigger do you see we we are? That's where we're going. And then what's the implication to the

currency of the U store. So in the Polkenny book, over leverage is the US over leveraged relative to historical companies. Yeah, so there are a number of lessons. One of those is UM and it can take the ark by the way, typically is two hundred years, two hundred and fifty years, so the arc is quite long UM and it by the way, it starts off with technological advances that raises g d P and then makes them very competitive in

the world markets. Like UM. The Dutch was the reserve currency before the British Empire in ours and then what happens is later in the cycle there is that desire to push it in leverage UM. Usually it's a matter of they become global, they have global trade routes, when they travel around there carrying their currency. Then people then use that currency, that's what they pay in, that's what

they lend in. UM. UM Holland. Essentially Amsterdam became half of world trade at that time, and it became very rich because of those things, and the world use 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 the choice is their local currency and so on, and 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 over extending, they make 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 over extending, and that we're operating in this world reserve currency uh fiat

currency type of assistem. 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, and the returns on US dollars will 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 will work is an interesting question. Um So that's too big of a topic to get into an answering your uh in this 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. Rate 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 deglobalization that seems to be taking

place in the United States, in the UK and elsewhere. Well, I think we're you're talking about there are two different things. In those case, says, there wasn't so much the globalization. There was the globalization of those countries, just like the globalization 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 uh m MB, you will see more Chinese banks in the world, and so on and and so forth, and that will expand very very analogous regarding globalization, which is the idea of producing at one place and selling it 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. UM, I think that that's peaked, and that where now in an environment in which will go to a you know, more of a D globalization kind of environment. And because of this somewhat threatening environment that perceived UM worry that you

could have a conflict. I think that that creates a force that reinforces the D globalization because let's say, if you're going to 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 and might 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. UM. You know, if Chinese investors are more concerned 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, UM, I think we're more moving more towards d globalization and almost independent self sufficiency is probably the more of 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, Uh, like I said, applying the template to China, UM, Chinese debt is mostly in their local currency. The amount of

foreign currency denomin data debt for China is very small. Okay, so now you're dealing mostly with an internal issue. And also the lenders to China are within their system. And the like I said, the capacity to handle a debt crisis by spreading it out in one way or another,

UM is quite large. Um. They have the expertise to know how to do that, to do that spreading it out, So UM, I think that when you look at debt cycles, uh, there were four cases in which I know the United States default had had major debt crisis is and won't rattle them all off, and that they were able to be managed. The lesson I gave, for example, of the two thousand excuse me, the 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 in on that and and 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, um, you know, like a bad year of growth, uh will be probably twice as good as a good year of growth from

us in terms of that 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 is

actually caused a crisis. In most of the other cases, like in our financial two thousand financial crisis, we had the crisis, and then you have reactive. They're doing proactive. So I'm very um. 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 going to be a very good place for long term investing. I think it has to be an 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 you know, I'm basically bullish, and 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 very Oh my pleasure. If you're gonna hang around a little bit and sign some books for people,

is that right? If you're fantastic, So stick around rail sign some books and thank you so much for coming