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Big Daddy Dalio has spoken check it out he just released a new article on LinkedIn which we are going to go over in this video is called populism plus the weakening economy plus limited central bank power two E's plus elections equals risky markets and risky economies now I love reading stuff from Dalia at the same time I kind of don't like it at all because it's always somewhat sort of extremely depressing and you know I do love living in ignorance because ignorance is bliss it's walking around whistling chewing bubblegum whatever whatever ignorant people do but I guess if you're in the markets and investing you gotta get real Dalio Big Daddy Dalio he does a great job of bringing me back down to earth where things aren't as great as wherever I am but let's just jump into it so first off Daniel starts explaining the problems that we're facing the wealth opportunity gap is increasingly becoming manifest in increased populism of both the left and the right which is leading to greater conflict both within and between countries and more extreme and worse decision-making which is especially risky when economic growth is weakening the central banks have limited capacity to ease important elections are approaching and big geopolitical tensions are rising from China emerging as a power that is challenging the US as the existing leading world power are intensifying over the next two to three years this confluence of forces will come to a head and have big influences on markets economies societies and world affairs much as they did in the late 1930s so Dalio basically listed all the forces coming together in a perfect storm which if you remember in the 30s that's when World War Two was right so it's really not good now one of the biggest issues that's been happening that I've been trying to understand myself is populism and wealth disparity so Dalio explains how one of his economic political principles is if there is a big gap in the economic conditions of people who share a budget and there's an economic downturn there's a high chance of bad conflict if there isn't a big gap most people are poor or most people are rich then there's much less risk of a conflict disparity and wealth especially when accompanied by disparity and values leads to increase in conflict and in the government that manifests itself in the form of populism of the left and populism of right so this is the big issue they were facing in the u.s.
there is a huge wealth disparity right now now if you think about it compared to 50 years ago every single person is much better off than they used to be but that's not how people look at their own wealth the way people measure their own wealth is not based off their ancestors based off their neighbors so if I only got a 40-inch TV and then my buddy has a hundred inch TV I'm gonna be jealous and I'm not gonna be happy like literally my happiness is affected by that other person and what they have which is not a good thing and you know that's not where happiness should come from you should be self sufficient self love bla bla bla bla we're not all monks the reality is is that people aren't happy if other people have way more money than that and I mean the TV is just a stupid example it also has to do with serious things like health care and all that so when you have this disparity and a difference in values that's when you start seeing populism in the government the politicians start catering to each side so Dalio explains the populace on the right are capitalist and the populace on the left are socialist so he says the populous of the right the capitalists they don't know how to divide the pie well while a populace of the left who are socialist they don't know how to grow the pot you know obviously capitalists know business you know how to create jobs create wealth all that good stuff but there's a lot of people that get left behind so in that sense they don't know how to divide the pie well socialists on the other hand they know how to divide the pie a little better which is debatable I guess I'm biased but they don't know how to grow the pie they're not the businessmen they're not good capital allocators now I do agree that capitalism in its full form is not the best solution and also I definitely agree that full socialism is in the solution either so Dahlia says while one would hope that when such polarity exists leaders would have formed the system both to divide the pie and make it grow better which Dahlia says is absolutely doable and certainly the best path unfortunately leaders who know how to bring people together behind policies that both grow and divide the pie well are both rare and unappreciated so the problem the gap in wealth and opportunity is unlikely to be resolved well and peacefully and this is a serious issue if there's too much wealth disparity you get a revolt people making money get thrown under the bus because it's not fair enough for everybody so Dahlia with his amazing research team at Bridgewater they did a study on populism and they found that populist leaders typically follow a pretty standard path of steadily increasing conflict both within and between countries which is pretty much what we're seeing all over the world right populist strongman leaders everywhere and they're all in a way promoting nationalism while cutting off ties with other countries but at the same time kind of fueling the fires within their own country too so according to Dahlia the wealth gap issue will probably be the biggest issue this next election and we've seen examples of this like Alexandria Cortez she's calling for the 70% marginal tax rate on incomes over ten million I'm sure you've heard about that and when they pull a majority of Americans are in favor of it and then Elizabeth Warren she's talking about the wealth tax of two percent on assets over fifty million and three percent on fortunes over 1 billion so are these the best policies for the economy probably not but what these policies do is appeal to the populace side of these people because we're on such far ends now just go watch that interview of alexandria cortez on colbert and just look at the comments down below the video people are all for taxes like this they're like oh good so they're rich dude doesn't get his tenth mansion who cares which i mean yeah i get it if you don't have the same opportunities but it's probably not the best policy for the economy and what's funny is that a lot of venture capitalists that are usually very left-leaning they're coming out and saying that they don't support these populist policies and they're a little disappointed that both sides are playing that game now because with taxes and stuff like this you aren't appealing to some logic you're more appealing to emotions like yeah get the rich people so the in the VCS who are usually left-leaning or yeah they're they're rich people they gotta cover their asses a little bit so he says we haven't seen the markets react to such news because it's way too early to handicap the odds of who will be in control of what they'll do make sense he says the same thing is going on in europe as the internal and external populist conflicts are intensifying at the same time as Europe is being economically held together by a thin thread of central bank and single currency which is facing increased stress from some seemingly irreconcilable differences now I remember in college taking a whole course about the eurozone and the first thing the professor said first day of class first thing he said the eurozone was built to fail and then we spent a whole semester with all these papers and tests figuring out why that's true a lot of work but yeah as every economist knows the way the eurozone was put together it didn't make sense you can't have a single currency binding together extremely different countries with very different economies so the eurozone is nothing like the United States the United States there's way more similarities between the states and there are differences in Europe where there are literally different countries different languages and everything that just doesn't work trying to put them together but going back to the wealth disparity in the US I was talking to Alex from Mac Ross about this recently along with Chris who's also one of our new Mac profs members and we're talking about maybe one of the best ways to help with while disparity is to increase the capital gains tax because there is a very small portion of Americans actually involved in the stock market and that's really where the disparity comes from especially when you have central banks that pushed up markets for so many years the people that are involved in markets are gonna be way above than the people who aren't now of course as traders and investors we do not want that capital gains tax going up but it's a solution that makes a lot more sense than the 70 percent marginal tax rate or the 3 percent well tax but I don't know these are tough things to figure out I want to know what you guys think you know we never talk politics on this channel so let it rip in the comments get out whatever you're feeling I know you guys got some pent up thoughts about this let's discuss it now keep it civil of course because the most important thing is to understand the reality is like Gallio just lay it out right here and then try to find a solution that works for everyone but ok comment down below if you haven't already make sure you subscribe to this channel and hit that Bell for notifications for when new videos are released published about 3 we call business and market related so subscribe and I'll see you in the next video stay fowl out there bye
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