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Please welcome Ray Dalio, founder Bridgewater Associates, and interviewer Randall Lane, Chief Content Officer, Forbes. Getting right into it, the big guns. I like it. I like it. I like it. I like it. Uh, great to see you. Good to see you. Great again, a great crowd. Very excited. Uh, let's talk, uh, you have, you know, very strong point of view.
You talk about, you know, again, you look at the world, you look at history. Uh, you have this theory of five forces. A lot of people here are familiar, a lot are not. Maybe kind of we could talk for 2 minutes about that and then delve into you know, those forces and how they're driving everything, right?
Okay. Uh, I'm, just so we put it in perspective. I'm a global macro investor, which has done that for about 60 years. They'll know who you are, but yes. I And I No, but I'm I'm bringing a perspective of of I need to have a game plan. All investors need to have a game plan. And I'm bringing a perspective, which is what is that game plan?
How do you deal with that? Because over that period of time, we've seen a lot and then you study history, you see a lot. And um, so we're in a moment in time, but it's important to take that moment in time and put it in perspective to know how to have a strategy. That's That's the background. So, okay, five big forces.
Uh, is I studied history going back 500 years in order to help me understand the dollar and markets and so on. And what it told me uh, and what my experience is is that there are these five big things that interact. Okay, there is an an economy debt money dynamic uh, that works and you know, we have money and we have credit.
And when the money and credit grow, we um, buy assets, investment assets. Uh, they go up in value um, and you have a cycle and And when debt increases faster than income, and then there's debt service payments, then there are issues. And so, just very quickly on that, there is a issue that the federal government has, and that a lot of government has, which is about the amount of debt.
And so, when we start off looking at markets, the first market we look at is the risk-free interest rate. Okay, that's the backbone of all markets and present value of cash flows, and there is an issue there. Bonds are not good. Interest rates are there, and then we have premiums of markets over that.
So, that's number one. Okay, I'll be quick. Two is the internal left and right political cycle. Okay. What taxes it affects, shifts in wealth it affects, is very important. Number three By the way, we're only two in and I'm already very pessimistic based on what you're saying. Okay. Three is geopolitics.
I know you're very pessimistic. and five is technology. again? What's four? Acts of nature have killed more people and changed more world orders. And number five is technology. Okay, the invention of new things, and now the greatest of all time, perhaps, artificial intelligence. And it's if you understand those and the interactions of those, and that's important because the capital markets are tied to the political markets and so on.
Those are the five. interesting though about those five is right now, even if you look You said you've been doing this 60 years, all five of those or certainly four of the five, the needle is really running hot in your forces. So, that makes this a very interesting time to talk about that. We appreciate you being here also because, you know, you're shaking off the jet lag, you're just back from a long trip to China.
Maybe let's start with there, what you saw over there and how the, you know, what what you see in terms of the forces in China and what what you experienced there. Okay. I I would say two big things in the world, very big, um is the changing belief in the world now that the United States can and will uh fight a war in defense as a counter influence of China in that region and in other regions.
Taiwan and also the regional expansion. In other words, there's been a containment policy and um then are we China Sea South China been a belief of holding as holding bases in countries because that'll be for defense as a countervailing force of China. Okay. What you're talking about is the perception in China
No, no, no, no, no. Well, the perception everywhere. That that the United States politics, cost of living, um don't want to lose any people in the war and so on means that it won't fight a war. Okay. And the bases that existed all around the world. So, for a lot of people they're comparing it around the world to when the British Empire uh had this the Suez Canal taken away.
Yeah. And that had that changed the perception of everything. So, anyway, there is in that world the sense that it will not be the counter balancing influence. Okay. So, that's number one and I think that that's well Big. um uh viewed around the world. The second is [clears throat] China is making a ton of money.
Uh in other words, the exports, if you look at the amount of money that they've earning from exports, Yep. you weren't you weren't earning money from exports. That's like that's like us earning income or any company earning income. And those numbers are, you know, like that was a trillion two last year or something.
This is building up to huge amounts of money and they and what they do with that money is um what their businesses do, uh what everything uh what they do with that money is a big influence on capital markets, right? Like it around the world? Africa and other places, right? W- everywhere. Where they put that money is going to matter a lot to the capital markets.
So, the capital market So, those are the two big things in terms of this shift in um you know, in the in in power. And then we have, of course, the competitions, right? And and the competitions in AI um are believed to be quite like the competitions that might be in electric vehicles, batteries, solar panels, uh all of that.
And the question is, does the barrier stand? Like when we look at capital formation right now and how much money is going in in the IPOs and so on. Well, how does that work in a competitive environment? Cuz it's very interesting. Their view of um AI is is very different from um the American view in in that what their view is it's that it's like electricity or running water and that everybody should have it and that the overall product activity of China will rise if everybody has it.
Um and that it therefore doesn't have to be expensive or or even profitable, but anyway, that's, you know, pervasive use of it. So, their advances in in that are significant and then their advances in southern some other areas like robotics and other things are So, they these are the only two competitive and then there's a barrier and the question is does the barrier hold?
And you know, so that's a picture. Did you uh did you meet with President Xi while you were there? No. Have you met him? I have I have yes. What's what's your take? Um I I I think President Xi is a views himself and China in the context of what they would the story which would be the long arc, you know, and then where you are.
Okay. So, just to give a very very quick uh sense of that. Um their story may be like our American 250th last 2,500 years, not 250 years, right? And so, when they see the story China's 2,500 is going to be an awesome event. Um so, what what what what you what they see is that China was um the leading empire in the world and self-sufficient, and that the British come, and they say we want to trade with you, and
[clears throat] and um they were weak, and then they had 100 years of humiliation, what they call the 100 years of humiliation. 100 years of humiliation was um that the foreign powers came in, they were weak, and for 100 years they deteriorated, and they became independent in 19th 45. In 1945, the end of the world war, while Japan Japan had opened uncontrolled Taiwan, they threw the Japanese out, and they said they gave China back to Taiwan, and excuse me, Taiwan back to China, and then they and then they had the communist very isolated regime that comes up to where they are and the rising of power.
When I started going there in 1984, since then, per capita income has increased by 29 times, life expectancy is in the They basically wiped out a huge poverty And so on. And so now they've become a great power with a different culture. Okay, so the way he sees it is that okay, there and there's been a containment policy and Taiwan is part of China.
Okay, that's how he sees it. That's what he's living out. So the message that was given to President Trump at at the time was largely about Taiwan, the importance of Taiwan. So we're now in a different spot. That's how they see it. He he'll have one more day see it having just been there, do you think that Taiwan situation is going
You are going to see um them play the art of war. If you understand what the Chinese Yeah. mean about the art of war. You don't fight militarily, you operate with pressure and and deceptions and so on. And so right now um because there's a a belief that the United States cannot a fight a war on two fronts.
Right. Um and there will there will we will probably see greater and greater pressure. And and so um what does the United States or Donald Trump do in reaction to that? And so you'll start to see changes in China, but not just related to Taiwan. You'll also see that the containment policies that affected the Philippines, that affected Vietnam, affected other countries in the region, affected Singapore.
Those things are all uh changing. so that's a big shift in in one of your one of your forecasts. And money is a big part of that. Well, let's talk about money. The again, you and I have talked on and off on, you know, for the last 10 years. You you've been talking about debt for 10 years. I you know, it's like one of you know, it's worse than ever.
Uh but yet the markets don't seem to care. Um Um well, let's let's be clear clear what it's like. And how does the system work? The um credit market system is like the circulatory system. Well, you'll be right at some point. So, it's when? Well, it's like it's something like a heart attack. Okay? I can't tell you the day that you but I can watch it.
I could take the MRIs. And the way it works for cuz it's shown in the charts and the numbers. Um and it's true of everybody. When the debt and debt service payments accumulate um at debt service payments accumulate and start to squeeze out other spending. So, we can see that those debt service Let me Just give me a Let me get it out, okay?
Okay. And it squeezes out other spending. Right? And so, you could see that happening. And then there's a supply and a demand, meaning you produce a certain amount. One man's debts are another man's assets. And so, to hold debt assets um you have to have an adequate real return. And so, when you have a large supply that has to be sold and at the same time there's not the same demand for it for various reasons, you see the pressures in in rates rising.
And we're seeing that dynamic exist throughout the country uh throughout the world. And so, it's like you if I'm if I'm saying I I could I you could look at it. You could look at the numbers. You You're either going to deny reality or you can see reality that there is going to be this problem. So, it's So, it's like telling somebody who is uh I don't know eating a lot of fat, not exercising, and built a lot of plaque in their thing.
Uh I haven't had a heart attack yet. And you're telling me I'm telling you that this is a reality. Right. So, why do you think why do you know, because it's been it's been right there in plain sight and yet there there does seem to be this regarding that I don't ignore everyone just there's there seem to be blinders on.
How do you play that? Actually, how do you play that? I think that the only thing that wakes people up to it is the heart attack. Okay, so look at the bond market. The bond market is that is it attractive as as it been a good attractive market? Okay, it's been a it's it's been a poor market at the poor market, right?
You're losing money in the bond market and so we're talking about and then credit. We're even dealing with the issue of private credit and credit spreads and so on. So how's that market been? Okay, despite a very easy Fed policy. So I would say that's not healthy. That doesn't look healthy to me and when you're looking at it and seeing it written rising by the long end of the yield curve, right?
They're trying to hold rates down and you're seeing the long end rate of the yield curve or if you look at who's doing the buying and the selling, okay? That the the demand for debt. Central banks are selling US dollar denominated debt and buying gold and and there's an a reluctance to accumulate the that dollar denominated debt.
Yes. That's a reality. Yes. The So how would this room given the So there's a heart attack coming, we don't know when. So how does a room of of alpha masters play that? I think uh everybody has to have their investment principles in the game plan. And the the key of everything is really to know how to diversify well.
Okay, so here we are in a moment and this is I've got 16 seconds and I I can't give the you know, the whole story, but it but what happens is right now you are in a moment that only one thing matters in the markets, right? That the concentration risk that in terms of IPOs and and we're uh about market capitalization and so on.
And uh and AI, are you on in on a market capitalization basis, or even more, are you concentrated in that? That The answer to that question will be either a yes or a no. Okay? And and if we study history and we look at that, um you better have a game plan. And what is that game plan? And to know how to really diversify well in terms of being able to do that without reducing returns.
Cuz the thing about it is, if you can have good uncorrelated bets, like my mantra is 15 good uncorrelated bets. If I can have 15 good uncorrelated bets, what happens just the math of it, it means that you can eliminate your risk by 80% up to 80% without reducing your return by knowing that how to create balance.
So, there are things out there, okay? For example, there are some of the minerals out there, okay? Copper and so on in minerals, or there's um if you look globally, who is making money and how things are changing. And you can create that kind of a diversified portfolio of good things that provide a way of operating.
Because your choice, yes or no, is going to be do you then get concentrated because of a FOMO and you're going to be in that one thing, or are you going to diversify? And I played the having played the game for 60 years and and studied history and and engineered a game plan, that's not my game plan to do.
Uh good advice. Saw people writing it down. Uh I want to thank you, Ray. I was a history major in college, and then people are like, "Why were you history major?" And you make me feel like that was a good choice. So, uh thank you for One can learn from history. That's right. And thank you, Ray Dalio.
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