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00:00This is my kitchen table and also my filing system over much of the past three decades. I've been an investor the highest quality of in time. I've often thought as private equity. And then I started interviewing people while I watch your interview those I know how to do. I've learned in doing my interviews how leaders make it to the top. I asked him how much he wanted. He said 250. I said fine I didn't negotiate with him. I did no due diligence. I have something I'd like to sell and how they stay there. You don't feel inadequate now because the only the second wealthiest man that rolls out right. For the past several decades one of the most successful hedge fund investors in the world has been Ray D'Alessio. Ray Dalio has built Bridgewater into largest single hedge fund in the world managing more than 100 billion dollars. He's also an accomplished author in its most recent book The Changing World Order. Talks about the rising China and the sinking. United States had a chance to talk to him recently about that book and many other things relating to the investment world. Ray thank you very much for coming and for writing this book. We're gonna talk about this principally this evening. I want to start though by asking you this. You're running the largest hedge fund in the world more than 150 billion dollars. How do you have time to write books when you are running that hedge fund. No I didn't write either of those books really. What I did was this book was in order to understand what was going on today I needed to do a study. Right. And what I experienced in life many times before is that the surprises that happened to me were things that never happened in my lifetime but happened many times in history. When you read the book as I have and I enjoyed it. That took me a couple of sittings to get through because it's a lot of detail in here. You have a lot of historians that help you because a lot of history and hear from history idea. Now you have historians. I don't I'm so lucky because I get to speak to. So many people who are historians who are practitioners you know people in different countries. Henry Kissinger Graham Allison. You know just scientists and so on. And then his story. And so and then I have a fabulous research team. So I go into this learning immersion and then I iterate with it. Show them what I've got. They come back. And that's the process. OK. So you have in here people who have said good things about the book including a number of Treasury secretaries Hank Paulson Tim Geithner Larry Summers hard to get three treasury secretaries agree on a thing. But you did. You also have very favorable comments about the book from Henry Kissinger and Bill Gates. You know both of them. Yeah. Who's smarter. Well I think I think that they would say the each would say the other guy and I think I would say that each in their own ways. OK so boy you should go into politics OK. Your view is there three big cycles in history. Is that fair. I came with the three things that are happening today. And then I found that there are really five. But the three three big ones. All right. So let's go through the first cycle. The first cycle is when the economy comes together gets wealthy people are building up the economy and eventually they build it up so much they borrow more money. Maybe they should and they dilute their currency. Is that fair. Yeah I could do it in a quicker way. Quicker than that. Well excuse me. Better than that. OK. Now. There is. There's a new water there's a there's usually some fight between the left and the right or it could be foreign countries and whenever new water and when that begins it's sort of a great equalizer. And capitalism is a fantastic enabler because what it does is it gives people who may not have anything who have good ideas capitals. So they got the resources to pursue that. And that's a fabulous thing. And then as it rises over a period of time you'll see debt to income ratios rise and so on because everybody gets more funding because debt is buying power and everybody wants more buying power. And then also you see it naturally just distributes wealth unequally and it distributes opportunity unequally. So as that wealth gaps rise and widen. And then also because it's offered to parents who have wealthy parents can educate their children in an unfair let's say an unequal way relative to others. And so but over it gets overly indebted. And then because all this buying power which comes in the form of debt is somebody else's assets. Then what happens is then you lower interest rates you try to stimulate it. So for example since 1980 every cyclical peak in every cyclical trough in interest rates was lower than the one before it. So that they can stimulate more debt. And then when you get to zero interest rates that doesn't work. So they have to print money and they buy money to keep picking up that pile going up and that creates the cycle. OK. So there's part of that cycle which is a capital markets or and that by the way this exists almost everywhere. And then with that and then you see the monetization of debt and so on. And with that there are also conflicts conflicts that are the wealth conflicts. And related to that the political left and the political right. And there and that creates the dynamic that we're talking about. Now you've cited your book two examples where this has happened before. One is in the Netherlands where the Dutch economy ultimately they had the only reserve currency at least in Western Europe the guilder and they did. Some of what you now say we're doing isn't right. Yeah. At the same patterns over and over again they had in the beginning big education. They went to war. Then they became very competitive. They went out in the world taking their goods and they built ships that were the best ships around the world so they can go anywhere in the world. They brought their arms with them and they made a fortune. And with that they brought their currency. And as they bring their currency because it's a world currency of reserve currency others want to own it. And because others want to own it because that's buying power. It's the common wampum. And then because of that then they lend it to the Dutch. So in other words Americans get lent money because others want to hold dollars. And then that allows us that's the exorbitant privilege to get more and more in debt. And then what happens is they lose their competitiveness. The British built came along and copied from the Dutch and found oh they can make ships better and cheaper. And then they became the competitors. And then as the competitors are operating they take market share away quite similar to lots of technology companies. And what's going on now and then what happens is then they get more in debt and then they have the other cycle that's operating and then you have the challenges of that. Had the Dutch they typified by the Dutch tulip bulb craze where people were spending a lot of guilders buying tulip bulbs. Right. So that imploded. And the British came in and they built a big economy and then they kind of went south a bit. They had the same exact patter. And then we came along. The United States became the biggest economy in water in 1870. And since World War Two we've been the dominant economy. So now we have a lot of debt. You'd say yeah. Twenty nine trillion. Good at that. So how are we going to pay off at that by the way. Well our nation is the only way. In the end it's always printing money. You know it's always print the money because you see one man's debts or another man's assets. And so if you're holding a bond and you receive a you don't get compensated for inflation. Let's say people think cash is a low investment low risk investment. Well they're earning no interest. And when you have a 7 percent or a 5 percent inflation you lose 5 percent of your buying power or if you're owning a bond you have the same thing. And so what happens is not only is there the debt that is coming from the new debt created to run the deficits but they are become sellers of that debt because the owner as an asset it's not a good asset. And then there's so much selling. And what that means is that you either have to. Interest rates have got to go up or. And then that grinds things down to a close or. They do as they have to print money and so the history of all of these cycles is that the coffers are empty because you can't continue to spend more than you earn and give it to somebody expect them to like it and then you devalue it and that becomes the cycle. And so you see the classic cycle of the ingredient is the cycle I'm talking about in terms of supply demand. And what you wanted to do is presumably let people know this is occurring. So maybe they could take action by letting their congressmen or governors know something about this. Well I think there are two. Two things. What you can do to make a better side in your contribution but also how you can individually take care of yourself in a situation that might be difficult. OK so let's finish on that. The third part of the cycle. The third part of the cycle is somebody is rising up. And right now you would say China's rising up. Is that correct. It's just numbers and you look at it. And so if I want to do something about it and I want to live in a time when China is not rising up so much and we're better off in the U.S. economy what should I do. I eat lobby my members of Congress not to print so much money. What should I do about it. If anything. Well again it says there is a cycle suicide thing. I think if we go back and we look at history. There are three big main things that you can do. OK. First as a society individually and then collectively how do you earn more money than you spend. And how do you build a balance sheet that has more assets and liabilities. That's a healthy. And so keep that in mind. The second is internal conflict or cooperation. Can you have internal cooperation because you realize what the consequences are. So I think that in the 2024 elections there is a reasonable chance that neither party will accept losing the elections. And that is something that means that democracy or a type of civil war of sorts could develop in a way. This is realistic. I'm not being exaggerated by that. And when one looks at those types of things there is a worry that one should have about the divisiveness and what it means for each other. And the same is true internationally. So basically if anybody who has gone into wars this through history the people who are the most convinced that that's the thing to do all regretted going into wars because of what wars are like. So the things that I would hope to convey is first of all what are the arcs. Is that right or wrong in the arcs. Measured not opinionated. Just look at those measurements so that you can see that. And then as we think about it like I have a principle. If you worry you don't have to worry. And if you don't worry you need to worry. And what I mean by that is if you worry and you start to think what this direction could be and what it's like then maybe you deal with the things that prevent those worries where if you don't worry maybe you get into trouble without worrying or with a confidence that there are things we can do. The world has now more resources than it has ever had. And there are things that can be done. Now you're managing one hundred and fifty billion plus. Yeah about that. And why is it. Explain this to me. I really don't know the answer. Hedge funds seem to come and go. Sometimes they're hot sometimes they're called sometimes they go out of business. You've been in business for almost half a century and you've got 150 billion. What did you do that nobody else has been able to do. What we were able to do was to be able to structure portfolios in a way that were better in terms of the rate returns risks and correlations of our investors. So to give you that an idea. In other words you could balance things in a way I could take different alphas different that's in different markets. And I could carry that and put that in a phone call pure alpha. Then I could take different asset classes and put that in a fund which was called pure beta and then we could engineer it for the customers risk levels. Do you wanted at 12 percent ball volatility 18 percent vol. And then they would whatever benchmark they wanted we could put the alpha on top of so they could say I want the S & P 500 plus a 6 percent ball operating that way. I know it all sounds complicated but we could design and structure things to their liking that would produce an attractive rich risk in return. That also was not correlated with their other investment. You wrote a book a few years ago called Principles that sold millions of copies usually books in the business world on sell millions of copies and millions of them were sold in China as well. What is it that was in that book that was so exciting to people. When I would make decisions I would not just make the decisions I would think about what are the criteria that I would use to make the decisions. And I'd write them down. Those are the principles. And then in our culture which is this idea of meritocracy we would say are those criteria good or bad. And then we would try to put them into algorithms and equations. And so I would do that almost like a diary kind of thing. And I would see the same things happening over and over again. And the next time it happened I would go to the principal and we could together go to our principals. And so we'd accumulated that over a period of time. And they were practical. They're not theoretical principals and people seem to find that valuable. Now it is said that you use these principals in your firm and you operate the firm and according to the principals. Right. More or less. But it's very constant self-examination. Employees have to be self examined by their peers. Your self examined by your peers. Right. There are other people in the firm. It's hard to get people to want to do this and that rather be examined so intently over the years. And it's so logical. But that doesn't mean everybody wants to do it. It's so in one sentence. It's an idea. Meritocracy. You know the best ideas win out from wherever they come from in which the goals are meaningful work and meaningful relationships that we're in it together through radical truthfulness and radical transparency. So if we disagree that's a good thing. That's no reason to have anger and to have the art of thoughtful disagreement and examine. How do you scientifically find out what's true. How do you test things and so on. And that's been essential to our success. So you know you're very intense. You're obviously into the numbers but you're also big into transcendental meditation right. Yeah. That's helped me a lot. And probably the biggest whatever success I've had may be more attributable to transcendental. How did you get into transcendental meditation. The Beatles help you or something. Yeah. Yep. It was exactly that. In nineteen sixty eight the Beatles went to India and they meditated and then I heard about it. And then in 1969 I in New York you could you can bring some flowers and you could do that and you could learn how to meditate and and wow. I recommend it's the best thing gift. I could do it every day or every almost. Almost. Yeah. I try to do it every day. I try to do it about twice a day. And if I can take a second to describe it what it is is it frees your mind of thought and it takes you from conscious state into your subconscious. And your subconscious is where creativity comes from and equanimity and and and all of that. Like if you're calm and great ideas come to you. And when you have that equanimity then you as you're approaching everything things are just the way they are and you have to deal with them. And it's a little like being you know in the ninja movies. It's a little bit like being the ninja. And everything seems slower and you can handle it better and so you align your subconscious which is where the motions and also inspirations come from with your conscious mind. And when they're aligned and you have that equanimity it's a great thing. You can write a book on transcendental meditation which can the average person do to invest reasonably well. The most important thing you could do is not be in cash and and those deposits particularly now when there's such negative real rates and to have a well diversified portfolio. Ask you this the average person watching right now probably doesn't have 150 fifty billion dollars to manage the investment. So what can the average person do to invest reasonably well. Well you know like I didn't have any money. And I remember the cycle and what it was is I would start to think how much money do I have to. How many weeks months and then years can I take care of myself and my family. And I would calculate that I would be at OK 52 years if no income was going to come in. And then I would start to think. And then if I'm holding a portfolio in something maybe I could lose half. So I'd better cut that number in half. And then I start to think of what are my uses of the money what do I need to do. And I would think about how to why immunized that. And you start and you build like that and you know how to save and saving you know things like don't put it into cash deposits that get eroded by inflation and taxes and so on and you start to develop it. And the thing that you can do the most important thing you could do is not be in cash. And and those deposits particularly now when there's such negative real rates and to have a well diversified portfolio and that well diversified portfolio. And that's a whole subject of what does that mean and how to do it. But it's a well diversified portfolio of not just asset classes but of countries of you know of different thing currencies diversified. But let's let me ask you an average person who isn't you know a billionaire should they expect to get over rate of return overall on their money of 5 percent a year. Is that a good target. 6 percent 8 percent. What do you think is a reasonable target for some. He does want to take undue risks. Well nowadays the structure of the markets where everything is priced if and done the normal way will give you probably a return in the vicinity of with a lot of risk around. It may be in the vicinity of 4 percent 3 3 and 3 percent 3 4 percent. Okay. Something that might not equal inflation probably would be very close. And then you have to pay taxes on it because there are so many financial assets. But one thing you can bet they'll send you more money as we talk today. The stock market in the last couple of weeks has been correcting if that's the right verb and in a lot of the areas out of the so-called bubble. Should people be selling everything and getting out of the market now because the markets are going down. Or is this the time to buy. First of all I'm not here to give a lot of advice but I'll give you the following thoughts. We want to by just give us a OK just just on our own. What's happened is the they produced a lot of debt and gave out a lot of money. And so everybody's got money. And it's also very easy to borrow money to buy things. And as a result if you create much more buying power then you create goods and services. You've got a lot much more inflation. And the Federal Reserve has been behind the curve slower to tighten monetary policy. And as a result we're now starting to see the rise in interest rates to be able to deal with that. As that happens all assets compete with each other. So now that free money is still going to be cheap money but it's going to be a bit higher. So interest rates let's say bond yields have gone up about 1 percent. Now you take that and you adjust. Everything is the present value of future cash flows but it means that that interest rate goes up a percent. That means all the other assets have to adjust. We're in a process of making that kind of adjustment. That means the days that we've had before the easy days where they dump money on you when you don't have much inflation and you don't have much time in this. Those are past and now we're in a different kind of part of the cycle. How do you foresee crypto impacting the world order. I think it's interesting. I have a tiny percentage of my portfolio wanted to to diversify but it is a very vulnerable incident because they can track who is operating on it. It can be tracked. It'll be outlawed probably by different governments. And in terms of its size it has issues. So I think too much attention is spent spent on crypto. Or somebody might be a gold bug or somebody might be I don't know. They hold gems or whatever they do. But I think that we're now in an era where we're going to have different types of money. We're going to question money as a medium of exchange. But it's also a store hold of wealth. And we're going to be questioning. What are the rights store hold of wealth in in the value. And you're going to see around the world not only the digital versions of that take place in many forms. You're going to see other forms of of that competition. I think in the years ahead we are not investing and you're not transcendental meditating and you're not writing books and doing philanthropy. What are you doing. You have any outsider. No one is my grandkids. OK might my kids might. My family of course. And they're one of the greatest blessings in life. And that whenever I can possibly have as one how many grandchildren I have for now. What do they call you Papa. Not Mr. Dalio or something.

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The David Rubenstein Show: Bridgewater's Ray Dalio

Ray Dalio, Bridgewater Associates Co-chairman and founder, talks about the rise of China, investing in crypto and why he tries to meditate every day. He's on "The David Rubenstein Show: Peer-to-Peer Conversations." This was recorded Jan. 24 at the 92Y in New York. (Source: Bloomberg)

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