Hi everybody and welcome to In Good Company and today I'm here with Greg Jensen who is the co-CIO of Bridgewater. Now Bridgewater is just an incredible hedge fund, the world's largest and best I think we can say and it's an honor to have you here Greg.
What are the most important things you are spending time on just now? What are you looking at?
Yeah, if I said sort of at the biggest level, the three big themes that I'm concerned about or focused on are a the change in how the global and US economy is being managed. Essentially, what we call a shift to modern mercantilism that's been a reaction to China's rise. It's created political changes across the west, probably most clearly in the US leading to a whole different philosophy on how to run the economy. So that's one big theme, modern mercantilism, the way the US is operating both with respect to economics but also with respect to geopolitical conditions, huge change, really important to understand.
The second is the technological change that we're in the midst of. I've been, as I'm sure we'll get into, thinking about and working with AI for a very long time now, machine learning for 15 years and more generally my whole career. And I remember people used to say, 'Greg, why are you talking about AI all the time?' Nobody says that anymore. And that...
It's nice to be right at the end.
Well, there's a lot of being wrong along the way, plenty to be wrong about. But that it's so important, right? It's a third to half of everything, geopolitics, markets, everything. You have to understand it to understand the macro world.
And third, that all is happening in a world where capital is more concentrated in the US than ever, more concentrated in equity and illiquid assets. So a kind of risky setup. So understanding where money has flowed to, why it's flowed there, and how likely that is to change. Those are the big three headlines.
Well, let's unpack them one after the other. What are the implications for investors that we are moving towards mercantilism?
Yeah. Well, I think it's a big shift if you're thinking the economy works the way it used to work. It's a really important change, right? If you take there's a major change in the 1980s, a shift towards small government, a lot of capitalism, a lot of like kind of freedom of the private sector to a very different view, right? That because China has risen, because you've hollowed out the middle class in a lot of the West, you've got a political reaction, takes different forms, but you've got a political reaction in the rest of the world in a Trumpian kind of mindset. The basic issues are okay, you need the government to step in and stop what's been going on in terms of the neoliberal consensus on trade. You need this to basically protect US industry in order to be geopolitically strong. You can't be dependent on other countries. So you need to be independent, looking at trade as a zero-sum game where if you have a trade deficit that's actually a problem for your wealth. And that along with other elements that come with more government control on these things, corruption and other things, have changed the way the game is being played. So for investors, you've got to adapt, right?
But if I 12 months ago had told you what the world would look like now in terms of mercantilism, you know, tariffs and so on, what would you have expected markets to have done?
Yeah. Well, if it's only one thing changing, right, you would think that this would have led to a bit of a shift away from the US. You would have thought that people would have taken down their massive risk concentration in the US because it's changing so quickly. You need a more of a risk premium on those assets and you're getting a more like the US from an exceptional place to invest to a more normal place to invest.
But it hasn't quite happened, right?
Exactly. Because it's not the only thing going on. Okay. Though if you look underneath the system, right, in one way it did in the sense that if you look at US equities for the first time since American exceptionalism really emerged post the global financial crisis, the last 15 years, you've had the worst performance of US equities relative to the rest of the world equities in common currency terms that you've had over that 15-year period. So under the surface you're seeing it but the US is of course buffeted by the other big thing we talked about.
AI is sucking up incredible amount of capital and that's about to enter a new phase. We'll get to that. But you've got this like yeah modern mercantilism, people are questioning the wisdom and the rule of law in the United States. You see that across institutional investors etc. But you have an offset in that where else are you going to invest in the technological revolution that's going on. You've seen that massive offset. And so what looks like calm on the surface, right? If you said S&P 500's having perfectly good year, very similar to every year. And if you look at bonds too, everything looks fine on the surface. If you look underneath that, split up the equity market. Well, where's that equity coming from? How is the US equity market X the AI names doing relative to investments in the rest of the world? If you look at gold as another example where you're seeing the geopolitics play out. Those places you see it. And so I think you can make a mistake of thinking it's not happening by looking just at the calm of the averages versus what's happening beneath those averages.
So you've been talking about AI for a long period of time and now it's happening and so how is it panning out compared to how you thought it could pan out?
Well on the big trajectory pretty much in line. So for me if I go back, I came to Bridgewater 30 years ago and one of the things that attracted me is Bridgewater's now just celebrated 50th birthday. So Bridgewater had been around for 20 years at that point.
Well you came straight from Dartmouth in '96.
In '96 straight from undergrad and I was attracted to Bridgewater. It was a tiny place, 40 people, tiny place at the time. But I was attracted to the basic concepts, which was that you would have the discipline to take all of the things you believe, write them down, and stress test whether they're actually true. What an important thing that fit really with my personality in many ways. But I said, 'This really makes sense to me.' And on what questions? On the questions of how does the macroeconomy work? How do markets set prices? Take all of your human intuition, translate that into algorithms. And at that phase, Bridgewater and I believe it's probably the most profitable expert system that was ever created. We built an expert system for how you do that. Everything was human intuition. I worked on how do you take hundreds of people, really smart people, how do you get them to take their intuitions, put them into algorithms, do that? My expertise was generating those intuitions and building a community of people who deposited their intuitions into our compound understanding massively.
Then about in 2012 I said okay how are we going to, when will machines write the rules not just support the rules which we've been doing, have great technology support human intuition but when will their intuition actually be better than human intuition. And that I started on that journey in 2012 and they were nothing like that, there's big data great pattern matching but there was nothing like intuition but I was looking for the pieces that I knew we needed, we needed a reasoning to generate intuition and we needed certain pieces. You needed language models to come along. You needed diagnosability to come along. You needed to figure out how to deal with small data problems where you don't have a lot of data. And I went through the world and that journey brought me to OpenAI. I was in the first round of investors in OpenAI because they were doing unique things.
That was I think it was about 2016. Mhm. And so they just Elon Musk had just stepped aside and they needed funding and they were deciding to...
You invested in it on behalf of Bridgewater or...
No, personally we had different views at Bridgewater at the time on how to handle AI but so I invested in that personally and I because I was interested I wanted to see how can we build these pieces together. I was also very interested in AI safety issues and so anyway I was there for that got to know a lot of the scientists and the thinking which brought me to Anthropic later on when some of the best scientists I knew started Anthropic and was literally the first check there but all that was a journey to find how can we find these pieces we need to create reasoning that could compete with humans and most importantly along that journey I met Jazz Econ who's our chief scientist at Bridgewater and now we've built an artificial investor and continue to make it better.
2018. So he was a professor at Berkeley working on some of these small data problems. He was working with private companies as well but he was, it wasn't in our field but what he was doing was exactly what I was looking for and he's just incredible genius and so brought him into Bridgewater and we started working together and still the technology wasn't ready for what we wanted to do. 2022 I said the technology is almost ready that the pieces we needed we could start building an artificial investor. Started that March in 2022.
That was basically the same time.
Right. Right. Right. Right. On then all the tools were coming together at that time that I thought we could get all our pieces and we could actually build an artificial investor that could compete with me and you on how do you think about the world? How do you actually generate intuitions about the world? How do you write rules to say okay this is how I would apply that intuition. And we then by 2024 thought we had a smart enough investor to generate alpha in the world. And have been doing that. We're with some of our incredible clients. And so right now my role is running Pure Alpha as managing CIO of Pure Alpha where all the human intuition sits but also running this separate entity that's designed around a machine learning agent.
But we'll come back to this a bit but just so from there, looking at what's been happening to the market, the AI stocks, you know, the chip producers and so on, how is the market reaction to this panning out compared to what you thought?
Yeah. And I'd say if that's where it's panning out. I think people were way underestimating. The phase that we were in before I used to say the bubble's ahead of us, not behind us. I get the question starting with ChatGPT moment more or less. Is this a bubble? And my thought was I think there will be a bubble but we're nowhere near the bubble phase. We were in the phase where people have no idea what's hitting them, like meaning how important this is and how much is going to get invested because this is not a typical cycle when you have people like Elon Musk and Sam Altman and Google and so on whose businesses are threatened and believe that the power to control Earth and the universe is only a couple years away. They're not motivated by this normal profit incentives of the typical cycle. It's not a capex cycle that's the same as other capex cycles. This money is going to get spent, right? I'm thinking that in 2022, 2023, they're going to build this out. Maybe someday they'll be proven this is a dead end path, but we're so far from any possibility of that happening that the data centers were going to get built out, the semiconductors were going to get used. That has played out.
So now we've just entered what I've said is a more dangerous phase. I still don't think we're in a bubble, but we are in a more dangerous phase for the following reasons. That we're in the resource grab phase now to do AI. There isn't enough resources to go around. So, everybody's trying to grab their resources. Microsoft's got all the land where you can get power on the grid. They've done a great job of getting that land. Other people need to figure out places off the grid to get power. The Nvidia's supply has been like bought up for years to come in the future and so on and so forth. So you're in this resource grab phase. Compound growth is easy to do when it's in cyber like in the tech world you can do that. But now it's in the physical world you to continue growing 50 60% a year.
Tell me about the land grab a bit more before we also going to cover capital here as a third point. But tell me about the land grab. So what are the important elements of land grab?
Basically to control this you need power, you need chips and you need scientists.
Look at what's going on with all of those. Everywhere you could get power. I don't know last time you were in Abu Dhabi, but it's just incredible. If you go to Abu Dhabi and you sit in a cab, like the cab driver and his brother are building a data center. Like anywhere you can build power, they are building data centers. Maybe Europe's the exception, but everywhere else you get power. You put chips in there and you're building a data center. And the rate of that is huge. So you have to get where can you get the cheap power? How do you, who gets it? Where do you get the chips?
And so the power, so you don't think it's kind of overhyped? Do you think that's that whole...
I don't think it's overhyped. I mean I understand like the one of the real, the whole thing has this risk that the depreciation schedule is probably going to be quite fast and you hope it has to be in a sense that if you take Anthropic's mission or OpenAI and Google like the idea of building AI that builds faster AI one of the things they have to do is figure out how to make the chips more efficient, make the energy more efficient and they're trying to use AI to do those things and given what Google achieved on protein folding etc I think there some of the scientific advances that will depreciate the current assets will come from those assets themselves from the AI will generate better ways to do this.
So that's the power and then the chips.
But just to finish that but in the meantime everybody needs power so desperately and there's such a shortage in the west.
That it's a huge problem. China is a different picture but that is I don't think it's overrated right now for the reason that I just described. People really believe, many people believe including myself that incredible power is at the other side of this meaning like power to control outcomes on earth, the fountain of youth etc these types of thoughts then people are going to use every resource available to get there and so I don't think it's overhyped is first point.
The second on chips you were going to ask.
Tell me about the land grab on and also the kind of the circularity and the vendor financing and so on that we're seeing here.
Yeah good so the first part I'd say the land grab on chips is look, everybody needs if you want to get to the next level in the next two levels of models, right? This is what exponential growth is really hard to keep up with, right? That how do you grow, it was one thing to grow 60% a year when you're small. Now to grow compute 60% a year. If you extrapolate that out for three models, you've got data centers everywhere on Earth. That's obviously not going to happen. Things have to change to prevent that from happening. But that exponential growth is incredibly hard and the chips are so scarce that you need that Nvidia is now in this position and this goes to vendor financing. People look at this vendor financing and think it's because of normal bubble dynamics. This is how they're going to get their revenue. Not at all. Nvidia can get as much revenue as it wants. They have no problem selling the chips, but they don't want to set up a system where they lose their competitive edge. Their problem is Google is a true competitor. Google's trying to go the whole stack all the way down to the chips.
They don't want Google to win or they don't want Google to be the final win.
So, they're trying to control the ecosystem. They're like Standard Oil in the Gilded Age trying to create monopolistic control on things. So, create their own ecosystem and sell their chips to people who need their chips who will not create an alternative to their chips. So what you're seeing is a design of the ecosystem where there's a Google ecosystem, there's somewhat of an Amazon ecosystem and then there's an Nvidia controlled ecosystem that has let's say OpenAI, certain models on the top and goes all the way through all the steps that Google has and that's what you're seeing when you're seeing all these deals is everybody's got to lock up who do I partner with where am I going to get my chips and power and if I don't do it I'm going to die.
Yeah. What about the land grab of scientists?
Yeah. Well, you're seeing that's like the toughest one, right? Because there are not that many cutting edge scientists.
How many are there? How many really good ones?
I mean, it's probably not a great question for me, but I think less than a thousand. And so that's really constrained. And if you're Meta and you don't feel like you have the scientists, but you have the chips and the power, you get the scientists, right? You're seeing this actually really...
And you can't buy them at a very high price.
You buy them, right? But then you're buying the ones who are viable. That's always culturally as you know like that's a cultural issue and of course then they're also viable again. Meaning like this is one of the problems if you take how fast the, if you're like things that are going badly in the ecosystem is too many of the scientists, too many people naturally are drawn to like where do I jump to get the next paycheck and that when you're trying...
Soccer players and the kind of the transfer season.
Exactly so that's really bad now you're seeing and this is where I would think you see differences in the labs you know there are people that went to Anthropic because the mission there many of them are there I'd say like their ability to maintain their talent is unique because the people that went there are there for a mission that's a little bit different. Now, everybody has and I don't blame anybody. Everybody has greed in them to some degree, but you're seeing differences in the different places of who can hold on to scientists.
And so in a different entropy. Who else can hold on? You think?
I think Google is doing a good job of holding on to scientists and have been fighting this culture for a long time and have a lot of raw material. That's incredible. Otherwise it's just very very hard. You're seeing some startups like I'm very impressed with Thinking Machines. I think they have great people there but they just got there and who knows. And so I think when you look around this is sadly slowing down scientific progress in a big way. This sort of everybody jumping around and not, it's going to take some of the big breakthroughs are going to take a team working together for an extended period of time to get through. I think they're very possible the breakthroughs that are missing in AI today but with everybody jumping around that's certainly slowing it down.
Okay. So just to remind everybody of the structure here we talked about the economy mercantilism we talked about tech where we touched on power chips and scientists and then the last of the three points is capital and all the capital that's gone to the US. So what are your thinking here?
Yeah, it's super interesting because these two other pressures cut against each other to some degree, but I think the economy has changed. Just back on mercantilism for a second. The US is no longer the US that it's been post World War II. The idea of global institutions and even what the US currently sees in its interest has changed radically. The US was always pursuing its interest but what it saw is in its interest of international cooperation and things like that have changed in a significant way. So I think you are seeing that start to play out. We're still in the very early phase of what the next steps are. What is the retaliation from the rest of the world against what the US has happened? One of the things that surprised me this year is that the US came out as a bully in a sense, like came out and said, 'Okay, we're going to raise your tariffs.' And you're not going to do anything about it. And everybody except for China went along with that. I was surprised. Honestly, I remember conversations with members of the administration saying like, 'How are you going to do this? Like they're going to hit back and we are desperately in need of the rest of the world not because of trade but because of capital.'
So why are they not hitting back?
Well, I think people first thing is Trump has been successful in picking people off, right? If you try to punch back, he raises the tariffs even more and there is like a problem of all the countries being smaller and so they can't punch in the same size and they take the risk of being picked off. So that's one reason. I think beneath the surface though on things that are less obvious like how do you invest etc. You are seeing countries, you're seeing certainly the lawmakers in Canada saying, 'Okay, we got to invest in Canada.' You're seeing home bias everywhere as a reaction to this. I think you will see more of that. But the punching back is difficult with Trump in the presidency because he's going to punch again and you have to be up for that fight. But what you see in the politics which will lead to this is the US goodwill among the rest of the world's voters has collapsed. We saw from 2024 to 2025 the biggest collapse in support for the United States in the rest of the world that we've ever seen.
And what are the implications of that?
What you're seeing is populist mercantilist candidates gaining ground everywhere. So I think you're going to get the first wave is a shift to the populist right everywhere. And you're seeing that if it's the AfD in Germany, if you I mean shocking, but if the UK had election today, I think I might be out of date by a couple weeks here, but Reform Party would win. I mean, take that compared to 5 years ago, that's like an insane thought. And same thing, France, etc. So, a shift towards populist to people that are going to take care of their own countries in that way of populist right kind of thing. And of course, what the populist right then sets off is more strength than the populist left. New York City mayoral election or whatever, but you see the shift towards populist right, populist left, and the continued just like you had the hollowing out of the middle class. You've had the total hollowing out of the middle of the political spectrum. And that's the world we're going into is this probably shift to populist right. If those policies don't work, shift to populist left. And that's the dynamic. And the populist right, the hitback, even though they're aligned to Trump, is just more domestic, more focus on their domestic issues and less international cooperation.
So now we have painted the world, right?
What are so when you then look at what it's going to lead to in terms of economic indicators and developments, let's kick off for instance with what are the implications for inflation for instance?
So if you take the things that just happened from a mercantilist perspective, they're clearly inflationary. Two big things, right? You get tariffs, which creates rather than being able to secure your pipeline in the cheapest way, you have to secure a pipeline of goods that's more resilient and more domestic than cheap, right? So that's inflationary. The product one of the huge benefits over the last 30 years was the productivity change by taking advantage of the cheapest and most efficient places to build things that's totally wrecked in the world right even you thought okay we'll get out of China and go to India well India's tariffs are now higher than China like there's if you're an international company this is incredibly hard to build a build that so that's inflationary. Secondly the big inflationary push from this is everywhere you're seeing a fiscal reaction right that Germany most extreme but a great example you got to build your own military now. You have to get off the dependence on the US. You got to build your own military and that there's nothing more inflationary really than military spending because it creates demand for labor and demand for goods with no supply into the real economy. So you've got military spending surging at incredibly fast rates in non-wartime. And you've got so military spending plus you've got the need to rebuild the infrastructure so that in Canada's case but just in Europe's case too can't ship to the US as much anymore. How do I get my goods to other places and those pieces are inflationary.
So the and the magnitude of this. So how much worse do you think inflation will be than the general consensus?
Let me say the flip side of that is on the other hand growth is dominated by this AI investment. AI investment while starting to take up power capacity and whatever is very low labor intensity relative to the unit of GDP. So you have a disinflationary weak labor market because so much of the growth if you take US growth this year right you're going to have a normal growth year this is the same thing in the averages 2% 2.5% growth but without AI it would be 1% right so and that 1% of growth that's coming from AI investment it's very non-labor intensive. So that's a disinflationary effect. And net net I think we are inflation particularly for the next couple years is going to be a significant constraint on policy makers that you're running around like break even inflation is around 2.2 we think the fed is very comfortable above 2.5 and probably we're in the 3 range as a base right now with the risk that these things push higher.
But the AI story right and this depends all these investments have a J-curve in the first phase you don't get, you spend a lot of resources you don't get a lot of output other than the investment itself but then you get the part of AI that will eventually be highly disinflationary although I think that's further out and in meantime central banks, it depends a lot on what central banks choose to do. You know, the US part of populism certainly in the US is getting control of the central bank, taking it into executive power and getting them to lower real rates, which lowering real rates into a boom like this is particularly inflationary if it ends up going down that path.
Yeah. So growth is going to be this two-track economy, right? I think you're going to have good growth in the United States and generally decent growth because you've got this fiscal thing in Europe and you've got this in the US you've got AI where growth next year is going to be further pushed by this AI push and so growth in the US we think will be a little bit above, you know, above potential 2, 2.5 kind of percent growth and but a lot of that 1.5% or so is going to be AI so you're going to have a weak probably weak labor market, weak economy in many places while you have this huge boom in a very concentrated sector.
What about budget deficits and the government debt situation?
Yeah, that's another aspect of what's changing in the world is you've got you've put yourself where let me just say one thing at the beginning of this year a little before the beginning of this year I wrote a piece called 'We're All Mercantilists Now' and I'm thinking about the piece for next year which is a little overstated I'm not quite there but something like 'We're All Brazil Now' and what I mean by that is Brazil for a long time has been constrained despite having their debt mostly in domestic currency now it's not like Brazil in the '90s where the problem was having dollar denominated debt that they couldn't fund, but despite having most of their debt in domestic currency, they're very limited in what they can do. You're starting to see that the UK is in that position. And that changes the dynamic. When you have fiscal policy and you have a lot of room, like Germany does as an example, and you announce a big fiscal policy, what happens? Your currency goes up, your stock market goes up. When you're the UK, if the UK said, 'I'm going to do what Germany's going to do. I'm going to write a big fiscal check.' Currency would go down. The equity market would probably go down, although that's closer call, and interest rates would rise a lot. And so, what you see now is more developed world countries constrained by hitting the limits of fiscal policy. And the limits of fiscal policy are complicated. It's not like a simple number like you could take Japan they could have 300% of GDP in terms of their budget their accumulated debt for the government and in Brazil you might hit that limit at 60 80%. The difference is how much domestic savings you are, how much productivity you have, how much willingness there is to save in your currency. But all countries have limits and we are testing those limits in certain countries. Which means you're moving from a world where policy makers were unconstrained. When something went bad they could lower interest rates and print and spend money to a world where more and more countries including by our measures getting close in the US are constrained where actually if you when you get constrained spending money becomes counterproductive rather than productive that's the case in the UK and Brazil today and the US is drifting towards that line as well.
I think we're in this death march on institutions you've already seen that the World Trade Organization what does it even do now I mean every international institutions are gone and in the US the domestic institutions are fading fairly quickly. Although I will say it's been interesting and I do think we're going to face this next year that they're going to put in a chairman who's going to for the first time in a very very long time. I don't know if this ever happened in the US where the chairman's going to get outvoted a lot. That'll be an interesting period while the Trump administration tries to get more governors in who will vote in line with the new chairman. But for a while you're going to have this very divided Fed and where the chairman may be in the minority.
So now we have set the scene for what the world looks like and what it's going to look like. So here I give you all my money. Greg, could you please take look after our money?
Well, just so you, so let's say it's a hundred. Just where do you put the money and how do you invest it?
And the main thing that I'd say is different in our philosophy than most is I would say the way I would take your $100 is to say how do we survive in the wide range of possible worlds rather than try to pick the best thing.
Yeah. And that is very different, right? If you take basically the last 15 years.
I'm sorry. Is that the way you always think? Let's survive rather than let's get rich.
Or do you just think that's the way to get rich in the long term?
I think it's the way to get rich in the long term. And that because basically there's a lot of ways to make money in the world. The main thing you want to do is avoid really bad outcomes and that's how compounding wealth works. If you keep earning more and you're in the game, you'll be able to compound wealth in an incredible way. So for me right now, if I look at the world, I think it's very dangerous. And this depends like because you have this home bias move and a lot of the geopolitics like literally where you're located. Being located in Norway is an advantage, a disadvantage in certain ways. Being located in the US advantage and disadvantage in certain ways in terms of what you should do. But to me, where I think most people the last 15 years are a trap. Most people have moved away from diversification because it hasn't worked for 15 years. All you needed was the US US equities and more liquid the better. Like that has worked incredibly well. I think it's mostly a trap. So the ways I would do this is look get a much more globally diversified portfolio than most people have and because you don't know what the winners and losers are going to be and the US the change of the US are quite radical.
Yeah. Look, I think Europe is investable like even though as we agree that...
Hope so we got 25% of the money there.
Yeah. Yeah. And that the fiscal changes look there's two things that have changed a lot in Europe. The fiscal move the move like look there you can't build this economy on exporting to the US and you can't build this economy on exporting to China even. That you've got to create a more domestic economy a shift towards fiscal policy. Fiscal policy works in the profits of domestic companies. And you need to move to a more independent economy in Europe and I think they'll do that and companies in Europe have seen what's happened to the US and in some ways unfortunately not in the technological domain which is a massive problem but on treating shareholders better on returning money to shareholders buybacks etc. that Europe has actually moved to a more shareholder friendly place in many ways than it was for a while. And the companies that are bigger, if you look at companies that directly compete between Europe and the US, they're generally priced cheap. In a lot of cases, the European companies actually have better earnings and better management than the comparable companies in the US.
Again, this depends a little bit where you're located because the biggest risk of being invested in China is your government saying you can't be invested in China than the risk of being in China. Look, I think China is really important to global diversification. They have taken a big step. You were in this big deleveraging in China. The deleveraging was playing a certain course. You also have obviously the challenge that the party and Xi in particular needs the party to be more powerful than the companies. And so you went through that phase really badly. But what they have seen is if they want to compete with the US on AI and this is worth taking a minute on. Which they now know they need to. It's existential. They determined this about a year ago. It's existential to compete on AI. They need the private sector to do it. They watch what happens in the US. They see the US has so much more funding to AI because the markets work well. The equity market works well. It gets a tremendous amount of funding beyond what any government could do. And they've shifted. You've seen the shift bringing Alibaba back in. Saying okay we've got to go do this and they need the equity market to function to do it they know it and you've seen the shift there and they have incredible unlike Europe there's incredible technological ingenuity there that while they're behind in cutting edge AI they're probably on the cutting edge of applying AI in businesses in China.
And bonds, bonds and equities, how you split it?
So bonds, I think, again, depends a little bit on your starting point. I think most people got out of bonds when many investors got out of bonds when interest rates were zero, and interest rates have risen and real interest rates have risen such that there is a place for bonds in portfolios. But I would say you really, bonds are not what they were for the last 30 years. These fiscal limits are really important. All of a sudden the correlation between bonds and equities and currency will shift when you hit limits. In the UK, you have a different, a very different diversifying instrument than you had before. And B, when fiscal policy is such a powerful lever, the big thing bonds diversify against are major deflations and disinflations. But if you believe there, if there's a disinflation, they're going to just push on fiscal. They don't hedge as well. So I think bonds are risky into this, and particularly the massive supply that's coming, the fiscal supply, massive. The need now for the next wave of AI, AI ecosystem used to be a net capital provider of the world, the Microsofts, the Googles, they were so profitable, they were buying back assets while investing a lot. Now you're about out of that, they're basically spending their cash flow. When you look across that ecosystem, they need a lot of money. You're seeing that in private credit and that's going to be sucking in money. So, you're going to have the shortage of capital both between fiscal and AI that's going to create, I think, problems, potential problems for real rates. Although, what's fighting against that is central banks in the US that want to drive down real rates. But the picture I would say is that you're going to have this big competition for capital between fiscal and AI. Moving from a world where you had an excess supply of capital because you had huge savings in Europe and in Asia to a world where Europe, Asia, and the big tech companies were big savers to where Europe, Asia, and the big tech companies are becoming spenders.
Real estate.
What do you do with real estate?
Crypto. What do you do with crypto?
Look, I think it's mostly, my view on this, I started studying crypto in 20, around the same time I started studying AI. So 2012, 2013, 2014. My thought then, which hasn't changed much, is this is not very helpful technology. This is a complicating thing and it's...
I think so. And my basic view of the use cases back then were mostly speculation and this thing, and the use cases have largely worked out that way. And I thought at the time like AI is a much better bet on how the future will go than crypto is. With like, I think there's obviously a place for Bitcoin in the sense that you, if in this world if you don't trust governments and such, having a way to move money around the world, Bitcoin is obviously the best choice. It is a replacement in some ways to gold although in many ways it's not. We could get into, and so I think that has some merit to it. You have the two problems of you have a very intense bubble corruption thing going on in that area and you have some...
So what do you mean in that area? What do you mean by that?
Cryptocurrency was like a, it was a magnet for the most corrupt people in finance. Because there's low regulation, I mean just for the reasons, low regulation.
Yeah. I think so. I mean bubbles are always, but I would say the crypto area is just focused for that edge of corruption. If you look at the companies that just buy the Bitcoin and put in their treasury or whatever, like the things going on there, I don't think they're supported by the use cases. And I think then the idea, like it is possible because there is some good to the idea of taking a database and then distributing it so that no one person has that power. No one entity has that power. You get the need for that in this world, particularly in the world, but that's what it does. That's a more inefficient database. It may be more, it may be necessary because you can't trust anyone. But it's basically built on a technology that deals with a trust issue that makes it more inefficient. Living in a world with no trust is a very inefficient world. And crypto represents that.
Bridgewater. Why has Bridgewater been so successful?
I think the most important thing that Bridgewater did well was to say, A, we're focused on two things. How do you deeply understand how the global financial system works and how do you build great portfolios? Those are the two things that we do. And then to drive that, the idea that you have to do that by compounding understanding. You have to have the discipline to write down what you believe and why you believe it. Share that with others so that they could assess what's wrong about that, what's right about that. Build that out and keep compounding understanding. So to me, basically the focus on those things, getting a culture of people who care deeply about how those two things work and then taking everything we ever learned and having the discipline to write it down, translate it into algorithms and keep moving forward that way. Those are the magical pieces.
But is it possible to compound knowledge within an organization like that?
I think it's very, very difficult but yeah, I definitely think it is because...
I mean so now let's say now I joined Bridgewater. So how do, so then I have access to everything you have ever thought?
