Ray Dalio: The World Order Has Unraveled

Today's number: 1.5. That's how many tons of beans were delivered by GrubHub across America last year, with bean sales up 135% from the year before. And in other news, investors are piling into what might be the hot new sector on Wall Street: air freshener.

Welcome to Profy Markets. I'm Edson. It is April 30th. Let's check in on yesterday's market vitals. The S&P 500 and the Nasdaq were flat while the Dow declined as the Federal Reserve held rates steady. The yield on 10-year Treasuries hit a one-month high as traders gave up hopes for a rate cut this year. Brent crude hit the highest level since 2022 after President Trump told aides to prepare for an extended blockade, and big tech shares were mixed as earnings started to roll in. More on that later. Okay, what else is happening?

Earlier this year, legendary investor Ray Dalio declared that the world order had broken down. Since he made that claim, the national debt surpassed $39 trillion to reach a new record. We've also gone to war with Iran, which has cost at least $25 billion so far and sent the price of oil soaring. And on top of that, new projections show that tariffs are expected to add another $1 trillion to the deficit over the next 10 years. In sum, the deficit is expanding. Inflation appears to be rising. And meanwhile, the Fed is stuck holding rates at a crucial time of transition. So we wanted to check in on all of these dynamics. So we decided to check in with the man himself, Ray Dalio, global macro investor, founder of Bridgewater Associates, and New York Times best-selling author. Ray, thank you so much for joining us again on the show. I guess we should start with your main investment theme, which is the big cycle and the five main forces that drive the big cycle that you have been warning about for a long time. Could you just remind us what is the big cycle and what are those five forces that are moving markets?

Yes, thank you. I think it's very important to step back from the day-to-day and see these cycles and the orders and so on. So I appreciate your question. There are five big forces that create the orders that we're talking about. There's a monetary order. There's a debt cycle. There is a political and social order within countries. There is an international geopolitical order. There are acts of nature throughout history. Droughts, floods, and pandemics have been more disruptive, killed more people than wars, and can't be ignored as a factor. And number five, technology. And all of those are operating, and they operate in a cycle. So on the first, there is a debt cycle that I will describe, and people should consider the merit of that. I have done very well in a macro way of anticipating the 2008 financial crisis, European debt crises, and so on by understanding this. Okay. The way it works is that the credit system is like a circulatory system that brings nutrients, buying power, to different parts of the economy. And if that money is borrowed and used to create productivity that produces income, then there's debt service, and you make the debt service payments, and you do better, and you make profits, and it's a healthy system. On the other hand, debts and debt service rise relative to income. You see, the debt service is like plaque in the circulatory system in that it squeezes out spending. So in other words, income minus debt service becomes less, and so as a result, it squeezes out spending, and there's a supply and a demand. In other words, right now we have a certain amount of debt. One man's debts are another man's assets. Those holding them expect to have a good return. And then you have to sell more. And when you have to sell a lot more, there's a supply-demand issue. And when those two things happen together, it's like plaque in the system. And then number three is the world order. In other words, how countries deal with each other. And throughout all history there are great conflicts, wars, and then after the war there's a new order. The power in the United States, for example, 1945 created a new monetary order, created a new world order, and that was a multilateral world order that was designed almost in some ways to replicate the US approach to representative democracy. The creating of the United Nations, multilateral organizations, including, can you imagine, the World Court or the World Bank or the World Trade Organization or the World Health Organization, that's all over. And it was in some ways naive because if there's no, you take a vote and there's no enforcement mechanism, of course that's not going to work in the dominant power. So that's the third. So we have changed the world order to a world order that was analogous to pre-1945, which is a power-rules kind of world order. Number four, I told you about the acts of nature, and then of course number five is technology. They all have great implications. Technology can greatly improve productivity, and if that productivity creates incomes and so on, it can help greatly. And similarly, productivity, use of AI and other ways, can be used for war or can be used for other purposes. So that is the cycle. So now as we come into it, we see these things happening. They cannot be, should not be looked at individually. In other words, in focusing on something like Iran, on the war with Iran, we can lose sight of the fact that while it's very important, it's part of a world war. In other words, there are sides: China, Russia, Iran, and other countries, Korea, North Korea, and the like. And then there are other sides to that, and there are conflicts. And so the implications that this has are very profound.

It's very helpful because, I mean, with each force, very, very obvious examples come to mind. I mean, with the first force, the thing that comes to mind is the fact that, as I said, the national debt has surpassed $39 trillion. We're sitting at a record high in the US, and our annual deficit spend so far, at least in the first half of the fiscal year, was $1.3 trillion. So it's clear where we're headed on a debt perspective there. In terms of the internal order, it's clear for most to see that there is more and more polarization, both between the left and the right, but also between the rich and the poor. We've seen some pretty disturbing attacks on CEOs lately, which I believe is at least somewhat indicative of sentiment within the US starting to fray. And then, I mean, you talk about on an international scale, we have a war with Iran, which is also coming off of a moment at Davos where most of the leaders got together and said the thing that you said and have been predicting for many years, which is that the world order as we know it is coming apart. This era of globalism is coming to an end, and even its proponents were the people who said outright, yes, this era is coming to an end. So I guess my takeaway is the big cycle is happening. The things that you have been talking about, they are occurring. And the question for me then becomes, well, where are we in the big cycle? What stage are we actually at? And what are these events that we have seen in the real world actually say to us, and what does it mean for investors?

We are on the brink. Now, the brink might be, I would say, a particularly risky period is between the next two elections. So between after the '26 midterm election and the '28 presidential election is a riskier period, and this is a very risky period. What I would say, if I take the monetary order risk, we have debt service problems where they have big changes, and you know, we'll get into this, who is earning a lot of money, how this, who is not earning money, how wealth has changed. For example, it's very interesting and very important to observe that the Chinese are making a tremendous amount of money and accumulating, they're running very large surpluses with the rest of the world and accumulating a lot of dollars. And what does that mean in terms of how those are handled, and then what does that mean for our balances and so on. But if I'm back to your, to try to be on point, I would say in the midterm elections there's a likelihood that the Republicans will lose the House and that there will be a great conflict, including, you know, impeachments, investigations, and so on, that the conflict is going to be material. I think that the monetary situation will be more threatening. In other words, there's itself the supply-demand that we're referring to. You know, the United States, basically the US government spends 7 trillion. It takes in about 5 trillion. So it has, it's 40% overspending. It has a lot of debt, and the demand for that debt is falling. And it's falling not only because of the supply-demand situation, the regular supply-demand, but we're now in a world where even wars, there are worries of those who are holding dollar-denominated debt that they could be sanctioned. Right? Imagine if you're holding, if you're Chinese and you're holding it, and you could have a conflict. So there are these shifts that are happening in terms of that. So that plays a role, and of course there is the international conflict. And of course technology is changing at an incredible rate. And so I think that as we take the next two to three years, it will be like going through a time warp, that we're going to have a riskier period, but also a period of great changes that we, you know, are difficult to deal with. Particularly, I think the question is how do you deal with that and to have a well-diversified portfolio. But in an answer to your question, it's a sort of long-winded answer, but I think that we're going to, we're on the brink of some of these problems. And we are, I would say, you know, particularly in the vicinity of, you know, two years away from what obviously is a confluence of more, more risks.

Yes. Yeah. I mean, my next question is, what does this mean for portfolio management? Just thinking long term, if we are seeing a decrease in demand for US debt, if we're also seeing more US debt issuance, if we're also seeing more global conflict around the world, generally these are very, very large forces that are very difficult to sort of wrap your head around. What does it mean for an investor? What is an investment thesis or investment decision that you can make that might protect you from a portfolio perspective?

I think the most important thing for most individuals is not to market time a lot of these things. They're not going to be successful at it. They get excited if a war happens and, you know, and all of that. But the most important thing is to have a well-diversified, well-structured portfolio and to look at the assets in the portfolio in relationship to each other. For example, as an inclination, I would say, how much gold do you have in the portfolio? You shouldn't have too much and you shouldn't have too little, but it is an effective diversifier to other assets that you probably do have in the portfolio because when you have a bad set of circumstances, gold tends to do well because of either the debt problem or the world war problems, and so on and so forth. Not to market time gold, but to basically realize that it's a currency. It's not only a long-term currency, but today it's the second largest reserve currency held by central banks. First dollars, then gold, then euros, then Japanese yen. And to have, for example, somewhere between five and 15% of that portfolio in that diversifies the other parts of it. I would worry about debt, and you should understand, like cash, which people think is the safest investment, is the most assuredly bad investment in most times normally because cash has a lower return, but it's particularly a bad investment in a period of stagflation. So we're dealing with kind of a stagflation kind of environment or an uncertain, but to achieve, and debt has its challenges. So I would say the most important thing is to know how to diversify well, and that also includes, you know, outside of the United States as well as inside of the United States. That may seem very difficult to people because also right now there's a lot of concentration in the areas like tech, in other words, and particularly AI. And one might figure, okay, that you're going to miss out on that, but still the diversification is of very much importance because I think a lot of people make the mistake of thinking that because a technology is going to be a revolutionary technology. Throughout history, so many new technologies have been revolutionary technologies, and it's certainly the case that that'll happen. Such periods have also been periods of bubbles because people think, I want to bet on that technology, so they buy stocks of that sort without looking really at the price. So to create a well-balanced portfolio, what I call an all-weather portfolio, I think is the most important thing that people can do.

Lots more we could get into, but we will have to continue it another time. Ray Dalio, founder of Bridgewater Associates and New York Times bestselling author. Ray, thank you so much for joining us again on Profy Markets. We always love having you.

Ed, it's my pleasure.

We'll be right back. And if you're enjoying the show, be sure to subscribe to the Prof Markets YouTube channel at the link below.

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We're back with Profit Markets. Many of the world's most valuable companies reported strong earnings yesterday, but investors didn't seem too impressed. Microsoft beat on the top and bottom lines with revenue up 18% year-over-year. However, the stock slipped 2% after hours. Amazon also topped expectations with stronger-than-expected cloud growth, but its shares fell around 1% after hours. Meta posted a standout quarter with revenue surging 33% from a year ago, but higher-than-expected capex and disappointing user growth set the stock down nearly 7% after hours. Google was the exception. Revenue beat estimates. Cloud sales topped $20 billion and the stock rose over 6% after hours. So, lots to unpack here. We're speaking with Gil Luria, head of technology research at D.A. Davidson. Gil, good to see you again. Lots to get into here. I mean, the thing that strikes me immediately is that these numbers, these growth numbers especially, are just mind-blowing. I mean, Google, their cloud revenue is up 63%. Microsoft Azure revenue up 40%. Like, these are crazy numbers, but based on the after-hours trading, I guess investors aren't that excited about it. What do you make of these earnings and how the markets have reacted?