Please welcome Ray Dalio, founder of 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. Great to see you.
Great again, a great crowd. Very excited.
Let's talk. You have a very strong point of view. You talk about, you know, again, you look at the world, you look at history. 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 two minutes about that and then delve into those forces and how they're driving everything, right?
Okay. 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.
And I'm bringing a perspective 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 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 the background. So, okay, five big forces. 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 and what my experience is is that there are these five big things that interact. Okay, there is an economy debt money dynamic that works and you know, we have money and we have credit. And when the money and credit grow, we buy assets, investment assets. They go up in value and you have a cycle. 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 an 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.
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 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 what you see in terms of the forces in China and what you experienced there.
Okay. I would say two big things in the world, very big, is the changing belief in the world now that the United States can and will 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 then are we... been a belief of 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 the United States politics, cost of living, 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 had the Suez Canal taken away.
And 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's well viewed around the world. The second is China is making a ton of money. In other words, the exports, if you look at the amount of money that they've earning from exports...
You weren't earning money from exports. 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 what they do with that money is what their businesses do, what everything, what they do with that money is a big influence on capital markets, right? Like...
It around the world? Africa and other places, right?
Everywhere. Where they put that money is going to matter a lot to the capital markets. So, those are the two big things in terms of this shift in power. And then we have, of course, the competitions, right? And the competitions in AI are believed to be quite like the competitions that might be in electric vehicles, batteries, solar panels, 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? Because it's very interesting. Their view of AI is very different from the American view in that what their view is 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. And that it therefore doesn't have to be expensive or even profitable, but anyway, that's pervasive use of it. So, their advances in that are significant and then their advances in some other areas like robotics and other things are. So, these are the only two competitive and then there's a barrier and the question is does the barrier hold? And so that's a picture.
Did you meet with President Xi while you were there?
