Ray Dalio on Career, Market Cycles, China Debt

So I have to admit that I cheated a little when we first proposed the idea of ​​a live MBA. Alan Dave was very supportive and I said he would bring a ringer with Ray Dalio, so I don't really have a full idea. There is much work to be done. I assume most of the viewers and audience present know who is reading it, but let me give you a quick version of his background. He is the founding co-chairman and co-CEO of Bridgewater Associates, the world's largest hedge firm. fund that manages more than $160 billion in assets for institutional clients according to Forbes Bridgewater has made more money for its clients than any other fund in history.

He is the author of the New York Times bestselling book, Principles for Life and Work and, most recently, his new book is about the principles of major

debt

crises Ray Dalio, thank you for being our first guest on Masters in Business Live. Let's start with the Bridgewater reboot that you described in great detail in the first book that came out after a not-so-great 1982. For you, in fact, you simply subscribe to what happened in 1982 as disastrous, well, you know, I formed Bridgewater in 75, so 18 to 7 years later, that's the reset, yes, that's the right reset and I had in 1980 79 80.

I had calculated that the United States American banks had sent much more money to emerging countries and those countries They were going to pay it back and it was about 250 percent of their bank capital, so we were going to have a big banking crisis and I thought that was going to happen and I got a lot of attention and then in August of '82, Mexico came in defaulted and there was a sequence of other defaults and there was a huge

debt

crisis and I thought that was going to cause an economic crisis and I couldn't have been wrong, that was the exact point of the stock

market

when Mexico defaulted and anyway I got attention at that time I was at Wall Street Week and I was asked to testify before Congress and I was right and I was wrong and I think at that time maybe eight people that I work for me I had to let them all go and I lost money for myself I lost money for clients I had to borrow $4,000 from my dad because I really didn't have enough money to even take care of my family at that time It was very painful but it was probably the most valuable thing that happened in my life.

Certainly one of those because it changed my way of thinking because it made me start thinking, you know how I know I'm right? How do I continue taking? to take risks and not make these mistakes and that changed me a lot because I wanted to find the smartest people I could who didn't agree with me. I wanted to build an idea of ​​meritocracy where independent thinkers challenged each other and I wanted to deal with risk, how do I maintain returns but diversify and do certain things to deal with risk? And it was from that moment that everything started to change, so that was my terrible experience and I think, by the way, that's one of those lessons like there. was a book that my son gave me in 2014, Joseph Campbell, about Thousand Faces, and it describes how that collapse occurs and what changes have a metamorphosis, so the whole approach is to learn from the mistakes and the painful mistakes and take advantage of them by maximum. and writing principles, in other words, recipes for how to deal with circumstances, learn the lesson, write those principles down.

This is what I would recommend to everyone. Let everyone write them and I also learned that by being able to write them. so clearly that they could be expressed in what were then called equations, now they are algorithms that allowed me and us to make decisions in a very powerful way, so that experience was really the turning point, that is very abstract. I want to describe some of the ideas and products that came out of that publication 82 you described in your early history some of the products that you had a role in creating advice inflation-protected Treasury bonds US dollar futures index the whole concept of risk parity that is It was very humbling to say that you had little to do with the creation of the Chinese stock

market

, but I know that you consulted with high-level people there and helped make that happen and what I think is the least known about you, but the most fascinating thing you helped achieve.

Engineer Chicken McNuggets explains that to us because it's absolutely intriguing. Well, I was trading commodities back then, I mean, that was the big thing and I really learned that you know how to make chicken and how much feed, how much a chick costs, how you grow soybeans, how you grow them. It competed with cotton and corn and domestic mechanics. I like all that mechanical stuff and at the time McDonald's chicken was a client of mine at the time and they wanted to launch these Chicken McNuggets, but it was very volatile. Prices were volatile at the time and they were worried about whether they could get stable menu prices or if it would have volatility and that would be disruptive and I had a chicken processing producer that I think was the largest at the time and a customer and I could design the capacity. fix feed prices because basically the cost of a check is not much relative to the cost of feed and there are futures contracts on that and I was able to work out a deal so that chicken producer could get the contract from McDonald's and McDonald's.

I could get a stable price through engineering, how could they do the coverage to be able to do that, that's what I did. The word engineering comes up a lot for a person who is not an engineer and I was there, I remembered it a lot in one of In the first full-length videos you did how the economic machine works. First, what is the engineering foundation for economics in general and what motivated you to put it together in a video and release it to the world? Well, the only thing I learned over the years. You know, everything has its effects, everything that happened has a reason why it happened, cause and effect relationships and these things happen over and over again, so every time something surprised me it was usually because of something that hadn't happened. earlier in my life. but it happened, you know, like these financial crises and so on, and what I did was I went back and I saw, I started to see that if you start seeing everything happen over and over again and then you study the cause, Mechanics of effects behind it , at an essential level, you learn how reality works and then you can write down your principles for dealing with reality, which are essentially the recipes for making good decisions.

To me, you know the story is shown as if the same things happen over and over again. over and over again for the same cause-effect relationship, so the debt book you are referring to you know is a good example. If we don't spend time understanding the mechanics and cause-and-effect relationships, we simply argue among ourselves about what we should do. do and it's like two doctors who haven't spent time understanding and agreeing on how the body works, arguing about what should be done for the body and that's why I did that, a video on how the body works economic machine and the reason I made the book and the reason I wrote principles is to put on the table what I think those cause and effect relationships are so that we can understand the eternal and universal mechanics behind it and that has been invaluable to me because once I understand those mechanics and we could test it, we could test it in all time periods, we could test it in all countries, we could understand it and then with that framework we know how to approach it, but today, being able Tackling it with algorithms and technology means you can deal with this all over the world and it's been a powerful force, so it evolved from those experiences.

I remember the first time I worked as a clerk at the New York Stock Exchange in 1971, I was right between college and business school. -Hmm and stocks and we have a dollar crisis, we can't pay for our products in Europe, no one accepts dollars and on August 15, Richard Nixon appears on television and basically says that we are cutting the connection between the dollar and gold in that then. money was like a check and in a check in a checkbook it has no value only what money is has value and that's why I would give you money I would give you gold and that was and it was a breakdown so it was a breach and I remember having I thought when I was going to enter the New York Stock Exchange on Monday morning, this is a big crisis and I thought the stock market would fall a lot and the stock market skyrocketed and I said and I realized I said, well did you have currency breakouts before and then I studied that currency breakouts had happened in this system and I realized why when the currency is devalued it is bullish and how all that works that I didn't understand so it's that perspective on the mechanics, can we understand?

Agree on the mechanics of how it works because once you can do that, then you know how to deal with it, so you mentioned the principles before we talked about the great debt crisis, let's talk a little bit about the book that came out last year and became New York. Times Bestseller and you sort of went on a not-quite-world-wide tour of the book, you said the experience was really educational, what did you learn from talking to people about the principles of the book? Well, I didn't like it, I didn't like it, I never liked being in Above the press or above the radar, historically you don't do a lot of media well, although you're starting to flourish now that you're an author.

I'll do that. I will do that. Gotta make it. On my face, I am going to a phase of life that is a transition from my second phase to my third phase and therefore the way I see it is that in the first phase of life one depends on others, one is learning, one is basically a student in In the second phase of life, one is working, others depend on them and one is trying to succeed as one reaches my stage in life, which is a transition from the second to the third stage, as I think it is, the joy is no longer so much about being successful as it is about passing on what you have learned that has helped you be successful, the joys and seeing other people succeed and because these principles have been written over a long period of time and they are recipes that I wanted to pass them on and that's what I'm in the process of doing and then I'll phase them out, but to answer your question in terms of the surprises, I thought I'd to be a very uncomfortable experience.

I thought even communications. It would be bad and I've found so much joy in the interactions I've had with people in the public and so on, so it's been a really enjoyable good experience, a sense of relationships and I think people are now looking for principles and I want to emphasize that I forget my principles, they don't have to be my principles, but I think everyone would benefit greatly if they were very clear about their principles. I want to convey this, number one. I'm going to pass this on. that if every time you encounter your situation at that moment or immediately after you go down the court, the criteria for making your decisions is inward and that allows you to communicate with others, it allows you to clarify your decision making and you can assimilate it. others, what is the best criteria for those circumstances in the future, that is invaluable because in all your relationships with people, no one person will know what your principles are, how you will interact with them and why, and then you can go even further to turn them into Asians and help them make the decision again.

I think that's a powerful thing in the future and I will do that, so I wanted to convey mine, but I also wanted, more importantly, to convey the importance of other people doing that and that's what I'm doing. In the phase, uh, there are two things, so I did the work life principles and now I'm working on the economic and investment principles which will be the third third book in the series, yeah, the middle one was kind of an accident. , well, we. We'll get to the middle ground in a moment before leaving the beginnings. I have to ask what I think is the most interesting approach that you bring to running the company, which you call having a radically open mind, having radical transparency and generating thoughtful disagreements, tell me how. that plays out because that doesn't seem to be the way most American corporations operate, that's our advantage, your advantage is considered with Superman, okay, yeah, okay, so let me give you some sense.

I want an idea, meritocracy, in other words, I want the best ideas. win unlike where it comes from, I don't have to be, it doesn't have to come from me, I just want the best decisions to be made and what I want is to have meaningful and meaningful work. Relationships are meaningful work, meaning you are on a mission together and those relationships are deep and meaningful and they are high quality, they are all rewards in themselves and make an organization more effective, so I will have a sense of meritocracy. of a phrase now would be a meritocracy where the goals are meaningful work and meaningful relationships through radical truthfulness and radical transparency radical truthfulness means saying what you are thinking and now this will save the same and let's move away from thebehind the scenes in politics and radical transparency means that most people can see almost everything so they can form opinions of what is happening for themselves independent thinking and that builds trust, first of all it cuts through the notion of politics and bureaucracy everyone can see most of the things you build, trust you and you are dealing with most things without the confusion of hiding things that are in people's heads and in the investment business.

I think it's particularly important. I think it's also especially important for entrepreneurs. important because you have to have independent thinking in the markets, the markets discount the consensus, so whatever the consensus is in the price, so to be successful in the market you have to think differently than the consensus and you have to be right and to have that you have independent thinkers and when you have those differences in independent thinkers if you can work that through reflective disagreement, you have the art of reflective disagreement, if you work that through that you increase your chances of getting the best answer and that It has been a very powerful thing and it also builds trust and builds better relationships because trust comes. you know, or from the top, operating in organizations that have this policy, everything is behind the scenes, everyone is high-fiving and everyone is happy, etc., and they talk behind each other's backs, so that's been a big problem for we.

That's your advantage, so let's move on to the new book that just came out on how to navigate major debt crises. You mentioned that you decided to write it because a couple of people asked you to put it together. Ben Bernanke Tim Geithner. Others. I really like it. The way the book is put together is divided into three parts, the template of what the great debt

cycles

are like, then three detailed cases are used, the great financial crisis, the Great Depression in the Weimar Republic and then 48 are put together. case studies from the last century. So let's start with the first one, the model that makes all these very different crises follow the same kind of mechanical cycle, how is that possible?

Well, everything has these cause-and-effect relationships and the way you know, in a nutshell, I'll try. To make it simple, there is productivity over a period of time, our standard of living increases because we learn to do things better and output for man, our work increases and that moves at a fairly high rate, but only nine grand. It is not what causes volatility and around that we have debt

cycles

, we have a short-term debt cycle that we understand because that is the economic cycle, you know that you are in a recession, the central bank sees the monetary policy and they changed the relationship between short-term debts. interest rate long-term interest rates asset prices provide liquidity and then there is debt growth debt credit is purchasing power so when you grant credit you are extending purchasing power and when and that is good for the economy when that credit can be paid off and what it does do, of course, is it drives up asset prices while debt levels continue to rise and in that part of the cycle people and everyone are somewhat conservative about it and it pays off , but asset prices when we say pay we mean that borrowers have the ability to pay that debt even when asset prices go up, that's right and everyone wins and that's good credit growth and that's a wonderful thing.

So as you go through the cycle, it's a self-reinforcing cycle because as asset prices go up, you have more collateral people. they become more confident, they believe that asset prices will continue to go up, they become a little less careful in terms of that type of lending, they extrapolate it into the future and then, of course, since then there is the shadow banking system, there is always a shadow banking system. it's not just a way to know that so don't go all the time there is always a shadow banking system now there is a shadow banking system in other words there are banks and they are regulated and controlled within their parameters and then out of those banks. other kind of new forms of lending and capital markets, etc., or it could be online, given that there are different forms and there is a pressure to develop that outside of the shadow banking system because the more regulated, the more control, the old one doesn't make as much money, etc., being on the periphery, you can use greater amounts of leverage, you can do certain things and it grows, so you develop this shadow banking system that is not regulated and to which the investors want to come because I'll give you a little bit higher return, I mean, even think about how money market funds are developed because compared to banks and so on, that develops outside and reinforces itself because everyone wins money on it and they also believe it because things go up, you know, everyone things will go up, so less regulation more risk better return that's right and that's at the end of the cycle and then what happens and of course, What that does is all that demand and liquidity causes rates to go down liquidity.

Exit, as we see in this cycle, last cycle we lowered interest rates basically to zero, practically down, that wasn't good enough, so that the central bank bought fifteen trillion dollars in assets, drove up asset prices, boosted liquidity into the system and therefore asset prices. It goes up and people extrapolate and the funny thing about this is that as you get to the end of the cycle, when there is more debt and you know that you are getting closer to the end of the cycle, there are more extrapolations in market prices. That continues, so if you look at what the discounted growth rates are at the end of the cycle, they have become high, they are difficult to meet and then the change occurs, the tightening of monetary policy occurs, the tightening and Monetary policy has its effect. first in asset prices and then it becomes a self-reinforcing effect and that is the normal economic cycle, a normal type of debt cycle because debt is credit and credit is purchasing power and an economy never runs on that, so we have this longer-term debt cycle which is the accumulation of those other cycles because the world wants to be leveraged for the long term, they want everything to go up, so we all know that the best times of the central bank, the assets go up, the entrepreneurial activity, etc., and there is a strong desire. to boost credit and therefore the limitations that they start to encounter is when you get close to zero interest rates, like we get zero interest rates, that changes the game and when you have and then you need to print money and buy assets, that happened in 1932, so, 29 to 32 interest rates at zero, the need for the central bank to buy assets, they buy assets, they call them, which leads to 1937, a very similar situation that we have been in and will also lead since 2008 and 9, then and then you get into you know, a year, year and a half ago we started tightening monetary policy, we applied that, we have higher death growth rates, that thing goes on and on in all countries, that same rhythm of dynamics, there's a lot more to that.

In the book I think we don't have time to read it, let me take you to the present day, given that these things are cyclical, they repeat themselves, they look very similar, what parallels would you draw between history and today, what time is it today. Most remind you what the most intriguing aspect of the current setup is. Well, the most recent period that is analogous to this is the late 1930s, let's say if you take 1937, then why do I say that I would say that we are? Well into the economic cycle, the short-term debt cycle, we are in the seventh or eighth inning of central banks tightening monetary policy.

That's where we are in that cycle similar to when we did because of money printing and technologies. and other reasons why we have a greater amount of polarity political polarity I think this is an important issue and that political polarity causes populism all over the world, in other words, a strong individual takes control of that situation while having that type. of polarity, so the word populism, for example, in developed countries was not widely used until we go back to the 30s, until recently, now it is common, common, so we also fell in love at the end of the cycle of long-term debt, which means that if you were to reject if the economy was going to reject the ability to deal with that with lowering interest rates is very limited and the ability to deal with that with quantitative easing is very limited by a variety of reasons, so it is very similar to the late 30s, you could not.

I can't find a time where both circumstances exist, populism along with those differences, wealth gaps, etc., and then we also have a situation that is quite similar. I believe we have a rising power in the form of China. talk about that because in the 1930s we had Italy in Japan and Germany rising up to challenge the existing powers, how parallel a growing China is today to that era. I think not only is it analogous to that era, but there's a concept called the Thucydides Trap. By the way, in an excellent book by Graham Allison called Destined for Wars, he goes through it, but you can study it for war.

Well, he deals with the relationship with China and I, but another excellent book, by the way, is Paul Kennedy's about the rise and the decline of great powers and if you study history, I set out to study the history of the last 500 years very carefully, what you see is that in the last 500 years there have been 16 occasions in which a great power comes to challenge and the power existing is a rising power. power as you say in Germany in Europe or Japan in Asia, that was the nature of that beast, which means there is certainly rivalry, so with a trade war, a comparable power creates a problem, so in 16 examples above of a rising power 12 of which led to actual shooting wars so we're going to get into a shooting war but what I'm saying is history has shown that when you have war after war you have a dominant power and you have periods of peace because you have a dominant Power after World War II, the United States was powerful both economically and also had a monopoly on nuclear energy and, as a result of that power, the United Nations is in New York, the World Bank and the IMF are in Washington DC. because it determined that and in history, when you have the increasing power to challenge the existing power, you have elements of conflict.

What I'm saying is, I don't want to overstate this, but I'm saying that we're entering an era where anyone reads history and policymakers around the world and recognizes that this problem with the rise of China means that naturally there will be conflicts and how conflicts are resolved in the global market there is no judicial system there is no rule of law in the world it becomes dominant, so there are more rules of power and then, and that is dynamic, so everything that I say that if I had to choose, ask me when I was more analogous and I would say in the 1930s, where that is taken.

The period of the late 1930s is an analogous period if we were to say cause-and-effect relationships because how much power do we have in terms of monetary policy? How much populism do we have? These are important things and then you also know where we are economically. cycle the price of our assets has a price, etc., so the most analogous period is analyzed, you can go back to periods and other periods in history and you can also find other types of analogous periods, but that is what It looks like, well, we know how the 1930s ended and it wasn't right with World War II, what's the implication?

Are we at risk of an armed conflict with China or is this going to take longer in economic or competitive terms? I think what our circumstances lead to has a lot to do with how we treat each other given those circumstances, in other words, you mean us individually, you mean between President Xi and President Trump, maybe between the President Xi and President Trump, perhaps between us, history has shown that how conflict is handled is the most important thing, so there is a tendency for polarity to cause greater conflict and then difficult times to cause conflict even Worse in those cases, even in Germany, in Italy, Japan and Spain, there were four democracies that chose to be autocracies because someone would take control of the situation.

Because it was quite the chaos of the conflict, it got worse and then there were conflicts within countries and there were conflicts between countries and I think the real question is: can you have thoughtful disagreement? Can you have solid negotiations but with the notion of reaching an agreement? If there are compromises or paths that are not harmful, types of conflicts, I don't know, this escapes me, but I'm saying that I don't think I can. I can't tell you if you're going to work. Think that and that you more I would say thatIt would be not considering it as a possibility and not worrying about it.

Internal conflict and external conflict would be dangerous hmm in other words, I think it's the concern and the attention that is paid to it and the notion of you know, how we work together, how we work together as a country can, there is an America that has common values ​​and we are pursuing a common mission and how is that polarity managed? problem, you know, I mean, there are problems in terms of how effectively capitalism is working for everyone mm-hmm, it is working, I think it affects less. I am a capitalist, I am a professional capitalist. I believe in the system, but how is it managed? with all those are education, equal education, these types of things have become fundamental and they are there, they are big challenges anyway, let's go before we move on from that, you were moving away from the market, so, but you point it out in the book that every time there is a financial crisis it seems that we run into problems of economic inequality and a growing gap.

The growing gap between the haves and the have-nots is that part of the machinery is that something that always happens when there is a financial crisis history has shown that in places where there is a great disparity in conditions, at the same time that there is an economic recession, there are higher levels of conflict. Now you could be a poor country where there isn't much difference and have a recession and have less conflict or you could If you're a rich country, you know that Switzerland will have less conflict there because they don't have the same element of disparity.

So, history has proven that when that happens and there is a recession, there are more interesting things to discuss. We're going to open this up to questions from the audience, but first we'll do a quick round of five questions in one minute. and then we'll do Q&A, so let's jump right into it, tell us the most important thing that people don't know about you, the most important thing is that I have a great wife of over 40 years who is a force of nature that me love and that he is also doing wonderful things in his world you mentioned some books give us your favorite book would you suggest that people read outside yours I would say history lessons are 104 The pages of Durant, Durant, wrote that who is the greatest of the probably the greatest historians broke down 5,000 years into five, distilled it into a hundred and four fabulous pages, I would say here a thousand faces, the cycles of life, which is great and I felt particularly Joseph Campbell and then I would particularly say that now you should read what I think it's a masterpiece about the rise and fall of the great powers by Paul Kennedy, so we have some Millennials in the room if a millennial comes up to you and says they're interested in a

career

in finance, what kind of advice would you give them?

Well, let's see. I think the most important thing is that, when you're young, you realize that your success comes from knowing how to deal with your not knowing more than it comes from knowing how to have an open mind how to make the best of what you have. there is around you don't think you are humble, accept the best know how to deal with not knowing and then you will be more successful and what is your favorite philanthropic Focus these days for me personally are two things: ocean exploration and particularly microfinance microfinance microfinance and exploration interesting because basically I think this topic is a great topic and I think that, you know, the fundamentals are the blessings that I have had.

Can I have a family? May it be a good family. Take care of me. That is something very important and sometimes it is a difficult education. I was able to go to a good public school. Know? Can you have a good public education and then a few dollars to get by? In terms of being able to make decisions, I have seen it in the microfinance space. I have been a supporter of Grameen America from the beginning. For every dollar that I give, there's 12 dollars in loans that are paid back in the first ten years and it just keeps going around and around and it becomes self-financing, so I think that's an important area and then I'm excited about ocean exploration because I think which is our greatest asset and it's exciting and my final question, what do you know about the world of investing today that you wish you knew over 40 years ago when you were starting out.

I guess it would be the same. I wish I knew how to deal with my not knowing how to bring the best. that thoughtful disagreement, being radically open-minded, being bold and pursuing my goals to try to do great things, but knowing that I could change my risk-return ratio if I could increase my confidence through the art of thoughtful disagreement and effectively diversify my bets to that I cannot have anyone who dominates my returns and you know how to make those bets with aggressiveness and humility. Okay, so let's open this up to the audience. I know there are a couple of handheld microphones hanging around, what questions do we ask?

I have the audience anywhere here in the corner. I told them there was a plan. I'm not a plant, but I've always wanted to ask you this. Thank you for thank you for this, by the way, this was great. I have been one of the most successful funds of all time. It may be the most successful. Many funds that have been successful eventually kicked out their investors and managed money in-house or sharply limited the amount of outside capital they took on or became family offices. over the years is something you ever considered and why you've gone completely to the other side and grown the company given the success you've had.

It's probably going to be a little bit of a technical answer to your question first, but a beta, which is what is your strategic asset allocation mix across the timeless and the universal, there's a lot of liquidity and a lot of capacity, so those are the only two accounts we have. taken alpha, we have limited our alpha. I don't think you know what we just don't accept new money that's capped and then the way we do it is yes, we invest a lot there, but there's $160 billion of total assets invested and we haven't had the need to not invest to other people, so I don't expect it.

I have no expectations that that will change. I saw a hand in the corner there. I have been lucky enough to already read this book, which is very, very entertaining. Could I ask you to talk in a little more detail about one of the shortest and most powerful sentences in the book that policymakers always publish at the end? Are we sure that in fact they always will? printing there might be some exception ah and go ahead it just takes how much pain it makes them bread you know I mean at the end of the day what I'm saying is when you have a debt crisis and it continues and it becomes painful you will print money when you reach zero interest rates, then you will print, that has been true throughout history and you know there is no case that I know of, that is different because it is the best alternative, so yes, in the end, you know , when things get bad enough, Louise asks a question here and we'll try to answer as many questions as we can, which is, by the way, an interesting consideration if you take the longer term, not immediate, but think about what What does that mean in the long term in terms of a reserve currency if you start to think about where we are in the cycle?

Hmm and you start to extrapolate what you know, what will have to be sold, you know, you know that the United States is going to go. to have to sell a lot more debt in the world because of larger items and budget deficits, you would have to sell more and from a buyer of that, what a bond is is a promise to get a large amount of currency, that is What do you get currency and are we in a Fiat monetary system? So if you take, you know, I don't know, five, ten, fifteen years later, I think it's going to be more and more of an issue, do you know what the currency is, what the store is? maintaining wealth, we know that those are elements that are hidden in the back, not immediately, like problems with the path of maintaining global economic power, you know that many of the economies have been in stimuli that can be considered a little . a little bit of steroids you know you mentioned that in order for those economies that you know to be successful in staying in power they have to maintain growth so given the current scenario and the trade agreements that we are trying to reach do you have any expectations Which economy will you withdraw from first?

I don't have it, you know, I think Europe is a conflict area and there are problems that exist within Europe, but there you know it, so I don't know if I have it. I would say when we have the recession. It will be a matter of no continuity. Cohesion. I think Europe will have a bigger challenge because they don't have a common fiscal policy. They have no unity within countries. They have no unity among themselves. The countries have big structural problems, so I would say that Europe would probably be the most tense country. I saw a hand there.

I tend to be from Princeton and global partners. The question is, long term, what do you think the US market will do? What long-term US markets do you think they will target? I think our brand is what it means in terms of size or valuation or in terms of performance. I think we are closer, we are not working long term. Let's say five or ten years. I think we've squeezed a lot out of the US market. I think we are in an environment where we are going to have low yields in the future for a long, long time, because if you look at yields, there is the present value effect of lowering interest rates and putting liquidity into the system and that has largely run its course and all the assets are competing with each other, so you could almost look at the returns on those assets what is the return on cash the return on cash the return on bonds and then assets, stocks, etc. , the heavy premiums on each of them and then that moves into private equity, it moves into real estate and so on, and because so much money has gone out and interest rates have gone down, we have increased asset prices. . to very high levels in the historical context, but not relative to cash, they have not reached such extraordinarily high levels and now, in that adjustment, as we increase cash rates and the spreads between short interest rates term and those expected in the longer term.

Yields are reduced, which also reduces those yields, so when you have a near zero interest rate in the United States, a zero interest rate in Europe, and a zero interest rate in Japan, which are the major currencies reserve and all that has been supported. with quantitative easing beyond that, I think we have eliminated a lot of assets. I think the world in general is under a law of leverage, that is, assets, let's say the purchase of debt, corporate debt, one of the largest sources of return on assets was the fact that the interest rate was low relative to return on capital and therefore there have been a lot of buybacks, a lot of mergers and acquisitions, in other words, by companies buying companies and raising bids, and that has been a factor and then it also had the tax increase. because if you lower corporate tax rates, companies are worth more, all of those things have raised asset prices to levels where it's hard to see how you can squeeze that out and therefore you can't reduce the structure much of rates, and what's the wind at the back and you can't, so all that means is that I think you've squeezed a lot out, so from now on, if you're an investor, that means you just have to prepare for lower expected returns in the future. future or is there a place where you can.

I know I think like crypto. I think if you're an average investor, I think again there's alpha and beta, you have to prepare for lower expected returns in the future because if you take on all these obligations, I mean to some extent debt obligations, but there are pension obligations. unfunded, there are also health care obligations, there are many obligations and essentially a lower real interest rate and therefore lower asset returns, the assets are held by those who are richer relative to So, I think all of those things are going to drive you to expect lower returns and probably more taxes to expect over the longer term, so that's going to be the nature of the beast in terms of how to deal with that.

I think most people should not make tactical moves in and out of markets to produce alpha. I think that's difficult, so I think they have to know how to balance the books, which is why when I refer to what we call all-weather. What is risk parity? How do you balance those things? You have to have a balanced portfolio unless you can know that concentration is a risky thing and then you have to be able to time the markets and of course that is a It's a difficult thing, I saw a lot of hands raised, why don't we go down to the front row with this woman?

Thanks Hi Ray, so my question is actually more about management, because I really think that's what could eat you up. It was on principle, it was just what an amazing, strange culture you've built in Bridgewater and I love youradvice, you know dealing with not knowing, that's such a difficult problem for most people, people are uncomfortable with meaning, I don't know how. Do you teach someone who is reluctant to admit that they don't know or, worse yet, that they are not aware of how much they don't know well? One of the best. I'll just say play the markets and then you.

You will need to realize how difficult it is to have confidence, but honestly, what happens is that when you make the transformation you have to explain it to them through them in a way where we go over this, as if to say to you: do you want to know what your weaknesses? Do you want to know what I think? You want to know? Could you tell me what you think? Do you want to have a disagreement when we disagree? Do you want to have a thoughtful disagreement because if there is disagreement there is something? It is possible that you are the one who is wrong rather than the other person intellectually.

You can understand people, not everyone is a person, but intellectually you can say in general that you are fighting with yourself because there is an intellectual self that said yes, I would like that. to know my weaknesses, I know that everyone has strengths and weaknesses that I can develop. I would like to have that honest relationship and then once you intellectually understand that you want it, you will find your emotional barriers and your emotional barriers. They are the barrier of your ego that you know you are going to have to overcome or the barrier of your blind spot.

In other words, the ego barrier means that in some way you feel challenged or whatever you feel bad about not knowing, you feel good about not knowing and curious, if I can make you see that world that way intellectually, you'll want it. and then the barrier of blindness is that you can be very curious, but mine, different people's minds work differently, they see things, some people see the big picture, others see the details and so on and so on and when you come see that different people see things differently and you can do that when you see things through the eyes of others you can see in three dimensions and in color instead of seeing in this flat bone dimension in black and white and you can do much better if you can get them to do it intellectually.

Understand that and say we are going to go through this in a way where there is trust in your meaningful relationships, but you can gain trust because you can see things for yourself, everything is transparent, we will talk about it and so on. making people want to be that way, but they have to start realizing intellectually that it's actually a good way to be, it leads to better work outcomes and better relationships, and that's tremendous power in coming up with the right answer and also get the rewards of good work and good relationships, they have to go through that and then they have to go through the experience and then when you take them through the experiences, you have to help them get through those experiences because some of them are different.

I think it's also the way we teach kids and we teach ourselves in our own environment, you know, oh, at the end you got a great grade there and it's all like that, you know? and life is not like this. Life when you leave school is not like the one you got. the great life starts to succeed when you start to fail, when and that's okay, and then it's the learning that comes from those failures that produces it, so I think intellectually achieving that self in that way is healthy in all of those aspects and then once they have that in mind and experience it, you help them get through that thing that they know they're experiencing and that's what works for us to help people make that transition, thank you, how about here to here, one of my favorites?

This show is called Billions and some people have said that Bobby Axelrod's character in his office is somewhat based on you. Have you ever seen the show? So is there any truth to that? I don't have to talk to those guys. I have no idea if it's true. I watched three episodes out of curiosity, I thought it was entertaining and then overall I just didn't get a chance to follow it so I don't have much of a day and you'll guess I got the writers, you read the Teddy type book or The Candida Jackson book read that book Worf that book the message I take from that book is that every great power is because everyone had influence to borrow too much debt the message wanted mass you are well out of pocket now the US It really seems that the deficits are getting greater.

Do you see where we are, where we are going and then what is the implication for the Istana currency? So in the survey, can we record excess leverage in the US? for historical companies, yes, there are a number of lessons, one of them is that, by the way, you could take the bow, it usually lasts two hundred and fifty years, so the bow is quite fluid and, by the way, it starts with technological advances. that increases GDP and then makes them very competitive in world markets, as if the Dutch were the reserve currency before the British Empire and ours, and then what happens is that later in the cycle there is a desire to push it and leveraging it, it's usually a matter for them. they become global they have global trade routes when they travel they carry their currency so people use that currency that's what they pay that's what they lend in Holland essentially Amsterdam became half of the world's trade at that time and became very rich because of those things and they have a world used that reserve currency, so there were loans and loans and then the cycle continues, of course, when you have a reserve currency, others want to save in it because the option is their local currency, etc. and they think that's what to save and when they save that means that country is going into debt and they generally overextend themselves and as a result of overextending themselves they get the debt problems that you have.

We're dealing with this and then it becomes a challenge. I think the United States is following that kind of arc and we're overextending ourselves and we're operating in this global reserve currency, the fiat currency types assisted, so if you had to take, you know. Let's say that in a few years I think the role of the US dollar will decrease that and the returns of the US dollar. The dollars will pay us back the dollar-denominated debt. I think it will be affected for the reasons we are talking about here and then I think we will see the emergence of other currencies.

What exactly will those coins be? How will they work? It's an interesting question. That's too big a topic to give an answer to here, you know, it was a short couple of minutes, but I would say that that becomes a problem and that probably in the next five or ten years we will see that work. More than a role, the right ray given in Kennedy's book, each of the great powers became global powers by expanding beyond their borders. What do you think of the current globalization D that seems to be taking place in the United States, the United Kingdom and elsewhere?

Well I think. we are - you are talking about there are two different things in those cases there was not so much globalization there was the globalization of those countries as well as the gullibleization of China now we are looking at the belt and the road We are seeing investments all over the world, that is what is being carried out, you will see more loans in rem MB, you will see more Chinese banks in the world, etc., and that will expand in a very, very analogous way with respect to globalization, which is the idea of ​​​​producing it in one place and sell it somewhere else in the most efficient way without there being a lot of trade barriers to be able to do it or the globalization of capital markets, the free flow of money in and out of countries and all that, I think. that that has peaked and that we are now in an environment where we are going to go to a globalization type D environment and because of this somewhat threatening environment, the perceived concern that you could have conflict, I think that it creates a force that reinforces globalization because let's say if you're going to produce something if you're producing things in China that we need in the United States, as an example, there might be a concern about doing so, so if you're producing PCs, you could say I need PC here, there could be a pressure to go global that kind of feeds on itself.

I think we're seeing those kinds of pressures. I think the same thing is true, that that could happen with capital flows. If Chinese investors are more concerned that there might be a conflict, there could be more sanctions on investments in the United States, so they will be less inclined to invest in the United States, and so on. I think we're making more progress on those issues. more towards globalization D into almost independent self-sufficiency is probably greater the direction and we have time for one last question, let's go here. I have two questions regarding China, the first is where do you see China's debt situation today? and the second.

Given that China has started to increase the amount of stimulus, is that one area that would potentially increase an investment right now, as I said, when applying the model to China, Chinese debt is primarily in its local currency, the amount of The foreign currency denominated debt for China is very small, okay, so now it is mainly an internal problem and also China's lenders, are they within their system and the like? I said, the ability to manage the debt crisis by distributing it in one way or another is quite large, they have the experience to know how to do it and distribute it, so I think when you look at the debt cycles, there were four cases where I know the US defaulted and had a major debt crisis. and I won't repeat them all and that they were able to handle that lesson.

I gave four samples of the 2,000, excuse me, the 1980-82 debt crisis where I was so wrong was the ability to distribute that and lower interest rates at At the same time, China has that ability, I think everyone is focused on that and I'm too focused on that and they're not focused on their productivity growth and how they're making changes in terms of that productivity growth. We know that a bad growth year is probably going to be twice as good as a good growth year for us in terms of that whole productivity thing and if you look at productivity indicators over a period of time, the quality of education, the quality of the infrastructure, those kinds of Things that you know, have reasons to continue to have high productivity, so it seems like one of those cycles to me.

Their version of a cycle to do a debt restructuring and a debt organization is doing it proactively before the cycle. In fact, it has caused a crisis in most other cases, like in our 2008 financial crisis, we had the crisis and then you reacted, they are acting proactively, so I am not very worried about the debt crisis in China. or the debt situation in China and I think it will be a very good place for long-term investment. I think it needs to be an important part of everyone's portfolio. It is opening up to foreign investors. He's a different guy. of the place, so you have to know it, but you know, I'm basically optimistic about it.

I won't go into the details of what particular investments I would make there, so that's all we have time for. I want to thank. Ray for being so generous with his time, let's give him a big round of applause. Thanks Barry, it's a pleasure Decker, we're going to hang out and sign some books for people, that's right, I'm sure you're fantastic, so stick around. Rael signs some books and thank you very much for coming.