Ray Dalio on economic forces, division and the future

Mr Delio thank you so much for making time to speak to the National Ray thank you so much for taking time to speak to the National what a pleasure it's great to um speak to you at a very important time not only here in the UAE but globally uh period of incredible change you've identified the five big forces um that affect the world's progress and economic Cycles how do you see the US in those Cycles today but also the greater World okay um just to give you a little bit of background about the five forces

um I've been a global macro investor for about 50 years and some of the times that I've been surprised I was surprised because things happened that were didn't happen in my lifetime but happened before so I found that by studying history before it helped me for example I studied the 1930 and the Great Depression and that allowed me to anticipate the 2008 financial crisis and do well when others had some trouble so I saw recently three big forces that led me to the five big forces that I saw repeat over and over again in a

cyclical kind of way okay what are those five big forces the first force is the credit debt money economy force in other words you give credit you're giving buying power but buying power that that credit produces debt debt means you have to pay it back then it becomes a cycle and it becomes what the economic and market Cycles are driven by that's one force second force is the force of internal order and disorder particularly internal conflict particularly when there are large wealth and values differences that there is there become irreconcilable differences in which there's populism

of the right and populism of the left another extremism of the right and left and they are irreconcilable forces that produce a conflict internally that's basically a type of War of one side to win over the other the third force is the great power conflict of one country competing with another country classically the rise of a great power to challenging an existing great power and when you challenge existed great power you would challenge that power's rules and that means you challenge the order and so we seeing that now as the China and other countries are

particularly rising to become competitive and then what is the dominant power the United States is no longer the single dominant power and then I discovered fourth acts of nature droughts floods and pandemics have killed more people than Wars and toppled more Waters so number four certainly and certainly now climate change the costs of climate change the impacts are very large and that through all history the biggest Force most powerful force in creating the evolution is man's learning particularly of Technologies the invention of new technologies and ways of operating and certainly that's the case now with

AI and other Force um other technology developments that are going to change how we're operating so I watch these five forces move in Cycles in great Cycles what's happening now is very similar to the 1930 to 45 period and that's the nature of the dynamic so anything that we're going to want to talk about or anything that's important will fall under at least one of those categories and so I think when we're sitting here today and we're thinking about the future we have to think about those things and so so if we start with the

debt and credit and and money uh economy uh Force if we take the first Force the US and the debt to GDP that it is dealing with today how can the next Administration How can any Administration tackle that challenge well again I'll start with the Dynamics and then we'll deal with how to tackle them um one man's debts are another man's assets and when debts rise quickly that means you have to to sell that debt so that somebody has to buy that debt and they when they want to buy that debt they are buying it

based on the return that they're going to get and when there's a lot of debt relative to GDP there's it's a difficult Balancing Act for central banks because they don't want to keep they have to be careful to keep interest rates high enough that they're good for the Creditor without being them so high that they're bad for the debtor and that Balancing Act becomes progressively difficult and what they do when they reach an imbalance is they print money and so we've seen the the creating of large debts and the printing of a lot of money

causing an inflationary pressure and that's the way the machine works okay so now neither of the parties are really thinking about that balance and how to deal with that there's a different philosophy they um the Trump Administration is more going to follow a policy very similar to the policy that existed in the right of Center governments in the 30s they're going to become protectionist they're going to raise uh tariffs a lot and that tariff will be uh taxes essentially it'll give income so there's an element of income that's going to come from that and then

that protectionism is to try to build up the American uh industry not just for an economic reason but because there's a sense of self-sufficiency is needed in case we get into a war and that and you're going to see that in chips you're going to see that in electricity you we need power you're going to see a plan an industrial plan not capitalism as we ordinarily think of it we think of capitalism as a free market and so if you want to buy something luxurious and you want to no no this is much more top

down and directed and then there'll be more in military spending and the like and so we're going to deal with this imbalance and we're going and that part of that is also the changing of the world order we're no longer the United States is taking care of the world order as it designed it but it is instead taking care of itself America First in a world order in which then there's that conflict so that's the nature of that that Beast um I that's for for that reason I think that U there's a supply demand imbalance

issue that not only will come from the new Supply but also the lack of Desire of holding bonds because there's a lot of debt which is held and when you start to think is that a good currency is that a good stor hold of wealth um increasingly there's the risk that that will be sold and that's one of the reasons that you're seeing gold and you're seeing Bitcoin go up because we're talking about what is an alternative money a money is both a medium of exchange but a stor hold of wealth and so now you're

seeing more movement in that direction because it's precarious I want to pick up just a moment on the inflation uh element of what you said um there has been criticism that perhaps the FED didn't move quickly enough to to tackle inflation what's your take on it are you are you confident that the feds handled this particular period in the right way I don't think the FED handled it in the right way there were two big stimulations and um the amount of checks that went out to people from the federal government again remember federal government can't

print money what they do is they but they can uh distribute money so what they do is they borrow money so the FED lent money to the central government that send out checks and they sent out more than twice as much money as the negative impact from the uh covid was in other words you incomes were set back but they sent out twice in two big waves and of course if you send out more money with buying power then you create more prices going up you create the inflation that we've experienced and so I'm I

think people are paying attention not just to the word inflation which is the rate of change but looking at prices and so if you look at the prices of everything almost every place depending where they are they're up significantly prices of most everything and that's then was a political issue so yes I believe that they were for for two reasons they were too stimulative they were stimulative uh the first go around because of covid and maybe they would say I didn't want to be stingy I want to make sure we had more than enough they

were around um there was the second time around when the Democrats um and Biden got elected and they're talking about the redistribution of wealth Universal basic income that was past the first go around and there was another big wave of money and that combination of that big wave and the printing of money produced the price changes we seen um you mentioned gold and cryptocurrency um as assets as people are feeling it's getting precarious we see the rise both gold prices but also cryptocurrency so you've also been quite skeptical of cryptocurrency with Bitcoin at $100,000 what's

your what's your take on crypto are you reassessing now my my view on cryptos remain pretty much the same and I and I'll I'll I'll articulate it first of all I think that and I own crypto I own some Bitcoin um the question is the amount and how attractive it is relative to Gold okay um I think that there's kind of uh the old man's gold then younger man's uh crypto but the important thing first of all is to represent whether one or the other and really ideally some of both should be in the portfolio

don't be so fanatical that you're just having one and not the other and do worry about the value of money and what is your alternative money that can be printed okay so now when I look at um gold and it's and it's evolved over I mean crypto and it's evolved over time they there there have been a few things first of all there's um not the Privacy element of crypto everybody can understand um exactly what it is you can tax it easily so governments can easily tax it it doesn't have the the same element of

that privacy there's a saying that gold is the only asset you can own that you can own that's not somebody else's liability meaning you have to depend on somebody else you can own it and so on um gold is also has always been a reserve currency in all times it's the third largest reserve currency in other words the largest is the dollar second is the Euro third is gold and fourth is the yet so it's and it's always the the currency that's being gone to right now we're seeing a lot of central banks acquire gold

and that's not the same as crypto because crypto is different that way because still who controls it is it controlled behind the scenes or do you have possession of it um and so for those reasons um I you know prefer uh gold to crypto but I think the important thing is the recognition of the issue of of do you trust um the governments and I think that to trust the governments that they won't print the money to make The Debt Service easier um is not the best move so I'm um you know sort of anti-

debt assets like bonds and so on and I prefer the other but I I would say that should just be um um a portion of the portfolio I don't want to get carried away with that I would say that if you look at it as a diversifier I think particularly uh gold is something that if you look at how it behaves in relationship to FR uh to inflation and also um interest rates it behaves in a way that's more understandable than Bitcoin Bitcoin is more of a speculative element with this limited Supply aspect to it

so but if you look at that it's an effective diversifier of the portfolio if you take most other assets um stocks bonds real estate and so on they will generally be have good times and they will do well the gold and and that is a diversifier so you actually reduce your risk by in by having some in the portfolio somewhere between 10 and 15% of the portfolio um one of the other important forces that you that you've articulated is the element of the division between people so it could be left and right and this tension

but another tension that's there is created due to wealth gaps and we increasingly see the concern about wealth gaps is this result of unchecked capitalism or is it a result of failed politics particularly when we look at not only in the US but many different liberal democracies yes um you're looking at um I think you have to look at them together the wealth gaps and the values gaps um and I really want to touch on both um it is the nature of capitalism that uh capitalism um those who are I don't know clever and work

harder and compete uh get to make more money and so naturally wealth gaps increase as a result of that system that capitalistic system naturally produces that kind of outcome okay and that can then become an issue when there's the rich and the poor that has living standards and they feel is unfair and of course so yes the capital markets have had the capacity to create great wealth and create great inventiveness and also to produce large wealth gaps that people start to feel are unfair when you put those together with values gaps big values gaps then

that's a toxic combination particularly if you have a debt problem so let's think about for example values gaps in the United States you know there are uh it's reflected in the Maga versus the woke values gaps by way of example one side wants to defund the police the other side wants to bring in Law and Order okay um there are issues about um raising children I mean one side um some people believe that at a 10-year-old child should be able to decide what sex they are and have a sex change that and and that that

could be carried through in school saying we're going to have a policy consistent with that well that's not some compromisable to somebody else who would say no way I don't even want to be in that environment so you're seeing both the wealth gaps and the values gaps then create you know an emotional and compromise is not possible you're not going to compromise the for example the sexuality issue and so on so now you have a win at all cost mentality and and so we are seeing that happen not only in the United States of course

it's happening in the United States but if you look at France and you look at England land and you look at Germany and Italy and Korea both North and South Korea and you're looking at Japan it is the norm now not the exception and how do you tackle it what would you do um I think that if people understand history and understand the choices um that a as though they had actually gone through it that that would give them perspective I think um before Wars whether they're internal Wars or external Wars you have anger and

you have courage and we are going to fight to win and then anyone who has been through these wars whether they're internal or external so as they go through said I they they start off with I am brave I'm going to win and I'm going to the and they say I never want to go through that hell again and so I I think if they had that kind of perspective and then they think that it all comes down to how we are with each other how we are with each other in other words okay is

it selfishness uh uh you know peace Harmony that um you know the elements of of what makes a good place you know here we are in Abu Dhabi okay okay what are the elements the elements of making a good place and what are the elements of success they're simple do you raise your children well so that they're well educated and they're civil with each other do you come out to an environment in which there's an environment of opportunity and you can be productive and work be well with each other and then you're out of a

a war stay out of an international War and so on that creates a paradise and then there are other benefits like do you earn more than you spend just basic things if you earn more than you spend and you stay out of the war and you're good with each other you create that environment you have a paradise so I think that people keeping in mind how they are with each other and what kind of an environment they're going to be in to make those choices I think that's of Paramount importance it's interesting to hear you

address this element in War and Peace but also a sense of complacency that people sometimes don't know how good they've got it till they lose it that's right you isn't it amazing you watch some place and it's a paradise and like that it's destroyed and there's so many people dying and and and we're sitting aside from it and we're watching it like news okay we're just want and we're not relating and then wait till it comes to your neighborhood yeah you spoke about the UAE so I'm going to shift gears and talk a little bit

more about the UAE um you of course uh one of the great ways that you frame things is through the power index and then you're looking at the top 20 countries and you know through GDP and and the size of economies but if you're assessing the UAE how would you assess it when it comes to power and where it sits in this changing World Order okay I'll just explain the power index to people and then I'll um answer your question um it's very important that I measure everything objectively so I'm like a doctor who will

then take you know blood samples blood pressures all of this and then look at the health of an economy and and and then look at it for subsequent predictive of where will you be in 10 years just like a doctor and that's the help index and um and if you Google my name and you say country Health index you can go see this for all countries so it'll give all these different measures okay um the um the UAE is a Renaissance state in history okay it's one of those places in times of great conflict um

when there's um that there are are the elements that have to do with Commerce and how people are with each other that brings people from all different countries to create that special environment it's a modernday Switzerland okay it's about the same size as Switzerland in terms of the numbers and that element of neutral neutrality it's a more vibrant SW Switzerland okay so if you look at it and you look at for example also Singapore is one of those city states in a sense that in that environment but the bringing together those resources the elements we

just talked about about raising children creating an environment where you have good education civility productivity and all of that and it's a Crossroads for the world and it's an alternative place to be in a world of chaos that is what it is uh the UAE is a hub similar to Singapore Switzerland as you mentioned and they want to attract the best that there is out there when it comes to finance but on the other hand the UAE has to introduce taxation there's been corporate tax that was introduced at 9% increasing to 15% for some multinational

starting next year how do they maintain their competitiveness well I've been coming since J zad was in power and um what he he always brought was a wisdom and what his next Generation brings is a wisdom of how to strike balance there's no extremism here there's balance and so on and so um such developments I'm confident will be handled with balance okay it's a place where um they want the most productive um civil people to come and to raise their families well in and so on in a world community that they recognize has its own

issues and that world community and I'm confident that they will find the right balance technology a time of great change uh last year everybody started to think about chat GPT and generative Ai and what it means um how do you see the effects of AI today given all the speed of change on the global economy but also what would be your advice for people who are not sure what AI is going to mean for their well since the last 25 years or so um I've been making all of the investment decision making through AI ai's

evolved since 1956 it has so I used expert systems in other words decision rules so that the computer would make the decision and to flesh that out and so I've been involved in different ways of AI for decision-making for a very very long time and I view this as the greatest progression of that um I've written down almost all my principles and converted them into algorithms to make decision making in the computer so I I am very very excited it's been k key to my success so now that as I'm watching this I think that

this is the greatest invention in all history I mean this is now thinking at all Dimensions you know when we had the Industrial Revolution we moved from physical labor to machine labor and we and it was um in many ways enhanced by the steam engine and so on so forth this is more pervasive this is all thinking so it's going to be a tremendously advantageous tool I think in the next three years to 5 years you're going to encounter a new reality so that you must understand it you must use it in terms of the

decision making and my aspiration is to pass along I'm 75 years old so I'm in the phase of my life of path passing things along I want to pass along how to do that in the investing area so people can do it that way it'll be done in different ways um I but you one must get must one must get involved I think the issues it's going to raise a lot of issues because um AI first of all will will replace a lot of people okay and how those uh people are dealt with it's one

of those things where we see it today creating the unicorns okay the you come along with a great idea and it's billions of dollars that you're idea gets capitalized at and that's fantastic okay and but you have to realize like in the United States that's a group in total of about three million people in a country of 333 million people and so you have in the world then there are others who are going to be displaced by that okay there so now you have to individually think how do you deal with that it comes down

to the things we talked about educate your children well and understand those things but it's going to be a societal issue and then in addition to that it's a vehicle for war and we are at War we have internal Wars going on and we have external Wars going on and so the idea of how that's going to be managed or used it could be used as a weapon or it could be used to raise living standards it will be used as both so I think that all of this comes down to one thing and that

is how we are with each other it's wonderful thank you for your time I appreciate you making time to speak to the National thank you for your time