WEBVTT - Surveillance Special: A Conversation With Bridgewater's Ray Dalio 0:00:09.720 --> 0:00:12.920 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with 0:00:13.600 --> 0:00:16.520 David Gura. Daily we bring you insight from the best 0:00:16.560 --> 0:00:22.279 of economics, finance, investment, and international relations. Find Bloomberg Surveillance 0:00:22.320 --> 0:00:27.000 on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course, 0:00:27.320 --> 0:00:33.080 on the Bloomberg. He has made the sir, how many 0:00:33.080 --> 0:00:35.400 book interviews have you done? I mean, are you up 0:00:35.440 --> 0:00:39.000 to a hundred forty two yet? But I've done plenty. 0:00:39.159 --> 0:00:41.040 The book has been out and he has done plenty 0:00:41.080 --> 0:00:43.680 of uh interviews. It has launched to the top of 0:00:43.680 --> 0:00:47.080 the New York Times bestseller list. Bill Gates helping that out, 0:00:47.800 --> 0:00:49.680 saying that this provides guidance. I want to go to 0:00:49.760 --> 0:00:52.400 Mr Gates here in a moment principles, Ray Dalio, of 0:00:52.400 --> 0:00:55.600 course with Bridgewater, and yes we'll talk about the investment environment, 0:00:55.840 --> 0:00:59.520 alternative assets and that in a moment. Congratulations are Ray 0:00:59.800 --> 0:01:01.640 and what I want to know? And you finished strong 0:01:01.720 --> 0:01:04.720 in your book with your final chapter, which is the 0:01:04.720 --> 0:01:08.600 great mystery here and for heaven's sake, don't overlook governance. 0:01:08.920 --> 0:01:12.720 Can you take the principles of an entrepreneurial guy like 0:01:12.920 --> 0:01:15.760 you and can you bring them over to big corporations 0:01:15.800 --> 0:01:19.520 like Microsoft. Any organization can determine how the people in 0:01:19.560 --> 0:01:21.640 the organization we're going to deal with each other, right, 0:01:21.920 --> 0:01:24.200 I mean, I think that that's the most important thing. 0:01:24.400 --> 0:01:28.640 Right down your principles, which are basically the recipes for success, 0:01:29.160 --> 0:01:30.920 and agree on them so that you can have an 0:01:30.920 --> 0:01:35.080 idea meritocracy. What I'm arguing is that an idea meritocracy 0:01:35.280 --> 0:01:37.319 is the best way to have an organization. And I 0:01:37.400 --> 0:01:39.920 learned that in the markets, because in order to be 0:01:40.000 --> 0:01:42.280 successful in the markets, I know that I don't have 0:01:42.360 --> 0:01:45.640 all the answers, and I learned humility and that what 0:01:45.760 --> 0:01:49.240 I wanted to do is to have the best independent thinkers, 0:01:49.240 --> 0:01:53.160 people who will disagree with me and know how to 0:01:53.200 --> 0:01:55.280 each agreement. So I need to have the rules of 0:01:55.320 --> 0:01:57.680 the game clear so we could have that independent thing. 0:01:57.680 --> 0:02:00.840 So you and Don Barton of mckensey go into a 0:02:00.880 --> 0:02:04.120 given big blue chip company. Let's pick on Mr Diamond 0:02:04.120 --> 0:02:06.480 and I guess he liked your book to Jamie Diamond 0:02:06.680 --> 0:02:10.040 and JP Morgan, You guys go into JP Morgan. Are 0:02:10.040 --> 0:02:12.440 you going to give everybody a JP Morgan and iPad 0:02:12.440 --> 0:02:14.760 and have them judge each meeting? I mean, if I'm 0:02:14.760 --> 0:02:17.520 with Michael Faroli David Gura. I'm gonna be like Faroli. 0:02:17.600 --> 0:02:20.200 You were terrible there on potential GDP. I think the 0:02:20.240 --> 0:02:23.440 basic question is whether you're gonna have an idea meritocracy. 0:02:23.480 --> 0:02:25.760 Forget the iPad thing, forget any of the tools things. 0:02:26.040 --> 0:02:27.440 The question is if you and I were going to 0:02:27.520 --> 0:02:29.480 have a partnership, how we're gonna be with each other. 0:02:29.760 --> 0:02:32.040 You better write down the rules. And I'm saying that 0:02:32.120 --> 0:02:33.520 the better way to do it is to have an 0:02:33.520 --> 0:02:35.920 idea of meritocracy. And what that means is how do 0:02:36.000 --> 0:02:37.840 you know if there's a disagreement, how do you know 0:02:37.880 --> 0:02:39.440 whether you're right or wrong? And how do you get 0:02:39.480 --> 0:02:42.320 to the better answer? Then you could have individually right. 0:02:42.880 --> 0:02:47.280 So that's a fundamental notion. And if you look, there 0:02:47.280 --> 0:02:49.640 are two types of systems you ordinarily can have like 0:02:49.720 --> 0:02:52.880 the uh the autocracy where the boss is always right 0:02:53.280 --> 0:02:55.520 and then you're going to dictate it and everybody walks 0:02:55.560 --> 0:02:58.320 around thinking whatever they think, or you're going to have 0:02:59.120 --> 0:03:01.920 a democracy. Can't have it just second, you can't have 0:03:01.960 --> 0:03:05.000 a democracy where one man, one vote is So how 0:03:05.040 --> 0:03:08.840 do you get through disagreement? Intelligence? Okay, we've got radical 0:03:08.880 --> 0:03:11.400 transparency here to David, your and I are not on 0:03:11.520 --> 0:03:15.280 speaking right. You emphasize several times in the books the 0:03:15.360 --> 0:03:17.960 need to to to write things down, to think about this, 0:03:18.040 --> 0:03:20.239 to be self aware of one's own principles, and you 0:03:20.320 --> 0:03:22.280 write about how you wish you could look back at 0:03:22.280 --> 0:03:25.200 other leaders in business and and in economics and government 0:03:25.240 --> 0:03:27.359 and get their sense of principles. How do you get 0:03:27.400 --> 0:03:29.359 that kind of self awareness or how do you begin 0:03:29.400 --> 0:03:31.600 to think about things in this sort of way? Well, 0:03:33.280 --> 0:03:35.240 I could describe how I got it. I I wrote 0:03:35.240 --> 0:03:37.400 down every time I made a decision, I wrote down 0:03:37.560 --> 0:03:39.760 the reason I made the decision. I closed the trade, 0:03:40.160 --> 0:03:42.160 and I reflected on it. And then I began to 0:03:42.200 --> 0:03:44.880 see that if I could take those criteria, I could 0:03:44.880 --> 0:03:47.360 test how they would have performed in the past. That 0:03:47.440 --> 0:03:50.800 opened my eyes. Then I began to have a discussions 0:03:50.840 --> 0:03:54.119 with other people about the people I work with, on 0:03:54.400 --> 0:03:57.320 what are our criteria, not just what is our decision? 0:03:57.440 --> 0:03:59.320 And then I when I found that we could agree 0:03:59.320 --> 0:04:01.480 on the criteria, I found that we could put them 0:04:01.480 --> 0:04:05.000 into algorithms, and we could take those algorithms and then 0:04:05.040 --> 0:04:08.440 have the computer make decisions in parallel with us. And 0:04:08.520 --> 0:04:10.880 that was mind blowing, right, So, If you don't know 0:04:10.960 --> 0:04:13.400 your criteria for making decisions and you don't have it 0:04:13.440 --> 0:04:15.720 written down and you have it clear, you're just gonna 0:04:15.760 --> 0:04:18.080 walk into the snowstorm every day and you're going to 0:04:18.120 --> 0:04:20.080 see this blizzard of stuff coming out you and you 0:04:20.120 --> 0:04:21.719 won't know how to deal with it. If you have 0:04:21.760 --> 0:04:24.360 a game plan and you start to realize that everything 0:04:24.400 --> 0:04:26.680 that comes at you is another one of those in 0:04:26.720 --> 0:04:28.719 other words, it happens over and over again, and what's 0:04:28.760 --> 0:04:31.919 your game plan? Those are principles and that's powerful. Thew 0:04:32.000 --> 0:04:34.320 did you come to to the awareness that these could 0:04:34.360 --> 0:04:36.320 be things for self improvement, They could be things that 0:04:36.360 --> 0:04:39.080 define how you live your life personally and in business, 0:04:39.680 --> 0:04:42.080 and yet they could also be transferred to the company 0:04:42.120 --> 0:04:44.440 that you're running, that they were more universally applicable than 0:04:44.480 --> 0:04:46.359 you might have thought at the beginning. Be clear on 0:04:46.440 --> 0:04:50.600 your criteria, right, be clear in your criteria. If you're 0:04:50.800 --> 0:04:54.320 clear on your criteria, you write down your recipes not 0:04:54.440 --> 0:04:56.960 only do you know them, and they can be converted 0:04:56.960 --> 0:05:00.800 into algorithms, or you're clear with each other on how 0:05:00.839 --> 0:05:04.039 to behave and when something comes along, your strategic and 0:05:04.080 --> 0:05:06.599 you're not just in the blizzard. That is what I'm 0:05:06.640 --> 0:05:09.880 passing along. In other words, whatever success I had in 0:05:09.920 --> 0:05:13.200 life has not been due to me. Okay, it's been 0:05:13.240 --> 0:05:15.280 due to the principles that are in that book. One 0:05:15.360 --> 0:05:17.320 more question on principles and I want to move on. 0:05:17.800 --> 0:05:20.400 I want to know what's in this for the kid 0:05:20.440 --> 0:05:25.120 walking into Long Island University. He's seventeen, he's eighteen, he 0:05:25.160 --> 0:05:29.120 grew up in Queens with a wonderfully gifted jazz musician father. 0:05:29.520 --> 0:05:32.080 That kid walks in What is the seventeen or eighteen 0:05:32.160 --> 0:05:35.840 year old get out of principles? For me, it was 0:05:36.760 --> 0:05:39.560 I didn't have the approached the principles then, right, I 0:05:39.680 --> 0:05:43.039 just dove into life and then I encountered things, and 0:05:43.080 --> 0:05:45.720 then years later I discovered that I would write those 0:05:45.720 --> 0:05:48.520 things down, and that's kind of the magic. And so 0:05:48.760 --> 0:05:51.279 this is just a cookbook of the principles work for 0:05:51.320 --> 0:05:55.400 me and forget about me. You I'm recommending to you, 0:05:55.520 --> 0:05:58.960 and I'm asking other people I'm asking. I won't list 0:05:58.960 --> 0:06:03.520 the people Bill get Jamie Diamonds, people like Mike Bloomberg. 0:06:03.960 --> 0:06:07.800 If they wrote down their recipes for success of what 0:06:07.880 --> 0:06:10.360 they did and people could look at them, it would 0:06:10.360 --> 0:06:12.440 be tremendous for other people I'm gonna give you a 0:06:12.480 --> 0:06:15.600 major marks for the individual nature of your book. This 0:06:15.680 --> 0:06:19.280 is a naked book. Principles in the individual treatment of 0:06:19.320 --> 0:06:22.039 it is first rate. I want to go now to 0:06:22.279 --> 0:06:25.160 how you apply this over to investments. Once again, we're 0:06:25.160 --> 0:06:28.400 in a period where your community, the hedgeman community used 0:06:28.400 --> 0:06:32.040 to double digit and it returns to clients it ain't happening. 0:06:32.120 --> 0:06:35.040 We're in a single digit with even some negative numbers 0:06:35.240 --> 0:06:38.280 for hedge funds. How long can the community put up 0:06:38.279 --> 0:06:41.839 with this under performance before the money starts walking out 0:06:41.839 --> 0:06:45.200 the door? I think it's worth taking a second and saying, 0:06:45.200 --> 0:06:49.200 what is the character of the environment? Great, totally agree? Okay, 0:06:49.279 --> 0:06:54.120 And then that applies to things um uh so, First, 0:06:54.839 --> 0:07:02.440 low volatility of inflation, low volatility of economic growth, low 0:07:02.560 --> 0:07:09.480 volatility of interest rate changes means low volatility of market agreed. 0:07:09.520 --> 0:07:12.720 And on a risk parity strategy, is you invented? It's tough? 0:07:13.520 --> 0:07:17.080 Uh No, because our our returns for risparity this year 0:07:17.160 --> 0:07:21.000 have been excellent in in other words, normal, and that's 0:07:21.040 --> 0:07:25.520 because the expected return of equities, the actual return of equities, 0:07:25.720 --> 0:07:28.440 and the actual return of bonds relative to the return 0:07:28.440 --> 0:07:31.600 of cash and most asset classes. Uh continues to have 0:07:31.640 --> 0:07:35.760 a premium the worst asset class you can have his cash, okay, 0:07:35.960 --> 0:07:39.560 And as long as um and throughout history, the only 0:07:39.560 --> 0:07:42.400 time that cash hasn't been the right has been the 0:07:42.440 --> 0:07:45.760 better investment than a diverse, fied portfolio of other assets 0:07:45.920 --> 0:07:51.360 has been during terrible economic conditions that result in reversals 0:07:51.400 --> 0:07:53.640 like two thousand and eight. So but let me answer 0:07:53.680 --> 0:07:57.160 your question in terms of the environment right by low 0:07:57.240 --> 0:08:01.120 and volatility in terms of growth, and there's reasons for it. 0:08:01.520 --> 0:08:06.480 Low volatility of inflation and low volatility of interest rates 0:08:06.600 --> 0:08:10.760 short term interest rates. We're in a situation that generally speaking, 0:08:10.960 --> 0:08:13.600 we have a low volatile environment and we have a 0:08:13.640 --> 0:08:17.000 low return environment, and we have those things for structural reason. 0:08:17.000 --> 0:08:19.160 And Rydal, you know, if I'm a Verizon walked in 0:08:19.200 --> 0:08:21.240 the door years ago and put their faith behind you, 0:08:21.480 --> 0:08:24.600 I got an SPX back twelve months up, nineteen point 0:08:24.680 --> 0:08:28.440 eight percent, the dow up. That's the pressure the people 0:08:28.480 --> 0:08:32.480 that admire you face. As I got straight equities, passive fund, 0:08:32.800 --> 0:08:36.480 Vanguard killing it. How do you respond to that? First 0:08:36.520 --> 0:08:38.840 of all, our clients love us because of the we 0:08:38.920 --> 0:08:43.600 separate alpha and beta. The important Just explain that that's 0:08:43.600 --> 0:08:47.320 important we have we have two types of funds. We 0:08:47.440 --> 0:08:50.800 have a pure alpha fund in which the individual can 0:08:50.840 --> 0:08:54.160 take that alpha and attach it to any asset class, 0:08:54.559 --> 0:08:57.440 so they can set an equity benchmark and put the 0:08:57.480 --> 0:09:00.599 alpha on top of that benchmark. In sixteen out of 0:09:00.679 --> 0:09:03.760 lass sixteen years, we have had positive alpha. So if 0:09:03.800 --> 0:09:07.400 they chose an equity benchmark and they put that alpha, 0:09:07.480 --> 0:09:10.400 they would have had an alpha. Uh, that's positive whatever 0:09:10.440 --> 0:09:15.360 you attach it to. And beta is the structure the 0:09:15.440 --> 0:09:19.040 passive portfolio. What portfolio do you want? So we have 0:09:19.080 --> 0:09:22.199 an all weather portfolio, which is our risk parody portfolio. 0:09:22.280 --> 0:09:26.720 We describe okay, and that is our passive beta. So 0:09:26.840 --> 0:09:30.679 one can choose what we think is the best beta portfolio. 0:09:31.000 --> 0:09:34.200 Therefore there's no alpha. Alpha is the deviation from the 0:09:34.240 --> 0:09:37.080 benchmark DA had more value or so you can have 0:09:37.160 --> 0:09:39.679 the best beta portfolio or you can have the the 0:09:39.880 --> 0:09:42.600 what we believe is the best alpha portfolio. So because 0:09:42.600 --> 0:09:46.679 we've performed had positive expected alpha in sixteen out of 0:09:46.679 --> 0:09:50.080 the last sixteen years, and we've done and had twenty 0:09:50.120 --> 0:09:52.800 three out of less now it's less than it has been. 0:09:53.360 --> 0:09:56.920 But if they don't compare it to equities at the time, right, 0:09:57.160 --> 0:10:00.439 because In other words, it's it's above equities is the 0:10:00.480 --> 0:10:02.240 way that they look at it. It's up to them 0:10:02.360 --> 0:10:04.440 to choose whether they want the equity bench board. If 0:10:04.440 --> 0:10:06.400 you're just joining us, Ray Dalio, with us, We've got 0:10:06.440 --> 0:10:09.160 lots more to talk about well continually, Mr Dalio of Bridgewater. 0:10:09.240 --> 0:10:12.240 The book is principles doing better than what have you sold? 0:10:12.240 --> 0:10:14.200 The movie right here? Is there gonna be a movie? 0:10:14.200 --> 0:10:17.959 Who's playing Ray Dalio? Come on? Who? No movie rights damp? 0:10:18.440 --> 0:10:32.920 Ray Dalio with us, and we will continue. I'm Bloomberg Radio. 0:10:33.000 --> 0:10:36.040 We welcome all of you on Bloomberg Television worldwide. If 0:10:36.040 --> 0:10:37.680 I can get the tumb over. It's like the Old 0:10:37.720 --> 0:10:41.640 and the New Testament Principles, Ray Dalio, and both David 0:10:41.679 --> 0:10:45.880 Ger and I agree there's some huge individual initiative in 0:10:45.920 --> 0:10:49.760 here to think better and do better over the career 0:10:49.760 --> 0:10:52.480 of Mr Dalio. Of course at Bridgewater, Ray, I want 0:10:52.480 --> 0:10:54.480 to ask one more financial question here that we've been 0:10:54.520 --> 0:10:56.440 talking on, and I know David wants to go to. 0:10:56.880 --> 0:11:00.160 So much of what the nation is looking at right now. 0:11:00.559 --> 0:11:03.320 We see every day Cathy Burton and our team and 0:11:03.360 --> 0:11:08.560 hedge funds, people returning money from hedge funds. What Have 0:11:08.640 --> 0:11:10.640 you ever had to do that? Have you ever had 0:11:10.679 --> 0:11:14.160 to return money to investors because things just don't feel 0:11:14.160 --> 0:11:17.880 good right now? Anything like that. We have caps, and 0:11:17.920 --> 0:11:20.679 we've always had caps. We've returned money over a long 0:11:20.720 --> 0:11:25.360 period of time with within this is the recent underperformance 0:11:25.400 --> 0:11:28.160 of hedge funds and the pressure to get back. What 0:11:28.240 --> 0:11:30.920 do you do? Just wait? Do you take vacations waiting 0:11:31.240 --> 0:11:33.960 to get back to the right non volatile excuse me, 0:11:34.040 --> 0:11:38.560 the right volatile environment. I think I explained a little 0:11:38.559 --> 0:11:42.200 bit about how it works right for us. We separate 0:11:42.280 --> 0:11:45.120 alpha and beta. Right, So there's alpha, which is the 0:11:45.200 --> 0:11:47.719 value added, and that's a pure alpha fund, and then 0:11:47.840 --> 0:11:50.480 people can attach that to whatever beta they want. So 0:11:50.520 --> 0:11:53.400 if they say I want equities at plus your your 0:11:53.400 --> 0:11:55.880 alpha and your pure alpha fund, they get the alpha 0:11:55.880 --> 0:11:59.640 plus whatever the beta is. If they have cash and 0:11:59.679 --> 0:12:02.720 they can pair it with um an equity return, that's 0:12:02.760 --> 0:12:05.520 not a smart thing to do. So we're institutional clients 0:12:06.000 --> 0:12:08.480 compare it with the asset class that they put it against. 0:12:08.960 --> 0:12:12.240 And so because we've added value in sixteen or less 0:12:12.240 --> 0:12:15.320 sixteen years, and we're adding value less than we normally 0:12:15.360 --> 0:12:18.160 do because volatility has been less, but still we're added 0:12:18.240 --> 0:12:22.240 value net of fees UM, they're getting positive alpha, so 0:12:22.320 --> 0:12:25.440 they have in our case, they give us. They tend 0:12:25.480 --> 0:12:27.600 to give us money whenever there's an opportunity to give 0:12:27.679 --> 0:12:30.160 us money. Now the question is what is a hedge fund? Right? 0:12:30.480 --> 0:12:33.040 If a hedge fund is compared against the stock and 0:12:33.080 --> 0:12:36.040 you're having a cash and you're producing that value added 0:12:36.160 --> 0:12:40.000 and you're disappointed, then you're probably naive. If that entity 0:12:40.120 --> 0:12:43.640 is meant to beat the the equity x markets or something, 0:12:43.960 --> 0:12:46.760 then that's the passive. So you have to pick. The 0:12:46.800 --> 0:12:48.800 investors got to pick one way or another because when 0:12:48.840 --> 0:12:51.000 the bear market comes along, how do they deal with 0:12:51.040 --> 0:12:54.040 the bear market? So it's becomes a strategic question. I 0:12:54.080 --> 0:12:58.440 think the smart investor UM institutional investors are ours know 0:12:58.559 --> 0:13:00.920 how to separate alpha and bay to make that I 0:13:01.000 --> 0:13:03.600 gotta make news here this morning. Are you predicting amparer market? 0:13:03.640 --> 0:13:05.360 It seems like every Friday all the doom and the 0:13:05.400 --> 0:13:08.600 gloom comes out of higher interest rates, lower stock prices. 0:13:08.880 --> 0:13:12.760 Can read predict negative eighteen percent in the equity markets. 0:13:12.840 --> 0:13:16.360 Now we're um, we've been long ecomity markets and you know, 0:13:16.640 --> 0:13:19.839 without getting too much into our positions, let's get into 0:13:19.880 --> 0:13:22.160 you let's get into positions I can tell you because 0:13:22.200 --> 0:13:26.160 we don't get into our positions. But anyway, I'm saying no, 0:13:26.280 --> 0:13:29.520 the answer to your question. I mean, eventually it comes along, 0:13:29.720 --> 0:13:33.000 but we're in a different environment. Now here's here's the difference. Okay, 0:13:33.040 --> 0:13:38.160 and then David jumping from from Okay, from two thousand 0:13:38.240 --> 0:13:41.679 and eight until two thousand and seventeen, we were in 0:13:41.720 --> 0:13:45.120 a certain type of environment, and that environment it was 0:13:45.160 --> 0:13:47.760 one in which there was the pushing of interest rates 0:13:47.760 --> 0:13:51.960 down to the point of creating negative interest rates and 0:13:52.160 --> 0:13:56.400 with a positive carry plot by doing quantitative easing to 0:13:56.480 --> 0:14:00.960 push money into the system. Two thousand and seventeen is 0:14:01.000 --> 0:14:03.720 the transition of an ending of all of that all 0:14:03.760 --> 0:14:06.559 around the world, and we are entering a new era 0:14:06.920 --> 0:14:09.320 in which there is going to be and there is 0:14:09.640 --> 0:14:13.720 the raising of interest rates and the reducing of quantitative easy. 0:14:14.000 --> 0:14:18.280 That action that they took in that produced significantly bad 0:14:18.360 --> 0:14:21.320 real interest rates. I mean the real interest rates today 0:14:21.400 --> 0:14:25.640 ten year on the tenure um real interest rates are 0:14:25.680 --> 0:14:28.680 about a half a percent next to nothing, next to nothing, 0:14:29.080 --> 0:14:31.520 and the break even inflation right for ten years is 0:14:31.520 --> 0:14:35.240 about one eight percent. So that's those numbers are very 0:14:35.280 --> 0:14:38.600 low because of let's call it repression, in order to 0:14:38.600 --> 0:14:40.960 get the economy to do that. We are now in 0:14:40.960 --> 0:14:44.360 a transition, a whole different environment. That's the equivalent of 0:14:44.560 --> 0:14:47.440 entering the late stage of the cycle, and that's when 0:14:47.440 --> 0:14:51.680 there is a tightening. Tightening has become progressively more concerning 0:14:51.720 --> 0:14:54.600 because as you move along there are more and more 0:14:54.600 --> 0:14:58.400 difficult to get perfect. So as we're progressing, we are 0:14:58.520 --> 0:15:01.320 entering a period of greater risk and the nature of 0:15:01.320 --> 0:15:03.400 the market. So when you look at the bond market 0:15:03.520 --> 0:15:06.200 right now, there is risk in the bond rock. There's 0:15:06.240 --> 0:15:08.120 looks to me as a significant amount of risk in 0:15:08.160 --> 0:15:10.840 the bond market as that. So now let's go to 0:15:10.880 --> 0:15:13.240 the policies that are behind well, let's bring in David. 0:15:13.320 --> 0:15:16.200 Go to the policies. The good news is Ray Dalio 0:15:16.280 --> 0:15:18.200 is not in the shortlist at the Fed. Well on 0:15:18.200 --> 0:15:20.680 that note, Central Bank squarely and focus here. We just 0:15:20.720 --> 0:15:22.720 heard from the e c B. We're waiting to hear 0:15:22.720 --> 0:15:24.280 who the President is going to pick to lead the Fed. 0:15:24.360 --> 0:15:26.480 Let me ask you a two part question, how much 0:15:26.520 --> 0:15:28.880 does personality matter at the Federal Reserve? I look at 0:15:28.960 --> 0:15:31.360 John Taylor and think maybe he's a Ray Dalio kind 0:15:31.360 --> 0:15:33.560 of guy. He's Scott rules or principles of his own 0:15:33.600 --> 0:15:36.600 that he's health throughout his his career. And on that note, 0:15:36.600 --> 0:15:38.160 what would you say to the next chair the FED 0:15:38.320 --> 0:15:40.320 to what he or she needs to focus on when 0:15:40.360 --> 0:15:42.800 it comes to the health of the U S economy. 0:15:43.560 --> 0:15:47.840 A bunch of questions in there, so uh, personality. Again, 0:15:47.920 --> 0:15:50.760 I think the real question is principles. If you were 0:15:50.760 --> 0:15:53.200 to write them down and articulate them and then discuss 0:15:53.280 --> 0:15:55.320 them through history over period of time, I think that's 0:15:55.320 --> 0:15:58.640 a good thing. They also have very different principles and 0:15:58.680 --> 0:16:01.840 so such as it matters in terms of quantitative easing 0:16:02.120 --> 0:16:06.160 and also whether it's too tightened too to loose. So 0:16:06.240 --> 0:16:08.800 I do think it possible it can matter a lot 0:16:08.960 --> 0:16:12.280 in terms of what the monetary policy is, particularly the 0:16:12.280 --> 0:16:15.240 notion of about the quantitative easening and whether it's too 0:16:15.320 --> 0:16:18.520 tight or too easy. It can matter a lot. Um 0:16:18.600 --> 0:16:22.840 And then we have the pace at which from FED policy, 0:16:22.960 --> 0:16:25.520 since we're talking about it, the pace at which there's 0:16:25.680 --> 0:16:28.120 an unwinding of the balance sheet. You know, I look 0:16:28.160 --> 0:16:30.720 at those numbers and um, I don't think they're going 0:16:30.800 --> 0:16:33.520 to be able to continue to that pace because it's 0:16:33.520 --> 0:16:35.800 equivalent of something like two and a half percent of GDP, 0:16:36.520 --> 0:16:38.680 and if you have that happening at the same time 0:16:38.680 --> 0:16:41.680 as there's increased budget deficits, we could have a budget 0:16:41.720 --> 0:16:44.480 deficit increase of another one and alf percent of GDP. 0:16:45.040 --> 0:16:47.280 That's a big number in the supply demand of bonds. 0:16:47.320 --> 0:16:49.440 I mean, think about that. Okay, there's going to be 0:16:49.520 --> 0:16:52.880 that amount of effective selling of credit by the Federal Reserve. 0:16:53.360 --> 0:16:56.080 Big are you big numbering that? With the tax reform 0:16:56.200 --> 0:17:00.520 proposed as Douglas holtz Ecan talks about, we're going to five, 0:17:00.640 --> 0:17:05.399 six or seven of deficit to GDP, where we will 0:17:05.440 --> 0:17:10.479 almost certainly have a significant move in that direction. So 0:17:10.640 --> 0:17:12.560 you could even see it in the market action, in 0:17:12.560 --> 0:17:15.560 other words, on days where it looks like they're making 0:17:15.560 --> 0:17:17.720 more progress to the bond markets, more inclined to sell 0:17:17.760 --> 0:17:20.560 off days that they're making less progress to bond market 0:17:20.640 --> 0:17:23.560 because there's going to be probably a larger deficit and 0:17:23.640 --> 0:17:26.560 that means more selling of bonds at the same time 0:17:26.600 --> 0:17:29.160 as there's more selling of bonds by the Federal Reserve. 0:17:29.280 --> 0:17:31.720 In terms of the balance you change now, I think 0:17:31.720 --> 0:17:34.000 they'll be cautious in this, but when you're in this 0:17:34.040 --> 0:17:37.199 part of the cycle, it's very delicate. And this is 0:17:37.240 --> 0:17:40.480 not just the FED. This is what we're The movement 0:17:40.520 --> 0:17:42.800 in the c B is going to be analogous to that. 0:17:42.960 --> 0:17:45.639 So we're talking now today's meeting is what is the 0:17:45.680 --> 0:17:48.320 pace of doing that? But we know the direction. And 0:17:48.359 --> 0:17:51.240 if you move further along you know the direction. You 0:17:51.280 --> 0:17:55.120 know the direction. And in Japan a little bit slower, 0:17:55.440 --> 0:17:57.480 you know the direction. In China, as we have to 0:17:57.600 --> 0:17:59.920 go from the Nine People's Congress and you go beyond it, 0:18:00.320 --> 0:18:02.520 there's going to be more of a tightening of credit. 0:18:02.840 --> 0:18:05.919 So the complexion of the world that we're in is 0:18:06.040 --> 0:18:09.879 changing in a profound way. Every decade practically has uh 0:18:10.000 --> 0:18:13.359 defining characteristics. You know, the sixties was a period of 0:18:13.840 --> 0:18:17.720 strong growth, not much inflation. Seventies this is we're going 0:18:17.800 --> 0:18:20.120 to have a period. We're gonna enter a new period 0:18:20.359 --> 0:18:22.119 that's going to be quite different than the one that 0:18:22.119 --> 0:18:23.960 we've been Eight ways to go here, We'll run out 0:18:24.000 --> 0:18:25.920 of time because your answers are too long. I gotta 0:18:25.920 --> 0:18:27.760 work on that. You gotta go to interview camp and 0:18:27.760 --> 0:18:31.959 do shorter answers. I'm kidding, right. We just interviewed Richard Taylor, 0:18:32.240 --> 0:18:35.840 the Nobel Prize winner in behavioral economics. In the back 0:18:35.880 --> 0:18:39.320 of your book Principles, you have in your bibliography the 0:18:39.440 --> 0:18:44.040 giant Mr Kanman of Princeton, Thinking fast, Thinking Slow. What 0:18:44.160 --> 0:18:48.359 have you learned from the behavioral economists that you brought 0:18:48.480 --> 0:18:52.280 over to your book Principles. I learned. I learned that 0:18:52.320 --> 0:18:55.480 there are two us in everybody. Right. There's the upper 0:18:55.600 --> 0:19:00.639 level thoughtful um you that's not emotionally carried away. And 0:19:00.680 --> 0:19:02.960 there's the lower level you, which is a part of 0:19:02.960 --> 0:19:05.680 the brain, the animal brain, that has that emotional uh 0:19:06.000 --> 0:19:08.560 carried away. But also a lot of good things like 0:19:08.720 --> 0:19:13.040 inspiration and um intuition come from that. And I've learned 0:19:13.200 --> 0:19:18.000 how important it is to go slow and reconcile those 0:19:18.040 --> 0:19:20.679 two things to to determine what you want. And that 0:19:20.880 --> 0:19:22.840 is the exercise, in other words, when I'm in the 0:19:22.880 --> 0:19:25.959 heat of the moment and I'm dealing with things, and 0:19:26.000 --> 0:19:28.240 then I instead come out of that heat at the 0:19:28.280 --> 0:19:31.240 moment and I've slowed down, and I write down my 0:19:31.440 --> 0:19:36.760 criteria for making decisions, and I build a decision making system. 0:19:36.800 --> 0:19:39.479 So it's like plane poker that I know if I 0:19:39.520 --> 0:19:42.160 operated in this way, I could know what the results are. 0:19:42.560 --> 0:19:45.040 I'm in a position that I can execute that like 0:19:45.119 --> 0:19:48.000 creating a computer chess game. That's been great. We do 0:19:48.080 --> 0:19:50.680 this for like six hours. I got too many questions ago, 0:19:50.720 --> 0:19:52.520 I want to talk about Ed Thorpe and m T. 0:19:54.040 --> 0:19:56.160 There'll be another book. When is the next book out? 0:19:56.960 --> 0:19:59.560 Probably on economic investment principles for a year and a 0:19:59.600 --> 0:20:01.920 half we wait for the movie. It'll be great principles. 0:20:02.000 --> 0:20:06.840 Ray Dalio, thank you so much, really really interesting book 0:20:06.920 --> 0:20:10.159 on the individual moving through life, with a lot of 0:20:10.240 --> 0:20:13.000 lessons learned from Mr Dalio. He of course runs a 0:20:13.080 --> 0:20:17.440 small investment shop up in Connecticut called Bridgewater as well. 0:20:26.800 --> 0:20:30.960 Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and 0:20:31.040 --> 0:20:36.400 listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast 0:20:36.480 --> 0:20:40.000 platform you prefer. I'm on Twitter at Tom Keene. David 0:20:40.040 --> 0:20:44.199 Gura is at David Gura. Before the podcast, you can 0:20:44.240 --> 0:20:47.359 always catch us worldwide. I'm Bloomberg Radio.