Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: I'm Huslinda Amen in Singapore where the eleventh Annual Milk
Speaker 2: and the Asia Summit is underway. We want to welcome
Speaker 2: Bloomberg television viewers as well as radio listeners all over
Speaker 2: the world. While joining us now is Ray Dallion, Founder
Speaker 2: and CIO mentor at Bridgewater Associates.
Speaker 1: Ray, good to have.
Speaker 3: You with us, Good to be here.
Speaker 1: Global leaders.
Speaker 2: They're grappling with a host of issues. But you say
Speaker 2: they are five key factors, forces that are perhaps defining
Speaker 2: and shaping the globed economy before we get there though,
Speaker 2: Today a big day for the markets, the FED front
Speaker 2: and center.
Speaker 1: Twenty five or fifty that is a key question.
Speaker 2: And I know you said before that you're right sixty
Speaker 2: five percent of the time when it comes to market.
Speaker 1: So what's the bet on.
Speaker 4: I think it's such a silly bet, like twenty five
Speaker 4: or fifty. It doesn't make a different. I think that's
Speaker 4: the problem with the news cycle and all of this.
Speaker 4: They're losing sense of the bigger picture. Okay, Fed policy,
Speaker 4: what does the FED have to do? Fed has to
Speaker 4: keep interest rates high enough to satisfy the creditors that
Speaker 4: they're going to get a real return without having them
Speaker 4: so high that the debtors have a problem.
Speaker 3: So, now, if we're.
Speaker 4: Looking at this, whether it's twenty five or fifty basis points,
Speaker 4: twenty five basis points is going to be dependent would
Speaker 4: be the right thing to do if you look at
Speaker 4: the whole picture as a whole. If you look at
Speaker 4: the mortgage situation, which is worse and that affects more people,
Speaker 4: then it's probably fifty basis point. But let's get beyond that, okay,
Speaker 4: and talk about these five big forces. The first of
Speaker 4: those forces is the force that you're referring to, which is,
Speaker 4: excuse me, the debt, money, economy, dynamic and force. Okay,
Speaker 4: So we have a big debt increase, an enormous amount
Speaker 4: of we have an enormous amount of debt and it's
Speaker 4: going to keep increasing and one man's debts or another
Speaker 4: man's liabilities.
Speaker 3: Okay, So what is that going to mean for monetary policy? Okay?
Speaker 4: As you have to sell more and more of those bonds,
Speaker 4: what will be done? I think the same thing is
Speaker 4: done in Japan. What happens is there's not going to
Speaker 4: be a default. Of course, there won't be a default
Speaker 4: but increasingly they have to drive down real interest rates
Speaker 4: so that real interest rates are significantly negative. So you're
Speaker 4: going to have in order to service the debt, you
Speaker 4: have to have a significantly negative real rate, and you
Speaker 4: also have to have then the depreciation of the value
Speaker 4: of money because inflation arises, so that you have to
Speaker 4: have a nominal growth rate in other words, inflation plus
Speaker 4: real growth that is above the nominal interest rate, and
Speaker 4: you have to have a real interest rate that is negative,
Speaker 4: and you have to have a positive slow yield curve,
Speaker 4: so that holding bonds is a bad deal.
Speaker 1: What is the state of the US economy?
Speaker 2: I mean, we're talking about twenty five or fifty based
Speaker 2: on the assumptions of how the economy is doing. Okay,
Speaker 2: from the data that we've gotten so far, does it
Speaker 2: justify fifty?
Speaker 1: I mean, what the same.
Speaker 4: We have a model for estimating what should be the
Speaker 4: economy right now is very very very close to an
Speaker 4: equilibrium level in many ways. If you're just looking at
Speaker 4: what is and you're not looking at the debt problem,
Speaker 4: and it would look like there should be a modest
Speaker 4: easing of interest rates and a move gradually to a
Speaker 4: more positively sloped yield curve what we would call the normal.
Speaker 4: It's fairly normal, except it's not normal in the way
Speaker 4: that it's so skewed.
Speaker 3: So if we look at the markets, and.
Speaker 4: We look at the way the population's income levels are
Speaker 4: for the various sectors, if you look at the bottom
Speaker 4: sixty percent, if you look at the politics the left
Speaker 4: and the right, and the nature of what is going
Speaker 4: on the two worlds that we live in in terms
Speaker 4: of that of the economy and the values that brings
Speaker 4: us to the election. So if we are talking about
Speaker 4: let's say monetary policy, you have to look at the
Speaker 4: five forces.
Speaker 3: So back to the five forces.
Speaker 4: The first force we talked about, the second fourth is
Speaker 4: the force of internal order and disorder that progresses in
Speaker 4: a cycle.
Speaker 3: There is hard left and hard right.
Speaker 4: So there's ideological differences that are creating a political situation
Speaker 4: that leads us to not only have possibly different policies,
Speaker 4: dramatically different policies which will have an effect on the
Speaker 4: economy or have an effect on the markets, but even
Speaker 4: worse or more concerning, is that it's conceivable that one
Speaker 4: side or another might not accept losing. Okay, so how
Speaker 4: will that will we have an orderly transition of power,
Speaker 4: and will we have an orderly democracy in which there's
Speaker 4: the ability to have disagreement and resolve of those disagreements.
Speaker 4: I think these are really questionable situations. So the second
Speaker 4: force is that internal order disorder force. The third force
Speaker 4: is the great power conflict. In other words, throughout history
Speaker 4: there's a time when the rising power challenging the existing power,
Speaker 4: and there's a world order thing going on. And that
Speaker 4: world order thing going on has to do with China,
Speaker 4: the United States and so on, And of course it
Speaker 4: becomes even more important than the economy because it is
Speaker 4: it's considered national security.
Speaker 3: Okay.
Speaker 4: The fourth influence is through time, is acts of nature, droughts, floods,
Speaker 4: and pandemics, and climate is a big influence.
Speaker 3: It's going to cost US eight trillion.
Speaker 4: Dollars a year estimated in one way or another in
Speaker 4: an world economy that has one hundred trillion. And the
Speaker 4: fifth force, of course is technology, okay, Man's inventiveness of technology.
Speaker 4: Throughout history, those five forces have interacted.
Speaker 3: So when we look at things, I.
Speaker 4: Think that there's the twenty five or fifty basis points.
Speaker 3: Let's get beyond that.
Speaker 4: Let's look at the whole arc of that in terms
Speaker 4: of the changing of all of those five forces and
Speaker 4: their inter relationships.
Speaker 2: Let's get back to internal conflict and link it to
Speaker 2: the US elections. How do you see playing out? How
Speaker 2: do you see the next few months fifty days elections?
Speaker 2: How do you see that playing out? Well?
Speaker 4: As I say, I think that there's two questions. First,
Speaker 4: the question of will we have an orderly transition of power?
Speaker 4: That's quite amazing. Will we have democracy work as it is?
Speaker 4: That cannot be assured, so because behind all of this
Speaker 4: is that we have irreconcilable differences, not just pertaining to
Speaker 4: taxes in wealth and economic policies and so, but in
Speaker 4: terms of values, you know, it's how do people raise children?
Speaker 4: Related to sexuality and all of those things. There are
Speaker 4: those gaps. So I think we hope for an orderly
Speaker 4: transition of power. Isn't it quite amazing that we would think?
Speaker 4: Could we not have that? And then we go beyond that,
Speaker 4: and then we say, what about those policies that are
Speaker 4: going to be dealt with? Nobody's going to deal with
Speaker 4: the debt policy that's going to end up being monetized
Speaker 4: down the path, Then the question is issues of taxation
Speaker 4: and those issues of taxation will have an important impact
Speaker 4: on the capital markets if they're bought for after tax returns.
Speaker 3: By and large, it's the important thing.
Speaker 4: You lower corporate income taxes, you a race corporate income taxes.
Speaker 3: It makes a difference to prices.
Speaker 4: So we're going to have those issues, a lot of
Speaker 4: issues to talk about.
Speaker 3: Regarding the election.
Speaker 4: I think when we go beyond that, most likely there
Speaker 4: is going to be irreconcilable differences, and I think that
Speaker 4: you're going to see more movement to states. So there'll
Speaker 4: be a challenge of what does the central government control
Speaker 4: and what do the state government's control and is there
Speaker 4: an obedience in a sense, So we are coming more
Speaker 4: to a fragment and set of circumstances. What we would need,
Speaker 4: I think is strong leadership of the middle to bring
Speaker 4: the country together and leave and isolate more of the extremists,
Speaker 4: if that was possible, and then to make reforms because
Speaker 4: we do have a very skewed type of economy.
Speaker 1: So is that Kamala Harris.
Speaker 3: There's no.
Speaker 4: I don't think it's either of the candidates. Okay, I
Speaker 4: don't think it's no. It's not either of the candidates.
Speaker 4: I think that the issue of reform, strong leadership in
Speaker 4: the middle.
Speaker 3: I don't see it.
Speaker 2: We've been talking about a changing global order. China comes
Speaker 2: to mind automatically. The conversation right now is a massive
Speaker 2: slowdown in China, economic malaise. But people seem to be
Speaker 2: missing the point that amidst all the slowdown, China is
Speaker 2: still innovating renewables evs.
Speaker 1: How are you assessity.
Speaker 4: I think that there are real issues in China now
Speaker 4: and they changed really in the last for years, and
Speaker 4: that is that they need a restructuring. A lot of
Speaker 4: the spending, well, let's say individuals seventy percent of their
Speaker 4: money was in real estate. Real estate has gone down,
Speaker 4: stocks have gone down, salaries have gone down, and as
Speaker 4: a result, they're not spending and they're concerned, and they're
Speaker 4: holding money in cash. The deflation. Cash is a relatively
Speaker 4: good asset class. That's kind of the household and the
Speaker 4: business sector is in that state. At the same time,
Speaker 4: you have the government sector is a problem because most
Speaker 4: of the government's spending eighty three percent of government spending
Speaker 4: is spent by local governments. Those local governments got their
Speaker 4: money by selling land for real estate.
Speaker 3: Okay, there are no land sales, and they.
Speaker 4: Borrowed a lot of money, and for those that they
Speaker 4: borrowed the money don't get paid. And so the question
Speaker 4: is how are you going to get money into those
Speaker 4: places to up rate. It's a situation that's more challenging
Speaker 4: than Japan in nineteen ninety. It needs a restructuring in
Speaker 4: order to be able to do that. And then there's
Speaker 4: also the question is the property values, the property, the
Speaker 4: property ownership, is it respected? And dengshall Ping Juring his
Speaker 4: period said it's glorious to be rich.
Speaker 3: Is it still glorious to be rich?
Speaker 4: So you have an environment in China which is changing
Speaker 4: and becoming a more difficult environment. So it's the time
Speaker 4: right now that you would see either is there going
Speaker 4: to be a restructuring and getting past that? The innovation, Yes,
Speaker 4: there's fantastic innovation in terms of technology, there's nothing likely
Speaker 4: other than in the United States. Europe certainly isn't a
Speaker 4: competitor in that. However, it's very much government directed. Can
Speaker 4: there still be entrepreneurship and that inventiveness? These are the
Speaker 4: big cosmic question.
Speaker 2: Given the environment that you have just painted for us,
Speaker 2: it's China still the place to do business is China
Speaker 2: still the destination for your investment money. You've said time
Speaker 2: and again that you should be investing.
Speaker 4: Yes, I just want to be clear about the investing
Speaker 4: in China. In all countries, there are cycles and ups
Speaker 4: and downs and so on, and in no country should
Speaker 4: you invest so much money that it becomes a dominant
Speaker 4: portion of your portfolio. So in China, I still invest
Speaker 4: in China. The question is the size of the investment
Speaker 4: and how that investment is structured. So it's been a
Speaker 4: good experience for us to invest.
Speaker 1: The size and what's how are you invested?
Speaker 2: Because reports suggesting that Bridgewater, for instance, has been cutting
Speaker 2: down its exposure to China's holding, it's.
Speaker 3: Not my place to talk about bridge works.
Speaker 1: How do you see how do you see investing in China?
Speaker 4: I see investing in China as largely a very attractively
Speaker 4: priced place that now has a lot of questions regarding
Speaker 4: the issues that I've just referred to, in other words,
Speaker 4: the economic issues and the political issues regarding property rights
Speaker 4: and whether it's still glorious to be rich and how
Speaker 4: that will work. Therefore, there's a small percentage of our
Speaker 4: portfolio which is in China, and we'll stay in China.
Speaker 3: You know through this process.
Speaker 2: One of big forces shaping the world today is technology.
Speaker 2: Ai Jenei, You're big on it. You're looking at a
Speaker 2: bot so that people can have access and have conversations
Speaker 2: with you. I mean, what is the potential And of
Speaker 2: course if it's technology, technology.
Speaker 1: Goes wrong, your bots could go rogue.
Speaker 2: I mean, how are you assessing you know, the risks
Speaker 2: as well as the rewards the benefits of AI and
Speaker 2: jen Ai.
Speaker 4: Well, for the last thirty five years, I've written down
Speaker 4: principles and decision rules, literally many thousands of those I
Speaker 4: and they have operated as systems, decision making systems, and
Speaker 4: that now I'm very excited about that because I've but
Speaker 4: you have to train them very well. Because it's been
Speaker 4: all so specified over a period of time.
Speaker 3: It is very educational.
Speaker 4: I've then taken a large team of people and gone
Speaker 4: through asking it questions and dealing with it and training it.
Speaker 3: And the reason is a lot of people ask me questions.
Speaker 4: I'm going to phase in my life where my main
Speaker 4: objective is to pass along what I've had that it's
Speaker 4: a benefit to others, and we interact such as this
Speaker 4: kind of conversation, and I thought it would be great
Speaker 4: if there could be I could answer all those questions,
Speaker 4: or we could have discussions how are you doing and
Speaker 4: all that.
Speaker 3: So that's what I've created.
Speaker 4: It's called Digital Ray, at least that's the tentative name,
Speaker 4: and we're beta testing it. We're going to have several
Speaker 4: thousand people tested and see how that goes. Will move forward,
Speaker 4: But I think it's exciting when you have you need
Speaker 4: to have computerized decision making working with you because the
Speaker 4: time of making all those decisions in your head, that's obsolete.
Speaker 4: You know, the smart person who thinks I can weigh
Speaker 4: everything in my head, they're obsolete. Nowadays you have to
Speaker 4: have a partner in terms of those decisions making with the.
Speaker 1: Computer ray final thirty seconds.
Speaker 2: We also know that Jenny I sucks of energy, they
Speaker 2: say as much as a small country sually.
Speaker 4: That is a concern, of course, it's an important concern.
Speaker 3: The real question is it's productivity.
Speaker 4: I think a lot of attension, a lot of the
Speaker 4: finances have been in the development with the superscalers. I
Speaker 4: think the real opportunities are going to come in terms
Speaker 4: of the users and how that's going to change productivity.
Speaker 4: In fact, probably invent ways that technology wouldn't be so.
Speaker 1: Much right, We have to live in there. Great conversation.
Speaker 2: Ray Dalio, founder and CIO mentor at Bridgewater Associates. We're
Speaker 2: coming to you live from the Milk and Asia Summit.
Speaker 2: Keep it here with us. This is Bloomberg