WEBVTT - Bridgewater's Ray Dalio Talks Rates

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>I'm Huslinda Amen in Singapore where the eleventh Annual Milk

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<v Speaker 2>and the Asia Summit is underway. We want to welcome

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<v Speaker 2>Bloomberg television viewers as well as radio listeners all over

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<v Speaker 2>the world. While joining us now is Ray Dallion, Founder

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<v Speaker 2>and CIO mentor at Bridgewater Associates.

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<v Speaker 1>Ray, good to have.

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<v Speaker 3>You with us, Good to be here.

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<v Speaker 1>Global leaders.

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<v Speaker 2>They're grappling with a host of issues. But you say

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<v Speaker 2>they are five key factors, forces that are perhaps defining

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<v Speaker 2>and shaping the globed economy before we get there though,

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<v Speaker 2>Today a big day for the markets, the FED front

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<v Speaker 2>and center.

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<v Speaker 1>Twenty five or fifty that is a key question.

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<v Speaker 2>And I know you said before that you're right sixty

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<v Speaker 2>five percent of the time when it comes to market.

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<v Speaker 1>So what's the bet on.

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<v Speaker 4>I think it's such a silly bet, like twenty five

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<v Speaker 4>or fifty. It doesn't make a different. I think that's

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<v Speaker 4>the problem with the news cycle and all of this.

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<v Speaker 4>They're losing sense of the bigger picture. Okay, Fed policy,

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<v Speaker 4>what does the FED have to do? Fed has to

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<v Speaker 4>keep interest rates high enough to satisfy the creditors that

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<v Speaker 4>they're going to get a real return without having them

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<v Speaker 4>so high that the debtors have a problem.

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<v Speaker 3>So, now, if we're.

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<v Speaker 4>Looking at this, whether it's twenty five or fifty basis points,

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<v Speaker 4>twenty five basis points is going to be dependent would

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<v Speaker 4>be the right thing to do if you look at

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<v Speaker 4>the whole picture as a whole. If you look at

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<v Speaker 4>the mortgage situation, which is worse and that affects more people,

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<v Speaker 4>then it's probably fifty basis point. But let's get beyond that, okay,

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<v Speaker 4>and talk about these five big forces. The first of

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<v Speaker 4>those forces is the force that you're referring to, which is,

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<v Speaker 4>excuse me, the debt, money, economy, dynamic and force. Okay,

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<v Speaker 4>So we have a big debt increase, an enormous amount

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<v Speaker 4>of we have an enormous amount of debt and it's

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<v Speaker 4>going to keep increasing and one man's debts or another

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<v Speaker 4>man's liabilities.

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<v Speaker 3>Okay, So what is that going to mean for monetary policy? Okay?

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<v Speaker 4>As you have to sell more and more of those bonds,

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<v Speaker 4>what will be done? I think the same thing is

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<v Speaker 4>done in Japan. What happens is there's not going to

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<v Speaker 4>be a default. Of course, there won't be a default

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<v Speaker 4>but increasingly they have to drive down real interest rates

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<v Speaker 4>so that real interest rates are significantly negative. So you're

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<v Speaker 4>going to have in order to service the debt, you

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<v Speaker 4>have to have a significantly negative real rate, and you

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<v Speaker 4>also have to have then the depreciation of the value

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<v Speaker 4>of money because inflation arises, so that you have to

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<v Speaker 4>have a nominal growth rate in other words, inflation plus

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<v Speaker 4>real growth that is above the nominal interest rate, and

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<v Speaker 4>you have to have a real interest rate that is negative,

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<v Speaker 4>and you have to have a positive slow yield curve,

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<v Speaker 4>so that holding bonds is a bad deal.

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<v Speaker 1>What is the state of the US economy?

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<v Speaker 2>I mean, we're talking about twenty five or fifty based

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<v Speaker 2>on the assumptions of how the economy is doing. Okay,

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<v Speaker 2>from the data that we've gotten so far, does it

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<v Speaker 2>justify fifty?

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<v Speaker 1>I mean, what the same.

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<v Speaker 4>We have a model for estimating what should be the

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<v Speaker 4>economy right now is very very very close to an

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<v Speaker 4>equilibrium level in many ways. If you're just looking at

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<v Speaker 4>what is and you're not looking at the debt problem,

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<v Speaker 4>and it would look like there should be a modest

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<v Speaker 4>easing of interest rates and a move gradually to a

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<v Speaker 4>more positively sloped yield curve what we would call the normal.

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<v Speaker 4>It's fairly normal, except it's not normal in the way

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<v Speaker 4>that it's so skewed.

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<v Speaker 3>So if we look at the markets, and.

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<v Speaker 4>We look at the way the population's income levels are

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<v Speaker 4>for the various sectors, if you look at the bottom

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<v Speaker 4>sixty percent, if you look at the politics the left

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<v Speaker 4>and the right, and the nature of what is going

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<v Speaker 4>on the two worlds that we live in in terms

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<v Speaker 4>of that of the economy and the values that brings

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<v Speaker 4>us to the election. So if we are talking about

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<v Speaker 4>let's say monetary policy, you have to look at the

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<v Speaker 4>five forces.

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<v Speaker 3>So back to the five forces.

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<v Speaker 4>The first force we talked about, the second fourth is

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<v Speaker 4>the force of internal order and disorder that progresses in

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<v Speaker 4>a cycle.

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<v Speaker 3>There is hard left and hard right.

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<v Speaker 4>So there's ideological differences that are creating a political situation

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<v Speaker 4>that leads us to not only have possibly different policies,

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<v Speaker 4>dramatically different policies which will have an effect on the

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<v Speaker 4>economy or have an effect on the markets, but even

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<v Speaker 4>worse or more concerning, is that it's conceivable that one

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<v Speaker 4>side or another might not accept losing. Okay, so how

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<v Speaker 4>will that will we have an orderly transition of power,

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<v Speaker 4>and will we have an orderly democracy in which there's

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<v Speaker 4>the ability to have disagreement and resolve of those disagreements.

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<v Speaker 4>I think these are really questionable situations. So the second

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<v Speaker 4>force is that internal order disorder force. The third force

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<v Speaker 4>is the great power conflict. In other words, throughout history

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<v Speaker 4>there's a time when the rising power challenging the existing power,

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<v Speaker 4>and there's a world order thing going on. And that

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<v Speaker 4>world order thing going on has to do with China,

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<v Speaker 4>the United States and so on, And of course it

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<v Speaker 4>becomes even more important than the economy because it is

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<v Speaker 4>it's considered national security.

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<v Speaker 3>Okay.

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<v Speaker 4>The fourth influence is through time, is acts of nature, droughts, floods,

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<v Speaker 4>and pandemics, and climate is a big influence.

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<v Speaker 3>It's going to cost US eight trillion.

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<v Speaker 4>Dollars a year estimated in one way or another in

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<v Speaker 4>an world economy that has one hundred trillion. And the

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<v Speaker 4>fifth force, of course is technology, okay, Man's inventiveness of technology.

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<v Speaker 4>Throughout history, those five forces have interacted.

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<v Speaker 3>So when we look at things, I.

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<v Speaker 4>Think that there's the twenty five or fifty basis points.

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<v Speaker 3>Let's get beyond that.

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<v Speaker 4>Let's look at the whole arc of that in terms

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<v Speaker 4>of the changing of all of those five forces and

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<v Speaker 4>their inter relationships.

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<v Speaker 2>Let's get back to internal conflict and link it to

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<v Speaker 2>the US elections. How do you see playing out? How

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<v Speaker 2>do you see the next few months fifty days elections?

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<v Speaker 2>How do you see that playing out? Well?

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<v Speaker 4>As I say, I think that there's two questions. First,

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<v Speaker 4>the question of will we have an orderly transition of power?

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<v Speaker 4>That's quite amazing. Will we have democracy work as it is?

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<v Speaker 4>That cannot be assured, so because behind all of this

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<v Speaker 4>is that we have irreconcilable differences, not just pertaining to

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<v Speaker 4>taxes in wealth and economic policies and so, but in

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<v Speaker 4>terms of values, you know, it's how do people raise children?

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<v Speaker 4>Related to sexuality and all of those things. There are

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<v Speaker 4>those gaps. So I think we hope for an orderly

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<v Speaker 4>transition of power. Isn't it quite amazing that we would think?

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<v Speaker 4>Could we not have that? And then we go beyond that,

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<v Speaker 4>and then we say, what about those policies that are

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<v Speaker 4>going to be dealt with? Nobody's going to deal with

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<v Speaker 4>the debt policy that's going to end up being monetized

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<v Speaker 4>down the path, Then the question is issues of taxation

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<v Speaker 4>and those issues of taxation will have an important impact

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<v Speaker 4>on the capital markets if they're bought for after tax returns.

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<v Speaker 3>By and large, it's the important thing.

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<v Speaker 4>You lower corporate income taxes, you a race corporate income taxes.

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<v Speaker 3>It makes a difference to prices.

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<v Speaker 4>So we're going to have those issues, a lot of

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<v Speaker 4>issues to talk about.

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<v Speaker 3>Regarding the election.

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<v Speaker 4>I think when we go beyond that, most likely there

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<v Speaker 4>is going to be irreconcilable differences, and I think that

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<v Speaker 4>you're going to see more movement to states. So there'll

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<v Speaker 4>be a challenge of what does the central government control

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<v Speaker 4>and what do the state government's control and is there

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<v Speaker 4>an obedience in a sense, So we are coming more

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<v Speaker 4>to a fragment and set of circumstances. What we would need,

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<v Speaker 4>I think is strong leadership of the middle to bring

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<v Speaker 4>the country together and leave and isolate more of the extremists,

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<v Speaker 4>if that was possible, and then to make reforms because

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<v Speaker 4>we do have a very skewed type of economy.

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<v Speaker 1>So is that Kamala Harris.

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<v Speaker 3>There's no.

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<v Speaker 4>I don't think it's either of the candidates. Okay, I

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<v Speaker 4>don't think it's no. It's not either of the candidates.

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<v Speaker 4>I think that the issue of reform, strong leadership in

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<v Speaker 4>the middle.

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<v Speaker 3>I don't see it.

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<v Speaker 2>We've been talking about a changing global order. China comes

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<v Speaker 2>to mind automatically. The conversation right now is a massive

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<v Speaker 2>slowdown in China, economic malaise. But people seem to be

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<v Speaker 2>missing the point that amidst all the slowdown, China is

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<v Speaker 2>still innovating renewables evs.

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<v Speaker 1>How are you assessity.

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<v Speaker 4>I think that there are real issues in China now

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<v Speaker 4>and they changed really in the last for years, and

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<v Speaker 4>that is that they need a restructuring. A lot of

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<v Speaker 4>the spending, well, let's say individuals seventy percent of their

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<v Speaker 4>money was in real estate. Real estate has gone down,

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<v Speaker 4>stocks have gone down, salaries have gone down, and as

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<v Speaker 4>a result, they're not spending and they're concerned, and they're

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<v Speaker 4>holding money in cash. The deflation. Cash is a relatively

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<v Speaker 4>good asset class. That's kind of the household and the

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<v Speaker 4>business sector is in that state. At the same time,

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<v Speaker 4>you have the government sector is a problem because most

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<v Speaker 4>of the government's spending eighty three percent of government spending

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<v Speaker 4>is spent by local governments. Those local governments got their

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<v Speaker 4>money by selling land for real estate.

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<v Speaker 3>Okay, there are no land sales, and they.

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<v Speaker 4>Borrowed a lot of money, and for those that they

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<v Speaker 4>borrowed the money don't get paid. And so the question

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<v Speaker 4>is how are you going to get money into those

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<v Speaker 4>places to up rate. It's a situation that's more challenging

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<v Speaker 4>than Japan in nineteen ninety. It needs a restructuring in

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<v Speaker 4>order to be able to do that. And then there's

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<v Speaker 4>also the question is the property values, the property, the

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<v Speaker 4>property ownership, is it respected? And dengshall Ping Juring his

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<v Speaker 4>period said it's glorious to be rich.

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<v Speaker 3>Is it still glorious to be rich?

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<v Speaker 4>So you have an environment in China which is changing

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<v Speaker 4>and becoming a more difficult environment. So it's the time

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<v Speaker 4>right now that you would see either is there going

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<v Speaker 4>to be a restructuring and getting past that? The innovation, Yes,

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<v Speaker 4>there's fantastic innovation in terms of technology, there's nothing likely

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<v Speaker 4>other than in the United States. Europe certainly isn't a

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<v Speaker 4>competitor in that. However, it's very much government directed. Can

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<v Speaker 4>there still be entrepreneurship and that inventiveness? These are the

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<v Speaker 4>big cosmic question.

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<v Speaker 2>Given the environment that you have just painted for us,

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<v Speaker 2>it's China still the place to do business is China

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<v Speaker 2>still the destination for your investment money. You've said time

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<v Speaker 2>and again that you should be investing.

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<v Speaker 4>Yes, I just want to be clear about the investing

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<v Speaker 4>in China. In all countries, there are cycles and ups

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<v Speaker 4>and downs and so on, and in no country should

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<v Speaker 4>you invest so much money that it becomes a dominant

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<v Speaker 4>portion of your portfolio. So in China, I still invest

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<v Speaker 4>in China. The question is the size of the investment

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<v Speaker 4>and how that investment is structured. So it's been a

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<v Speaker 4>good experience for us to invest.

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<v Speaker 1>The size and what's how are you invested?

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<v Speaker 2>Because reports suggesting that Bridgewater, for instance, has been cutting

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<v Speaker 2>down its exposure to China's holding, it's.

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<v Speaker 3>Not my place to talk about bridge works.

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<v Speaker 1>How do you see how do you see investing in China?

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<v Speaker 4>I see investing in China as largely a very attractively

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<v Speaker 4>priced place that now has a lot of questions regarding

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<v Speaker 4>the issues that I've just referred to, in other words,

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<v Speaker 4>the economic issues and the political issues regarding property rights

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<v Speaker 4>and whether it's still glorious to be rich and how

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<v Speaker 4>that will work. Therefore, there's a small percentage of our

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<v Speaker 4>portfolio which is in China, and we'll stay in China.

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<v Speaker 3>You know through this process.

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<v Speaker 2>One of big forces shaping the world today is technology.

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<v Speaker 2>Ai Jenei, You're big on it. You're looking at a

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<v Speaker 2>bot so that people can have access and have conversations

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<v Speaker 2>with you. I mean, what is the potential And of

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<v Speaker 2>course if it's technology, technology.

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<v Speaker 1>Goes wrong, your bots could go rogue.

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<v Speaker 2>I mean, how are you assessing you know, the risks

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<v Speaker 2>as well as the rewards the benefits of AI and

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<v Speaker 2>jen Ai.

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<v Speaker 4>Well, for the last thirty five years, I've written down

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<v Speaker 4>principles and decision rules, literally many thousands of those I

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<v Speaker 4>and they have operated as systems, decision making systems, and

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<v Speaker 4>that now I'm very excited about that because I've but

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<v Speaker 4>you have to train them very well. Because it's been

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<v Speaker 4>all so specified over a period of time.

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<v Speaker 3>It is very educational.

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<v Speaker 4>I've then taken a large team of people and gone

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<v Speaker 4>through asking it questions and dealing with it and training it.

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<v Speaker 3>And the reason is a lot of people ask me questions.

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<v Speaker 4>I'm going to phase in my life where my main

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<v Speaker 4>objective is to pass along what I've had that it's

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<v Speaker 4>a benefit to others, and we interact such as this

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<v Speaker 4>kind of conversation, and I thought it would be great

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<v Speaker 4>if there could be I could answer all those questions,

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<v Speaker 4>or we could have discussions how are you doing and

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<v Speaker 4>all that.

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<v Speaker 3>So that's what I've created.

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<v Speaker 4>It's called Digital Ray, at least that's the tentative name,

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<v Speaker 4>and we're beta testing it. We're going to have several

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<v Speaker 4>thousand people tested and see how that goes. Will move forward,

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<v Speaker 4>But I think it's exciting when you have you need

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<v Speaker 4>to have computerized decision making working with you because the

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<v Speaker 4>time of making all those decisions in your head, that's obsolete.

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<v Speaker 4>You know, the smart person who thinks I can weigh

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<v Speaker 4>everything in my head, they're obsolete. Nowadays you have to

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<v Speaker 4>have a partner in terms of those decisions making with the.

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<v Speaker 1>Computer ray final thirty seconds.

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<v Speaker 2>We also know that Jenny I sucks of energy, they

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<v Speaker 2>say as much as a small country sually.

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<v Speaker 4>That is a concern, of course, it's an important concern.

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<v Speaker 3>The real question is it's productivity.

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<v Speaker 4>I think a lot of attension, a lot of the

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<v Speaker 4>finances have been in the development with the superscalers. I

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<v Speaker 4>think the real opportunities are going to come in terms

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<v Speaker 4>of the users and how that's going to change productivity.

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<v Speaker 4>In fact, probably invent ways that technology wouldn't be so.

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<v Speaker 1>Much right, We have to live in there. Great conversation.

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<v Speaker 2>Ray Dalio, founder and CIO mentor at Bridgewater Associates. We're

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<v Speaker 2>coming to you live from the Milk and Asia Summit.

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<v Speaker 2>Keep it here with us. This is Bloomberg