WEBVTT - Bridgewater Associates Founder Ray Dalio Talks Principles for the Economy & Investing 0:00:00.160 --> 0:00:04.520 Ray Dalio, the founder and CIO mentor Bridgewater Associates, has 0:00:04.559 --> 0:00:09.920 been a friend and partner for the Grantich Economic Form 0:00:10.119 --> 0:00:15.360 since its beginning. And there's so much about his stuff 0:00:15.400 --> 0:00:19.720 that he writes about that's fascinating. He's got something called 0:00:19.720 --> 0:00:22.360 five big forces that are driving the new world order. 0:00:23.800 --> 0:00:29.000 They include things like how well countries, internal orders work, 0:00:29.320 --> 0:00:31.960 how they work with each other. You can look these up. 0:00:32.920 --> 0:00:37.120 But number one on these five big forces is how 0:00:37.159 --> 0:00:42.760 well the debt, money and economic system works. So we'll 0:00:42.760 --> 0:00:45.960 find out how well it's working, and and you know, 0:00:46.360 --> 0:00:50.000 answer the question, do the principles for investing change in 0:00:50.080 --> 0:00:54.720 times of high rates and low certainty? So we have 0:00:54.840 --> 0:00:58.640 Ray Dalio. I think we have him on video there 0:00:58.640 --> 0:01:03.360 he is ready to go and to interview him as 0:01:03.840 --> 0:01:07.800 Bloomberg TV anchor and correspondent Sonali Bossik. So welcome them 0:01:07.800 --> 0:01:10.680 both to the program. Sonali. 0:01:17.200 --> 0:01:20.120 Great to be here and great to be here with you. Ray. 0:01:20.200 --> 0:01:23.400 Albeit virtually and of course Rain needs very little introduction, 0:01:23.880 --> 0:01:27.960 but he has been investing for more than a half century, 0:01:28.360 --> 0:01:31.960 the author of multiple books, including The Changing World Order 0:01:32.000 --> 0:01:36.080 and his Own Principles, and of course founded Bridgewater Associates, 0:01:36.120 --> 0:01:39.000 which had become the largest hedge fund firm in the world. 0:01:39.400 --> 0:01:42.200 But going back to those five forces that you believe 0:01:42.240 --> 0:01:45.360 are shaping the global economy, perhaps you could just get 0:01:45.440 --> 0:01:49.480 us started here on what underpins those five forces and 0:01:49.520 --> 0:01:51.960 how you're thinking about them today. 0:01:53.440 --> 0:01:57.320 Well, thank you for a good question, lem letting me 0:01:57.400 --> 0:02:00.160 lay it out. But also I'm sorry I couldn't be 0:02:00.200 --> 0:02:03.720 there because Greenwich is my home. And you know, as 0:02:03.920 --> 0:02:06.640 was mentioned, you know from the beginning, I was lucky 0:02:06.760 --> 0:02:10.399 enough to be part of this conference, and I take 0:02:10.720 --> 0:02:13.400 a great deal of joy when I see everybody there, 0:02:13.400 --> 0:02:17.120 many people I know, So anyway, I apologize. I'm in Singapore. 0:02:17.680 --> 0:02:20.040 I have a family office in Singapore, I have a 0:02:20.080 --> 0:02:23.280 family office in Abu Dhabi, and I have a family 0:02:23.320 --> 0:02:29.560 office in Greenwich, Connecticut. And so, as you know, I'm 0:02:29.840 --> 0:02:40.440 a macro, global macro investor, global macro and through it 0:02:41.480 --> 0:02:46.840 is that many times we look at things that surprise 0:02:47.000 --> 0:02:51.240 us because they didn't happen in our lifetimes before, but 0:02:51.280 --> 0:02:54.560 they happened many times in history. And so I'm not 0:02:54.639 --> 0:02:57.639 a book writer, I don't intend to. I'm a very 0:02:57.680 --> 0:03:01.400 practical guy who's got a bet on global macro. And 0:03:02.800 --> 0:03:07.520 what I found was that by studying history, I could 0:03:07.600 --> 0:03:12.560 make better bets today. And so whenever anything happened that 0:03:12.680 --> 0:03:17.160 I didn't recognize, so I went into history. By studying, 0:03:19.320 --> 0:03:28.920 studying Great Depression, we were regularly which was that happened? 0:03:29.200 --> 0:03:37.320 Like quantitative easing. So anyway, the fi five things that 0:03:37.480 --> 0:03:43.640 I saw and studying this five hundred years of history, 0:03:43.920 --> 0:03:46.600 it's five and and so on, is that these it 0:03:46.600 --> 0:03:50.160 would repeat. It would happen over over again almost once 0:03:50.200 --> 0:04:02.480 a lifetime on average. GIBOUTI the years every eighty give 0:04:02.600 --> 0:04:06.560 or take twenty five or thirty five years. Of course 0:04:07.000 --> 0:04:11.800 there's fat ease is mot but interest rates makes credit 0:04:11.800 --> 0:04:16.120 more available. People have more buying power. That produces debt. 0:04:16.680 --> 0:04:19.320 Then the debt has to be paid back, and so 0:04:19.400 --> 0:04:21.919 the economic goes up and down. We're used to the 0:04:22.000 --> 0:04:26.400 debt cycles. Okay, So and how does that work? And 0:04:26.440 --> 0:04:30.719 what does it mean when we have the highest and 0:04:30.800 --> 0:04:35.280 an enormous amount of debt and that you are increasing 0:04:35.360 --> 0:04:39.120 that debt at a fast pace? What does that mean 0:04:39.200 --> 0:04:42.320 or does it mean nothing? So of course it has 0:04:42.360 --> 0:04:45.240 a big effect on the economy. So that's number one. 0:04:45.279 --> 0:04:48.719 Number two is when I studied history, and I was 0:04:48.800 --> 0:04:53.440 prompted by what's happening now is internal order and disorder, 0:04:53.480 --> 0:05:01.760 particularly conflict. What I saw thought now was that there's 0:05:01.880 --> 0:05:06.599 populism of the left and populism of the right, and 0:05:07.480 --> 0:05:15.679 ear record incilable different. This is the amount of since 0:05:15.760 --> 0:05:19.920 nineteen hundred. The great studied history I saw of time, 0:05:19.960 --> 0:05:25.279 and number three is of course the world global great 0:05:25.400 --> 0:05:30.440 power conflict, conflict internationally where there's no longer just a 0:05:30.480 --> 0:05:35.120 single dominant power power and so the rise of allah 0:05:35.400 --> 0:05:41.560 light and access power. Or number three. What I then 0:05:41.680 --> 0:05:47.040 studied and saw was number four is that having killed 0:05:47.080 --> 0:05:52.200 more people and toppled more orders, was acts of nature droughts, floods, 0:05:52.200 --> 0:05:58.480 and pandemics, and climate change is certainly a big, big issue. 0:05:58.520 --> 0:06:02.360 At pandemics, of course we sperience one, but also climate change. 0:06:02.360 --> 0:06:05.760 It costs eight trillion dollars a year is the estimated 0:06:05.960 --> 0:06:08.360 cost of climate change, and we're seeing it happen around us, 0:06:09.440 --> 0:06:16.960 and uh, that's our eight percent of world. GD five 0:06:17.080 --> 0:06:23.839 throughout history is man's inventiveness and technology particularly and so 0:06:23.960 --> 0:06:28.920 if you see that over time, everything. 0:06:32.360 --> 0:06:38.080 Now ray the connections a bit glitchy, talk about. 0:06:44.720 --> 0:06:50.920 Way we lost you. So if you could hear us 0:06:50.960 --> 0:06:51.840 hang tight over there. 0:06:51.920 --> 0:06:53.599 I think the folks at the Grant and Jack Adamic 0:06:53.640 --> 0:06:56.640 Forum are working out the connection issues to get you back. 0:06:56.960 --> 0:06:58.279 But for those of you who. 0:06:58.120 --> 0:07:00.520 Don't know, so the five forces in repeat our debt, 0:07:00.560 --> 0:07:03.760 money in the interest rate regime, internal order and disorder, 0:07:03.839 --> 0:07:07.239 the great power, conflicts in the world, acts of nature 0:07:07.760 --> 0:07:08.680 and technology. 0:07:08.800 --> 0:07:09.800 Should we get ready back. 0:07:09.840 --> 0:07:12.240 We'll be talking through each of them, considering during the 0:07:12.280 --> 0:07:17.440 Fed's interest rate cut, considering the US election cycle, and 0:07:17.480 --> 0:07:20.080 the tensions between the US and China, and of course 0:07:20.400 --> 0:07:22.440 we weren't going to speak about it in the course 0:07:22.440 --> 0:07:24.600 of this discussion, but acts of nature given what we're 0:07:24.600 --> 0:07:28.080 seeing in Florida and a hurricane a second one about 0:07:28.080 --> 0:07:30.680 to hit the US South as well, from what I 0:07:30.760 --> 0:07:35.560 checked this morning, barreling into Florida as a Category four hurricane, 0:07:35.880 --> 0:07:39.680 so particularly relevant relevant today as we head into the 0:07:39.720 --> 0:07:41.680 elections cycle. 0:07:41.920 --> 0:07:42.840 Have we gotten back? 0:07:44.120 --> 0:07:55.440 I'm back? It's magic, okay, fingers. So I just closing 0:07:55.480 --> 0:08:00.280 that thing. Everything we will talk about and people we'll 0:08:00.280 --> 0:08:05.160 talk about are those five forces, and they tend to 0:08:05.240 --> 0:08:07.880 resolve in a cycle like there's a big debt cycle, 0:08:08.120 --> 0:08:12.600 there's a big geopolitical cycle, and so on, and they're interrelated, 0:08:13.520 --> 0:08:17.800 So over to you whatever you want to talk, excuse me. 0:08:18.240 --> 0:08:20.520 So we could start at the top there, because of 0:08:20.560 --> 0:08:24.520 course we started the federal reserves cutting cycle. Many in 0:08:24.560 --> 0:08:27.120 the market were shocked by that fifty basis point rate cut. 0:08:27.320 --> 0:08:30.760 I know that you earlier had told Bloomberg twenty five 0:08:30.880 --> 0:08:31.440 or fifty. 0:08:31.800 --> 0:08:33.520 It's really the direction of travel. 0:08:33.840 --> 0:08:36.800 What do you currently make of the current path of 0:08:36.840 --> 0:08:39.800 the federal reserves interest rate policy, especially with all the 0:08:40.000 --> 0:08:43.120 uncertainty that is ahead. 0:08:44.400 --> 0:08:47.960 I'll start with bond yields, because treasury bond yields are 0:08:48.080 --> 0:08:51.640 the backbone of not only are all the credit markets, 0:08:51.679 --> 0:08:55.240 but all the other markets, because they all trade as 0:08:55.320 --> 0:08:59.320 rich premiums and so unrelative to that. When I look 0:08:59.400 --> 0:09:04.840 at normal sets of circumstances, if we would assume put 0:09:04.840 --> 0:09:09.920 aside the supply demand considerations, and you said, okay, there's 0:09:10.000 --> 0:09:13.720 going to be inflation, and what is the real yield 0:09:14.240 --> 0:09:18.400 that you should have? The inflation rate that you'd probably pick, 0:09:18.720 --> 0:09:22.679 and there's nothing precise about it in terms of the future. 0:09:23.120 --> 0:09:25.480 You might say two and a half percent, you know, 0:09:25.559 --> 0:09:28.200 give or take a half a percent. But let's say 0:09:28.200 --> 0:09:32.720 that plus two percent or one and a half percent 0:09:33.720 --> 0:09:38.080 gets you about where we are now in bond yields. 0:09:39.679 --> 0:09:43.760 Then there's the supply demand. But basically, if you were 0:09:43.760 --> 0:09:48.640 to just say where do bond yields belong? Treasury bond yields, 0:09:49.120 --> 0:09:51.600 they're not way out of line. They're not like it 0:09:51.720 --> 0:09:54.600 used to be when they were very negative in real 0:09:54.679 --> 0:09:58.840 terms or very positive in real terms, and so you 0:09:58.960 --> 0:10:02.960 take that that level. But that's the if this but 0:10:03.080 --> 0:10:07.320 we have an unusual supply demand situation in that the 0:10:07.440 --> 0:10:11.160 supply is going to come at a lot, and there's 0:10:11.520 --> 0:10:16.400 globally is there's a big issue with the digesting of 0:10:16.440 --> 0:10:20.640 that supply. For two reasons. Besides being so large and 0:10:21.000 --> 0:10:24.880 the fact that it constitutes such a high percentage of 0:10:25.440 --> 0:10:31.959 institutional investors portfolios or central banks portfolios, they feel overweighted. 0:10:32.559 --> 0:10:37.000 There are also political and geopolitical and uncertainty factors that 0:10:37.200 --> 0:10:41.199 enter into it. Foreign countries worry about holding bonds because 0:10:41.200 --> 0:10:45.200 it could be sanctioned. Let's say China doesn't want to 0:10:45.200 --> 0:10:48.520 feel the same way about holding treasury bonds. Others don't 0:10:48.559 --> 0:10:53.200 feel the same, and so there are those risks. So 0:10:53.240 --> 0:10:58.400 there's a supply risk, there's a demand risk, and whenever 0:10:58.480 --> 0:11:02.400 we have the demand, the supply and demand. One man's 0:11:02.400 --> 0:11:05.800 debts another man's assets. Whenever you have a lot of debt, 0:11:06.360 --> 0:11:10.840 that balancing act becomes very different difficult because you have 0:11:10.920 --> 0:11:14.640 to keep interest rates high enough that the creditor gets 0:11:14.640 --> 0:11:17.280 in adequate return without having them so high that the 0:11:17.320 --> 0:11:21.679 debtor gets squeezed. So we're in that position if I 0:11:21.720 --> 0:11:26.840 look at then other markets and risk premiums. So first 0:11:26.880 --> 0:11:30.160 of all, I don't think you're going to get significant 0:11:29.920 --> 0:11:34.040 cuts in rates. I think the economy buy and large 0:11:34.120 --> 0:11:38.080 right now itself is in relatively good balance. So if 0:11:38.120 --> 0:11:41.200 you look at where growth is, where inflation is, and 0:11:41.240 --> 0:11:43.640 so on right now, and you have a political year, 0:11:44.280 --> 0:11:46.800 I think the markets are getting ahead of themselves with 0:11:47.000 --> 0:11:49.640 expecting that, and I think the risks are more on 0:11:49.679 --> 0:11:53.400 the upside than the downside. If I take then the 0:11:53.480 --> 0:12:01.080 marketplace as let's say equity markets, equity markets are relatively 0:12:01.720 --> 0:12:04.960 attractive against bomb markets, but you can't deal with them 0:12:05.440 --> 0:12:11.679 in general because there's a very limited portion of them. 0:12:11.840 --> 0:12:16.839 We all know the concentration in particularly certain types of 0:12:17.240 --> 0:12:20.880 tech and AI type of related stocks. And if you 0:12:20.960 --> 0:12:25.200 look at markets as a whole around the world, about 0:12:25.200 --> 0:12:28.120 half of the markets are not above where they were 0:12:28.120 --> 0:12:31.800 in twenty twelve, so and so you have a very 0:12:31.920 --> 0:12:36.480 concentrated market and that segment is getting more expensive. So 0:12:37.000 --> 0:12:42.160 for those reasons, I think that we're about at equilibrium 0:12:42.600 --> 0:12:50.560 while we have this essentially ticking time bomb with the 0:12:50.640 --> 0:12:54.080 debt situation. And then so then I bring it into 0:12:54.240 --> 0:12:58.600 the second factor, which is politics. So yeah, so when 0:12:58.640 --> 0:13:01.840 I look at the that issue, I think there's a 0:13:01.960 --> 0:13:07.840 very big difference between the candidates. The first question in politics, Well, 0:13:07.880 --> 0:13:09.480 maybe you don't want me to go there, but I 0:13:09.480 --> 0:13:17.559 think politics you're dealing with capitalism versus eight. You're dealing 0:13:17.600 --> 0:13:21.040 with left and right and varying degrees of left and right. 0:13:21.160 --> 0:13:25.040 That's going to have implications for tax policy, which you'll 0:13:25.040 --> 0:13:30.199 have implications economic policy, which we'll have implications on markets. 0:13:30.600 --> 0:13:32.720 But I'm going I'm answering your question too long, so 0:13:32.760 --> 0:13:33.480 I'm going to stop. 0:13:33.559 --> 0:13:36.400 And well, you were actually going exactly where I had 0:13:36.440 --> 0:13:38.520 wanted to go, which is how you're thinking through the 0:13:38.679 --> 0:13:41.040 US election. We'll get back to debt and deficit in 0:13:41.120 --> 0:13:45.079 a moment. But recently, the Committee for Responsible Federal Budgets 0:13:45.120 --> 0:13:47.920 just as Week said Vice President Harris would add three 0:13:47.920 --> 0:13:51.320 point five trillion dollars to the projected debt through the 0:13:51.320 --> 0:13:54.000 fiscal year of twenty thirty five. That same number for 0:13:54.040 --> 0:13:57.240 President Trump would add seven point five trillion to. 0:13:57.200 --> 0:13:58.319 The projected debt load. 0:13:58.640 --> 0:14:01.920 Curious as to what you think of those projections and 0:14:02.040 --> 0:14:04.199 the total economic impact of either candidate. 0:14:07.400 --> 0:14:10.679 First of all, the debt will not be dealt with, 0:14:10.800 --> 0:14:13.000 So how do you deal with it. You acquire a debt, 0:14:14.840 --> 0:14:18.320 you're holding a debt asset. You expect to get paid back. 0:14:19.280 --> 0:14:21.400 That means that they are going to be interest payments 0:14:21.480 --> 0:14:27.480 and principal payments, and they are going to increase as 0:14:27.480 --> 0:14:29.240 a percentage of the revenue. They're going to create a 0:14:29.280 --> 0:14:35.080 squeeze for the government. This is a certainty. So when 0:14:35.120 --> 0:14:39.320 you take a look at those they're all high, so 0:14:39.440 --> 0:14:41.800 they're all going to be material. Then you look at 0:14:41.800 --> 0:14:48.480 the differences in economic policies. Trump's economic policies are more 0:14:49.200 --> 0:15:03.200 classically capitalists in a in a way in which it's 0:15:03.480 --> 0:15:14.480 nationalist protectionists, lower regulations, more lower taxes for corporations, less 0:15:14.520 --> 0:15:18.880 wealth taxes or related to those taxes, less targeting for 0:15:18.960 --> 0:15:23.880 that population, so it's more capitalist. The ability to He 0:15:24.160 --> 0:15:27.240 makes a very good point on the ability to raise 0:15:28.120 --> 0:15:30.680 tariffs and what that means it used to be in 0:15:30.720 --> 0:15:33.560 the old days, tariffs were the main source of revenue. 0:15:33.920 --> 0:15:38.880 And I've calculated that roughly speaking, if he went through 0:15:38.960 --> 0:15:46.080 with his protectionist increases and tariffs he could, he would 0:15:46.120 --> 0:15:53.280 raise about eight hundred billion dollars a year, which is 0:15:53.320 --> 0:15:56.880 a significant amount of money. For example, by comparison, the 0:15:57.080 --> 0:15:59.640 proposed wealth tax and other taxes would be about one 0:15:59.680 --> 0:16:04.320 hundred twenty five billion, And that would be to then 0:16:04.440 --> 0:16:09.360 become very protectionist. And in terms of the taxes that 0:16:09.600 --> 0:16:12.720 when for the markets, I think about the markets, when 0:16:12.760 --> 0:16:18.800 you raise taxes, then the prices go down because everybody's 0:16:18.800 --> 0:16:23.240 looking for the after tax returns, and so the tax 0:16:23.280 --> 0:16:28.920 policy would be more favorable. And what his idea is 0:16:28.920 --> 0:16:32.680 is to be much more protectionist, much more nationalists, much 0:16:32.720 --> 0:16:39.040 more anti regulations. And so for the marketplace, that would 0:16:39.120 --> 0:16:47.320 be better than the Harris bills. There's much more than 0:16:47.400 --> 0:16:51.160 marketplaces that enter into the consideration of which candidates. So 0:16:51.200 --> 0:16:55.280 I'm not commenting on the candidates. I'm commenting more on 0:16:55.400 --> 0:17:00.040 which would which would be better or worse for the 0:17:00.040 --> 0:17:07.680 mar So either would be meaning I think that we're 0:17:07.720 --> 0:17:11.680 going to have a problem with bonds. I talked about 0:17:11.680 --> 0:17:16.040 this before the supply of the bonds, the need to 0:17:16.080 --> 0:17:19.280 monetize those bonds because they're not going to be paid 0:17:19.320 --> 0:17:22.800 back in hard dollars. Those are the things that I 0:17:22.920 --> 0:17:27.639 would be particularly concerned. And then there's capital flows. What 0:17:27.800 --> 0:17:31.400 also matters to the world that is holding our bonds 0:17:32.200 --> 0:17:39.959 is how we are Are we operating effectively? And so 0:17:40.000 --> 0:17:43.879 there's two questions on the political First question is do 0:17:43.920 --> 0:17:48.920 you have an orderly transfer of power? It seems inconceivable 0:17:48.960 --> 0:17:51.639 that we're asking and that I would ask that question, 0:17:52.359 --> 0:17:57.240 But there is some question of whether you would have 0:17:57.320 --> 0:18:00.880 the acceptance of a loss and an ord orterly transfer 0:18:00.920 --> 0:18:06.679 of power. And if you, let's say you do have 0:18:06.760 --> 0:18:10.040 an orderly transfer of power and we operate on those 0:18:10.200 --> 0:18:16.399 elements of voting, I think you have irreconcilable differences. They're 0:18:16.440 --> 0:18:20.840 not just budget and economic differences, but the situation in 0:18:20.960 --> 0:18:25.320 Washington has become such that they are also social differences, 0:18:25.400 --> 0:18:29.879 big social differences that have to do with all sorts 0:18:29.880 --> 0:18:35.080 of issues how the cities are run, and you know, 0:18:35.200 --> 0:18:41.920 and can a should a ten year old child decide 0:18:41.960 --> 0:18:46.560 on their sexuality? There are I mean, there are issues 0:18:46.600 --> 0:18:52.159 like this abortion, other things become almost irreconcilable differences. So 0:18:52.200 --> 0:18:55.840 we're starting to see movements not starting, it's been a while, 0:18:55.880 --> 0:19:00.400 and they could accelerate to the States. So I think 0:19:00.400 --> 0:19:04.640 you could see very big differences in the States, and 0:19:04.840 --> 0:19:12.959 you could see situations where we're questioning the rulings of 0:19:13.200 --> 0:19:15.960 the Supreme Court or the central government dealing with it. 0:19:16.680 --> 0:19:21.240 In terms of the politics, I do think both sides 0:19:21.320 --> 0:19:26.800 it's a win at all costs, and compromises perceived as 0:19:27.240 --> 0:19:30.960 a weakness, and so I think that we're going to 0:19:31.000 --> 0:19:36.040 find out in very short order these policies. I don't 0:19:36.080 --> 0:19:41.040 think the policies have been as clear and or as 0:19:41.080 --> 0:19:44.040 well known. That may not be as clear and well known, 0:19:44.560 --> 0:19:49.280 particularly for Kamala Harris because we haven't seen her Pepper policy. 0:19:49.400 --> 0:19:51.240 Hey, I want to go back to something that you 0:19:51.280 --> 0:19:53.680 had mentioned just a few minutes ago about the terror 0:19:53.840 --> 0:19:57.760 policies as proposed by former President Trump in this campaign season. 0:19:58.160 --> 0:19:59.440 What do you make of the critique? 0:19:59.480 --> 0:20:01.520 And I bring this up because I'm very certain that 0:20:01.600 --> 0:20:04.520 in this room, the relationship between the US and China 0:20:04.640 --> 0:20:07.359 is a pretty critical interest to the folks in this room. 0:20:07.680 --> 0:20:11.920 What do you make of the critique that those policies could. 0:20:11.800 --> 0:20:13.560 Be more inflationary. 0:20:14.280 --> 0:20:16.720 They would they would be more inflationary, as we've seen 0:20:16.720 --> 0:20:21.399 them in history. I'm not going to use the word, 0:20:21.440 --> 0:20:26.040 but we've seen them in history. And what they do 0:20:26.480 --> 0:20:31.280 is they bring in tax revenue. They bring in a 0:20:31.320 --> 0:20:36.000 significant amount of tax revenue. And the argument would be 0:20:36.320 --> 0:20:40.760 that there would be less regulation and more productivity. And 0:20:40.800 --> 0:20:44.440 then what they usually do is put in one way, 0:20:44.960 --> 0:20:50.879 try to control inflation in a controlling way. At the 0:20:51.040 --> 0:20:56.880 end of the day, what matters most, I think is productivity. Productivity. 0:20:57.200 --> 0:21:01.639 One person's productivity equals one person income, and for the 0:21:01.680 --> 0:21:06.160 country as a whole, we need productivity. And I believe, 0:21:07.200 --> 0:21:11.480 as was said earlier, that we need broad based productivity. 0:21:11.640 --> 0:21:14.280 And I don't see a plan for broad based productivity, 0:21:14.800 --> 0:21:18.359 but I think that both I think either of those 0:21:18.400 --> 0:21:24.520 policies are going to end up being more inflationary than 0:21:24.720 --> 0:21:25.440 is expected. 0:21:26.240 --> 0:21:30.360 So more on China here, because you did see overnight 0:21:31.280 --> 0:21:34.400 a set of stimulus measures that seem to disappoint investors 0:21:34.440 --> 0:21:38.120 after very recently a lot of promise entering the Chinese 0:21:38.160 --> 0:21:41.320 market after a different set of stimulus measures. From your 0:21:41.400 --> 0:21:43.600 experience as someone who has spent a lot of time 0:21:43.920 --> 0:21:47.920 working with multinational companies in China. What is the risk 0:21:48.280 --> 0:21:51.960 at this juncture, and how quickly and how drastically does 0:21:51.960 --> 0:21:53.880 the Chinese government need to intervene. 0:21:55.880 --> 0:21:58.240 I started to go to China in nineteen eighty four 0:21:58.240 --> 0:22:00.840 when they didn't have any more money. I went because 0:22:00.880 --> 0:22:07.119 of curiosity, and then I like the people, and I 0:22:07.160 --> 0:22:11.600 was in a situation where I could help them set 0:22:11.680 --> 0:22:14.760 up their first stock market and advice policy. And so 0:22:14.960 --> 0:22:20.520 for forty years I've had a very intimate relationship and 0:22:20.920 --> 0:22:25.040 very close and learned economic policies. And I can go 0:22:25.840 --> 0:22:28.920 through a long story. That's an interesting story. But what 0:22:29.000 --> 0:22:33.440 we are seeing now I would put in the context 0:22:33.440 --> 0:22:36.199 of the following. You know, how do I I'm a 0:22:36.240 --> 0:22:42.639 market player. They have a situation in which they have 0:22:42.760 --> 0:22:48.480 a lot of debt and operating in provinces in which 0:22:49.200 --> 0:22:57.040 those provinces used to raise their money by selling ill 0:22:57.200 --> 0:23:01.680 estate and also borrowing money that they can't do anymore, 0:23:02.280 --> 0:23:05.160 and so they have to provide money for those provinces, 0:23:05.240 --> 0:23:08.199 which they will do in the process of doing. But 0:23:08.320 --> 0:23:13.000 at the same time, those provinces own loans, so there 0:23:13.040 --> 0:23:16.640 needs to be I've been through these many times, four 0:23:16.720 --> 0:23:20.040 times in the United States, many times globally, there need 0:23:20.119 --> 0:23:23.800 to be two things. There need to be a debt restructuring, 0:23:24.240 --> 0:23:28.320 which will happen along those lines, and there needs to 0:23:28.359 --> 0:23:33.200 be a monetary policy in which interest rates are lower 0:23:33.240 --> 0:23:36.679 than the nominal growth rate, and there's real interest rates are lower, 0:23:37.240 --> 0:23:40.240 and that there's a disincent to hug money that right 0:23:40.280 --> 0:23:42.920 now there's almost a pushing on a string because they're 0:23:42.920 --> 0:23:49.320 holding that. And what classically the bottoms like our two 0:23:49.359 --> 0:23:52.520 thousand and eight bottom or any of those major bottoms 0:23:52.560 --> 0:23:57.760 take place when the assets get very cheap and then 0:23:57.960 --> 0:24:01.760 you have a reflation policy and they're going to do it. 0:24:01.920 --> 0:24:06.400 I would say that don't don't watch day by day. 0:24:06.880 --> 0:24:09.639 You know, today's up, today's down. And of course people 0:24:11.280 --> 0:24:14.520 nuance that there's something big going on, that they had 0:24:14.560 --> 0:24:17.800 a debt crisis and they also had a capitalist crisis. 0:24:18.480 --> 0:24:23.679 Is they are they reflect favorable to capitalism as we 0:24:23.800 --> 0:24:26.720 knew it before. I do not believe they are in 0:24:26.800 --> 0:24:30.800 the same way, so that there are structural changes that 0:24:30.920 --> 0:24:35.560 are taking place that have to do with the government's 0:24:35.920 --> 0:24:44.680 desire to retain complete control. So and that affects the economy. 0:24:44.760 --> 0:24:48.359 So in any case, I think what you're going to 0:24:48.400 --> 0:24:53.359 see in China is I'd have a I'd be long 0:24:54.400 --> 0:24:58.040 the action they're going to follow through. There will be bounces. 0:24:58.400 --> 0:25:01.760 I think you should think the risks are five percent 0:25:01.840 --> 0:25:04.800 below the bows, and I think you have to pick 0:25:05.880 --> 0:25:10.679 the right companies. We've done very, very well in China. 0:25:10.880 --> 0:25:14.200 But the question is, really I think you're for most 0:25:14.240 --> 0:25:18.119 of your listeners, what percentage of your portfolio should you 0:25:18.200 --> 0:25:21.320 have in any place? And I believe the most important 0:25:21.320 --> 0:25:25.320 thing in your portfolio is if you can have fifteen 0:25:25.400 --> 0:25:30.560 good uncorrelated return streams ten to fifteen. That means that 0:25:31.040 --> 0:25:34.080 as a default, that you start to think, I don't 0:25:34.080 --> 0:25:36.959 want more than something like seven and a half percent 0:25:36.960 --> 0:25:40.320 of my risk in any one place, seven maybe ten 0:25:40.359 --> 0:25:43.400 percent in any one place, And so I think that 0:25:43.480 --> 0:25:47.000 becomes the issue of diversification. I think that some of 0:25:47.040 --> 0:25:49.800 the places that are the good places. There are three 0:25:50.080 --> 0:25:52.440 things that I look at, generally speaking for the good 0:25:52.440 --> 0:25:58.560 places internationally. First is their finances. Does the country as 0:25:58.560 --> 0:26:02.840 a whole and the government or earn more money than 0:26:02.880 --> 0:26:04.880 it spends. Does it have a country as at home 0:26:04.960 --> 0:26:07.640 mostly does it have a good income statement in balance 0:26:07.680 --> 0:26:15.040 sheet and financial stability? Second is how does it operate internally? 0:26:15.280 --> 0:26:18.800 Is it efficient? Are they operating well? And number three, 0:26:19.119 --> 0:26:23.879 are are they at risk of an international war? We 0:26:24.000 --> 0:26:27.600 have to pay attention to this international war because as 0:26:27.640 --> 0:26:31.879 we get to that third influence, we have a different world. 0:26:31.920 --> 0:26:35.199 Now there's a much greater risk. Just like there's a 0:26:35.240 --> 0:26:38.000 much greater risk of an internal conflict of the sort 0:26:38.040 --> 0:26:40.359 that we haven't seen, there's a much greater risk of 0:26:40.400 --> 0:26:43.560 an external conflict of the sort that we haven't seen. 0:26:44.000 --> 0:26:46.320 So we need diversification and we want to be in 0:26:46.359 --> 0:26:50.400 places I think where those risks are less. So that's 0:26:50.440 --> 0:26:52.199 mine take on Chu. 0:26:52.680 --> 0:26:54.960 I will also go back to something you said before, 0:26:54.960 --> 0:26:56.680 because I think it is important to get your view 0:26:56.720 --> 0:27:02.600 on this. You mentioned that the federal service already nearing equilibrium. 0:27:02.920 --> 0:27:05.680 There's a whole wave of investors that are still banking 0:27:05.880 --> 0:27:09.160 on a large wave of interest rate cuts heading into 0:27:09.200 --> 0:27:12.960 next year. Do you believe that that won't be accomplished? 0:27:13.560 --> 0:27:15.040 How much more room do they really have? 0:27:19.400 --> 0:27:24.120 I think that they can come to a positively sloped 0:27:24.200 --> 0:27:33.280 yield curve by you know, taking you know, so, I 0:27:33.320 --> 0:27:37.800 think that they can cut rates a bit, but they 0:27:37.840 --> 0:27:39.920 can't cut rates a lot, and they have to worry 0:27:39.920 --> 0:27:44.280 about the bond market and and that's if we don't 0:27:44.320 --> 0:27:48.320 have a supplied demand problem. If we have a supply 0:27:48.520 --> 0:27:52.920 demand problem where the demand's not there, then the central 0:27:52.960 --> 0:27:56.679 bank is going to be faced with either trying to 0:27:56.760 --> 0:27:59.640 hold rates down and they might even do some. 0:28:00.200 --> 0:28:04.440 Hughe again, So another thing you had mentioned was uncertainly 0:28:04.480 --> 0:28:05.359 around the US election. 0:28:07.320 --> 0:28:09.520 But I want to make an important point about this. 0:28:10.200 --> 0:28:13.080 In these cycles where there's a lot of debt and 0:28:13.119 --> 0:28:15.720 you're growing it, one man's debts are a lot another 0:28:15.760 --> 0:28:20.720 man's assets, what that means is that you're increasing the 0:28:20.800 --> 0:28:28.120 supply at a fast rate, and inevitably, like in Japan, 0:28:29.119 --> 0:28:36.040 the value of the bonds have decreased because interest rates 0:28:36.040 --> 0:28:41.440 were kept below inflation rates and below nominal growth rates 0:28:41.440 --> 0:28:46.400 in order to reflate, and the government bought those bonds 0:28:46.480 --> 0:28:51.440 relative to US bonds over the last fifteen years because 0:28:51.440 --> 0:28:55.280 of their debt, have decreased by about ninety percent ninety 0:28:55.400 --> 0:28:59.960 percent in value relative to holding a US Treasury bond, 0:29:00.400 --> 0:29:03.440