Speaker 1: More than fifty years ago, a young Harvard physical graduate,
Speaker 1: Ray Dalio started a hedge fund, Bridgewater. That fund became
Speaker 1: the largest hedge fund in the world and one of
Speaker 1: the most successful in the world. Over this period of time,
Speaker 1: he's writing a number of books, and his most recent
Speaker 1: book talks about his concern about debt in the United
Speaker 1: States and around the world. I had a chance to
Speaker 1: sit down with the Ray Dalio to talk about his
Speaker 1: views about investing in recent months. One of the most
Speaker 1: common things talked about is something called tariffs. What is
Speaker 1: your view on tariffs? Is it good? Economically bad? Economic?
Speaker 1: Is going to solve our budget problem because I think
Speaker 1: in the big Beautiful Bill, a lot of money that's
Speaker 1: coming in comes in from tariffs, and that helps reduce
Speaker 1: the deficit a bit. TFS.
Speaker 2: Tariffs are not bad.
Speaker 3: Throughout history, tariffs were the main source of government revenue
Speaker 3: and so on, And any form of taxes has its cost,
Speaker 3: so capital gains taxes are bad, and so on. Different
Speaker 3: things have their I think the question is how well executed,
Speaker 3: how big are they, how disruptive of they in terms
Speaker 3: of the process they can bring a significant There's something
Speaker 3: to be said for them in that they bring in
Speaker 3: a significant amount of revenue. That means that there's less
Speaker 3: that's needed elsewhere. And we're now in a different world.
Speaker 3: We're in a world where the world is almost at
Speaker 3: war self sufficiency. We have to build self sufficiency. We
Speaker 3: cannot continue to borrow or depend on imports for that.
Speaker 3: And so there's a manufacturing how do you create manufacturing
Speaker 3: in the United States and so on. There's some merit
Speaker 3: to all of those arguments. The question is whether that
Speaker 3: is done really well and so on for the whole world. Tariffs,
Speaker 3: of course, are not the ideal you would like to have.
Speaker 3: If you're deally what's best for the whole world. You
Speaker 3: would like to have the least efficient inefficiency. You'd say
Speaker 3: wherever they produce it the best, and we have it
Speaker 3: go around. But we're in a world now that we
Speaker 3: have to be realistic in terms of we cannot be
Speaker 3: dependent on importing a lot of things, and nor can
Speaker 3: the world be dependent on the value of the bonds
Speaker 3: and the debt that we're acquiring in order to pay
Speaker 3: for those things.
Speaker 1: Well, the big beautiful bill that's now being talked about,
Speaker 1: will that solve our problem or mitigated or what it? Will?
Speaker 1: It do.
Speaker 2: It's not going to solve our problem.
Speaker 1: Okay, So if that's not going to solve our problem,
Speaker 1: how are we going to solve this problem.
Speaker 3: We're going to do it the way that we always
Speaker 3: do it, and it's always done when countries essentially go broke,
Speaker 3: what they do is they, through a combination of devaluing
Speaker 3: the currency, printing of money there's an imbalance, print money
Speaker 3: to value the currency, and create an artificially low interest
Speaker 3: rate so that the person who's holding the bonds is
Speaker 3: receiving of artificially low in interest rate. That's the way
Speaker 3: Japan has done it with their local and that's the
Speaker 3: way we will do it.
Speaker 1: So, in other words, my grandchildren and great grandchildren not
Speaker 1: yet born are going to be paying off this debt
Speaker 1: in devalue dollars. More like going to happen faster than that.
Speaker 1: Faster than that, Oh okay, I.
Speaker 2: Think they'll probably be beyond that.
Speaker 1: What about cutting interest rates? Why doesn't the chairman of
Speaker 1: the Fed say, well, cutting interest rates will save us money.
Speaker 1: We're spending at trillion dollars now on interest for our
Speaker 1: own debt. Why don't we just lower the interest rate?
Speaker 1: Why don't we just do that?
Speaker 3: There is the real interest rate and one man's debts
Speaker 3: or another man's assets. And so if I lower the
Speaker 3: interest rate, I will reduce my desire to hold that bond.
Speaker 3: And in my opinion, when if you do that too much,
Speaker 3: you will lose the demand for those bonds you Unlike
Speaker 3: if you do create something closer to the four per
Speaker 3: cut in the expenditures, four percent increase in the tax revenue,
Speaker 3: improve the balance, then you'll have a benefit. If you
Speaker 3: try to force interest rates down, you were hurting those
Speaker 3: who were holding the bonds, and you will lose the
Speaker 3: demand for the bonds and you can create that spiral.
Speaker 1: Before we finish this discussion, I want you to just
Speaker 1: inter erupt it of for a moment and say, look,
Speaker 1: you've scared me a bit, but I need to make money.
Speaker 1: I'm an investor. What should I do to take advantage
Speaker 1: of what you just described and scared me. Should I
Speaker 1: go buy gold? Should I go buy dollars? Buy euros?
Speaker 1: What should I do?
Speaker 3: Look at the value of your portfolio in inflation adjusted terms,
Speaker 3: not in nominal terms. Okay, And the safest investment that
Speaker 3: you can get right now is an inflation index bond.
Speaker 3: Because what you'll get is it'll be indexed and you'll
Speaker 3: get a bit over two percent real return above inflation
Speaker 3: and whatever happen. So you start with what is a
Speaker 3: safe investment. The next thing I think you have to
Speaker 3: do is diversify your portfolio. We've talked about the powers
Speaker 3: of diversification. So I don't want to get anybody into
Speaker 3: one bet because I'm going to be wrong. But do
Speaker 3: consider that gold is a form of money and gold
Speaker 3: is that central banks are acquiring gold now as a diversifier,
Speaker 3: and so in your it also is negatively correlated with
Speaker 3: most of the things that you have. In a time
Speaker 3: of great stress, what you'll find is that the gold
Speaker 3: will do well and when the assets don't. The world
Speaker 3: used to have gold as money. That was the way,
Speaker 3: and so the world would look at things differently. They
Speaker 3: would look at the prices of things in gold terms. Now,
Speaker 3: because we have fiat money and we've become used to it,
Speaker 3: we look at the prices of things in money terms,
Speaker 3: and we look at gold that way. I think if
Speaker 3: you started to say it's money, it's a source of money,
Speaker 3: and you have that that's part of the diversify. So
Speaker 3: it would diversify your portfolio. It's a prudent thing to
Speaker 3: have somewhere between ten or fifteen percent of your portfolio
Speaker 3: and gold.
Speaker 1: For thousands of years, people have liked gold, and people
Speaker 1: still seem to like gold. Price of gold are going up.
Speaker 1: Why are people so interested in owning gold in a
Speaker 1: time like this?
Speaker 3: Since seventeen fifty eighty percent of the world's moneies have
Speaker 3: disappeared and all of those that existed have been greatly devalued.
Speaker 3: That's one of the reasons that gold is a storehold
Speaker 3: of wealth and has been for a long time. And
Speaker 3: there's a saying that gold is the only asset that
Speaker 3: you can have that's not somebody else's liability, And what
Speaker 3: they mean by that is that you don't have to
Speaker 3: receive money from somebody else. In the world that we're
Speaker 3: now in and we're seeing it internationally, worry about sanctions,
Speaker 3: there's a worry about taking gold. Those holders central banks
Speaker 3: around the world are concerned about the possibility that let's say,
Speaker 3: what happened to Russia could happen to them, and so on.
Speaker 3: So there's a diversification of that, and it creates a
Speaker 3: dynamic in and of itself because what happens is if
Speaker 3: they are switching, and they are switching to gold away
Speaker 3: from bonds and so on, then that has the effect
Speaker 3: of not only making our supply demand balance that we're
Speaker 3: talking about about the new deficit, it means that you
Speaker 3: can have the selling of gold, which makes that supply
Speaker 3: demand balance worse.
Speaker 2: Now.
Speaker 1: It used to be the case that the US dollar
Speaker 1: was backed by gold, and the US government said, if
Speaker 1: you don't like these pieces of paper, we'll give you gold,
Speaker 1: and ultimately we ended that we're never going to go
Speaker 1: back to that.
Speaker 3: Presumably right, probably, presumably that's right, but not if you
Speaker 3: watch these gold site these cycles, because you have the
Speaker 3: deval euasion, then people feel don't have confidence in the
Speaker 3: fiat system. Over a period of time and through history,
Speaker 3: they've at that point. The way that works is you
Speaker 3: print all this money, then you pray the debt with
Speaker 3: the cheap money, but nobody wants to hold it, so
Speaker 3: then they go back and link it again. It is
Speaker 3: conceivable that you can see a relinking of gold to money,
Speaker 3: but that's way in the future.
Speaker 1: Since the beginning of this year, the dollar against the
Speaker 1: basket of currencies is down about ten percent. Many people
Speaker 1: are worried that they might continue that way devalued. Some
Speaker 1: people say it's not a bad thing because we can
Speaker 1: sell things more cheaply overseas and increase our exports. But
Speaker 1: if people are worried about the dollar going down in value,
Speaker 1: what would you suggest they do buy other currencies or
Speaker 1: go buy things that are not dollar denominated.
Speaker 3: I think their concern would be some version very similar
Speaker 3: to the seventies you just talked about. I remember I
Speaker 3: was clerking on the floor of the New York Stock
Speaker 3: Exchange John August fifteenth, nineteen seventy one, and that is
Speaker 3: when Richard Nixon got on the television and he said,
Speaker 3: in his polite way, this was a wonderful move. But
Speaker 3: the money that you thought you had, the gold was money,
Speaker 3: and what at the time people thought were real, the
Speaker 3: money that we're used to, they would say, or like
Speaker 3: checks in the checkbook. They said, you're not going to
Speaker 3: get your money, you can keep the checks. At that point,
Speaker 3: then we began the seventies, and the seventies was a
Speaker 3: period in which there was both stagflation. The thing that
Speaker 3: we have to worry about is a stagflationary environment because
Speaker 3: all the currencies went down. So when you were looking
Speaker 3: at diversification. The problems that we're talking about are not
Speaker 3: just American problems. We have a significant problem. But if
Speaker 3: they're European problems, they're Japanese problems. There's Chinese problems. No,
Speaker 3: we've lived on promises to be able to take that
Speaker 3: dead asset and converted into money, and now there's not
Speaker 3: enough money to go around. So I would say that
Speaker 3: when you ask the question, would I value in relationship
Speaker 3: to other currencies? Probably, but the other currencies won't want
Speaker 3: much of an appreciation, and so that's why I'm saying
Speaker 3: that something like gold will be the better performing currency.
Speaker 1: Some people worry about this and can tell us whether
Speaker 1: this is realistic or not. In nineteen eighty five, there
Speaker 1: was something called Applause Accords where the United States government
Speaker 1: agreed with other governments that we were going to devalue
Speaker 1: the dollar illegally officially, and it was done in secret.
Speaker 1: Nobody knew it was coming. Is that possibly that the
Speaker 1: government of the United States could again agree with other
Speaker 1: governments we're going to devalue the dollar further. You think
Speaker 1: that's unlikely these days?
Speaker 2: No, I think it's a possibility. Yes.
Speaker 3: It's so interesting in history when you look at what
Speaker 3: happens when governments are in certain positions through history, they
Speaker 3: do the same things, okay, And that means that a
Speaker 3: move like that, or even there could be foreign exchange controls,
Speaker 3: there can be different ways.
Speaker 2: That that that happens.
Speaker 1: Now, my perception is that people in Washington always say, well,
Speaker 1: if a situation was that bad, the bond market would collapse.
Speaker 1: And then the bond market people say, well, the situation
Speaker 1: that bad, Congress wouldn't do this, and they both kind
Speaker 1: of blame each other for not doing anything. Why hasn't
Speaker 1: the bond market collapsed? Ever, the fact that we have
Speaker 1: all this debt over all these years.
Speaker 3: You don't like to say I've experienced this many times.
Speaker 3: I did this analysis in two thousand and seven and eight,
Speaker 3: I went to Congress and everybody said they asked me
Speaker 3: the same question, but we had the problem. Same thing
Speaker 3: happened in Europe. So there's a supply demand, there's a saying.
Speaker 3: You know that everything goes slowly until it happens all
Speaker 3: at once when the problem happens. You know, these things
Speaker 3: happen like that.
Speaker 1: How long did it take you to write this book?
Speaker 1: This is how many books have you now written? For four, Okay,
Speaker 1: And how long did it take to write a book
Speaker 1: like this?
Speaker 3: This is research that I've done over a long period
Speaker 3: of time, So putting it together and getting it out,
Speaker 3: you know, I would say at part time basis, maybe
Speaker 3: over a year.
Speaker 1: Hey, so you built the biggest hedge fund in the world.
Speaker 1: What's the relative pleasure of building the biggest hedge fund
Speaker 1: in the world versus writing a book that's a bestseller?
Speaker 3: As you would know, probably it's a stage in life thing.
Speaker 3: You know, there's a stage in life where you know,
Speaker 3: you compete and you build something, and then there's a
Speaker 3: stage in life where you're passing things along.
Speaker 2: You know.
Speaker 3: So at this stage in life, you and your way,
Speaker 3: me and my way. It's a great, great joy to
Speaker 3: be able to pass along what I've learned. So I'm
Speaker 3: loving it.
Speaker 1: This book is designed to make people feel good or
Speaker 1: to scare.
Speaker 2: People, neither.
Speaker 3: I wanted to convey the mechanics the cause effect relationships
Speaker 3: so that people can understand what's going on and then
Speaker 3: navigating it. I think it's a book that will make
Speaker 3: people worry. But I have a principle which is, if
Speaker 3: you worry, you don't have to worry. And if you
Speaker 3: don't worry. You need to worry, because if you worry
Speaker 3: about something, then maybe you'll prevent what you're worrying about.
Speaker 1: When did you decide to become a writer as opposed
Speaker 1: to just an investor? I mean a lot of great
Speaker 1: hedge funt investors just keep sitting in front of screens
Speaker 1: and so forth. When did you say I want to
Speaker 1: do more than sitting in front of screens. Was that
Speaker 1: a couple of years before you decided to exit Bridgewater?
Speaker 3: No, it was maybe thirty five forty years ago. What
Speaker 3: I learned was that if I was whenever I was
Speaker 3: making decisions, if I would pause and reflect and write
Speaker 3: down the cry that I would use to make that decision,
Speaker 3: it would make me think more deeply about it. And
Speaker 3: then I learned that I could put those into code
Speaker 3: and then back test them so I would know how
Speaker 3: my decision making would work. And so right from then
Speaker 3: thirty five years ago, that's how really I built Bridgewater
Speaker 3: was what are the criteria? Test the criteria over a
Speaker 3: period of time, and then form a game plan. So
Speaker 3: I'd say, thirty five years ago, I've written down I
Speaker 3: call these things principles.
Speaker 2: I've written down. Probably you know, I don't know a
Speaker 2: thousand of them or something.
Speaker 1: For those who haven't followed the hedge fund world. You're
Speaker 1: from Long Island, you went to Long Island University. You
Speaker 1: would say you were not a superstar in high school.
Speaker 1: On the contrary, but you did very well at Long
Speaker 1: Island University, and eventually you got in the Harvard Business
Speaker 1: Goal and you started your career, and your career almost
Speaker 1: went south when you punched your boss in the mouth, right, No,
Speaker 1: that was.
Speaker 3: My opportunities began, and I got fired when I got fired,
Speaker 3: then I got fired.
Speaker 1: You started your own firm, and you borrowed some money
Speaker 1: at some point from your father because the firm hadn't
Speaker 1: done that well. And what did you ever think that
Speaker 1: maybe you weren't going to make it? And at the
Speaker 1: point did you were?
Speaker 3: So yeah, let me tell you about that incident because
Speaker 3: it was one of the worst cases and one of
Speaker 3: the best cases for me. So this is nineteen eighty
Speaker 3: eighty one, and I had calculated that the United States
Speaker 3: lent more money to countries than they're going to be
Speaker 3: able to pay back, and that there would be a
Speaker 3: big debt crisis, and then in that happened Volker type money.
Speaker 3: Nineteen eighty two, Mexico defaults on its dead and I
Speaker 3: got a lot of attention because I anticipated this and
Speaker 3: I thought I was right and I couldn't have been
Speaker 3: more wrong.
Speaker 2: I thought we were going to have a.
Speaker 3: Big economic crisis because of this, and what happened in
Speaker 3: stead was the stock market went up, they eased monetary policy,
Speaker 3: and I have a terrible.
Speaker 2: Mistake and it cost me money.
Speaker 3: I was so broke that I had to borrow four
Speaker 3: thousand dollars from my dad in order to pay for
Speaker 3: family bills. And this was painful, and that changed my
Speaker 3: approach to everything two ways.
Speaker 2: Two ways.
Speaker 3: First, it made me think, how do I know I'm right?
Speaker 3: It gave me the humility I needed to balance with
Speaker 3: my audacity, and it let me understand how do I
Speaker 3: play this game going forward? And I understood the power
Speaker 3: of diversification and how diversification could reduce risk by up
Speaker 3: to eighty percent without reducing returns. And that was then
Speaker 3: the bottom of Bridgewater, and then from then on it
Speaker 3: was straight because of the lesson I learned. Writing down
Speaker 3: these things and these experiencing and making the most out
Speaker 3: of mistakes as learning experiences has been sir an investor.
Speaker 1: You always have ups and downs. Nobody does everything perfectly,
Speaker 1: not even buffet right.
Speaker 3: But you know what changed that from that point the
Speaker 3: returns were in my thirty some one years since of
Speaker 3: doing that, since that point, it was I think about
Speaker 3: eleven point eight percent return with no year down significantly
Speaker 3: other than two thousand, twenty twenty during COVID and that
Speaker 3: was down thirteen percent, but the other years were down
Speaker 3: like two percent. Because I learned the power of diversification.
Speaker 3: You know, one of the things about diversification is that
Speaker 3: you can reduce the returns the risks without reducing the
Speaker 3: turn My mantra is fifteen good uncorrelated return streams because
Speaker 3: if you if they engineered to have about the same
Speaker 3: expect the return and you have that kind of diversification,
Speaker 3: you will lower the risk by about eighty percent, which
Speaker 3: raises the return to risk ratio by a factor of five.
Speaker 2: So that's the power of the game plan. That's what
Speaker 2: helped me.
Speaker 1: You want to get the deficit down the three percent
Speaker 1: of GDP? Yeah, you want to do it three ways.
Speaker 1: Cut the interest rates, cut spending, and increase.
Speaker 2: Taxes each bi mondus amounts right, and do it.
Speaker 1: Over three years, yes, three, three to three. Okay, what's
Speaker 1: the chance of that happening?
Speaker 2: Okay, five percent?
Speaker 1: Right, you've been in Washington.
Speaker 2: I was in Washington the other day.
Speaker 1: Okay, and members of Congress tell you this is a
Speaker 1: brilliant idea. We wish we had thought of it, and
Speaker 1: we're going to do this.
Speaker 3: I'll tell you what members of Congress tell me, which
Speaker 3: is very interesting both sides. Nobody agree. Nobody disagrees with
Speaker 3: what I just said. It's very interesting. They all agree
Speaker 3: that has to go to three percent. They all agree
Speaker 3: it has to come from those three things and so on.
Speaker 3: And then they say, but I can't say that because
Speaker 3: we're now in an absolutist political environment in which if
Speaker 3: I say they want the public, my electorate wants me
Speaker 3: to say, I will take a pledge of no new taxes.
Speaker 3: So because of that absolute if you don't take a pledge,
Speaker 3: then it's like this with the constituents. The constituents say
Speaker 3: something like, are you telling me that you're going to
Speaker 3: compromise with those people and you're going to raise my taxes? Okay,
Speaker 3: no way, I don't want you in government. And so
Speaker 3: they won't convey what they truly believe.
Speaker 1: What about yourself? Why don't you go into government? Why
Speaker 1: have you thought about you're being secretary Treasury, chairman of
Speaker 1: the Federal Reserve, run for the Senate or something, and
Speaker 1: solve those problems while you're in government. Have you ever
Speaker 1: thought of that scares.
Speaker 2: The Daylight's Adam.
Speaker 3: Let me say, I have the greatest appreciation and respect
Speaker 3: for those who go into public service and serve in
Speaker 3: this kind of an environment. And I think there's a
Speaker 3: question of whether with the population. It's not just a
Speaker 3: leadership question, it's a can you lead question? You can
Speaker 3: bring capable people into that job. But we're in a
Speaker 3: situation where everybody's fighting over every decision all the time
Speaker 3: and will tear everybody down if they're so it's a
Speaker 3: very difficult situation.
Speaker 1: Now somebody is watching, they say, I want to be
Speaker 1: the next Ray Dalio who builds a gigantic hedge fund,
Speaker 1: does well financially, well respected by people, writes best selling books.
Speaker 1: What's the secret to that? What do you do?
Speaker 3: Make your work and your passion the same thing, and
Speaker 3: don't forget about the money part. In other words, I
Speaker 3: didn't work for money, but I had a passion. I
Speaker 3: fell in love with the game of investing, and I
Speaker 3: think you have to make your work and your passion
Speaker 3: the same thing. But you do have to pay attention
Speaker 3: to the money part, because if you're not earning an
Speaker 3: adequate amount of money, then that's a problem. So and
Speaker 3: I don't think the best life is for them those
Speaker 3: who will make the most amount of money. There's a
Speaker 3: very low correlation between the level of happiness or well
Speaker 3: being past the basic level of income.
Speaker 1: The highest Really, you're just telling me that, now, wow, well.
Speaker 3: We know that which has the highest level of happiness
Speaker 3: and well being generally is a sense of community. Do
Speaker 3: you have a sense of community your friends in that community.
Speaker 3: But anyway, I would say, don't over exaggerate the power
Speaker 3: of money. You need to have enough and you have
Speaker 3: to pursue your passion. And you know, have enough money
Speaker 3: and if if it's if it's it's never work. If
Speaker 3: you're pursuing your passion.
Speaker 1: What do you think is the best investment vehicle for
Speaker 1: a middle class American? That is risk adverse and inflation
Speaker 1: index bond, which is index fund tips.
Speaker 3: Treasury inflation protected securities, because it will guarantee you a
Speaker 3: real return. And I don't think that you should be
Speaker 3: speculating in the markets because there's a zero sum game
Speaker 3: and you'll probably be the loser.
Speaker 1: So, as we get ready to celebrate next year the
Speaker 1: two hundred and fiftieth anniversary of this country, are you
Speaker 1: optimistic about our future or is the debt problem so
Speaker 1: concerning to you? You're not optimistic about our future.
Speaker 3: I think it's a time horizon we're going to go.
Speaker 3: I think we can deal with this. I think it
Speaker 3: comes down to how we are with each other. But
Speaker 3: we will go through this and we will get to
Speaker 3: the other side.
Speaker 1: And when you go meet with members of Congress or
Speaker 1: other people in government and you talk about these serious
Speaker 1: issues of debt and depicts and so forth, do they
Speaker 1: listen and then they say, by the way, what should
Speaker 1: I do with my own money? They ever ask you
Speaker 1: how they should invest their money, or they never ask
Speaker 1: you for investment tips, not typically. Now, what about when
Speaker 1: you go to a cocktail party, people ask you for
Speaker 1: investment ideas all the time.
Speaker 2: Here and there. I guess, let me reverse the question,
Speaker 2: what do they do with you?
Speaker 1: Well, I'm not as good an investor as you are.
Speaker 2: So well it worked out pretty good.
Speaker 1: They mostly say to me, do you know Ray Dalio. So, Ray, look,
Speaker 1: I'd like to congratulate you on your incredible success. You
Speaker 1: came from very modest means, worked your way up fifty
Speaker 1: years as an investor, built the biggest hedge fund in
Speaker 1: the world, and you've contributed a lot to endowments and
Speaker 1: others who've been your investors. So you should be very
Speaker 1: proud of what you've achieved. And now I hope you
Speaker 1: can make some progress in Washington. I've been living there
Speaker 1: for a while. It's not that easy to make progress,
Speaker 1: as you know, but hopefully you'll continue and maybe some
Speaker 1: people will say they don't want to get reelected, they
Speaker 1: just want to do the right thing. Hopefully you'll commit them.
Speaker 1: Thanks very much, Thank you. Thanks for listening to hear
Speaker 1: more of my interviews. You can subscribe and download my
Speaker 1: podcast on Spotify, Apple, or wherever you listen.