Speaker 1: Bloomberg Audio Studios, podcasts, radio News. Thank you so much
Speaker 1: for being here. I want to start with these five
Speaker 1: forces that you see right now that are affecting markets
Speaker 1: that are important to understand in order to understand where
Speaker 1: we are where we are, could you just talk a
Speaker 1: little bit about what those forces are.
Speaker 2: Sure through history and now, there are five big forces
Speaker 2: that are interrelated and generally transpiring cycles as I described,
Speaker 2: and we know they exist because everything that we are
Speaker 2: going to talk about will fall into one of those categories.
Speaker 3: That is the.
Speaker 2: Debt money economy cycle. Meaning credit is buying power. You
Speaker 2: give buying power to entities like it's like the circulatory system.
Speaker 2: You give credit and if that credit produces, it will
Speaker 2: produce debt. But if it produce uses an income that
Speaker 2: is good enough to pay the debt, it's a healthy system.
Speaker 2: But when it produces more debt and more debt service payments,
Speaker 2: that squeezes out the spending and that produces a problem,
Speaker 2: and then there's a supply demand problem that has to
Speaker 2: and then there are economic problems.
Speaker 3: Okay, that's one cycle.
Speaker 2: The second cycle related to that, because money and wealth
Speaker 2: have political and social effects, is that there becomes big
Speaker 2: differences in wealth and values. And so when there are
Speaker 2: big differences in wealth and values and the people feel
Speaker 2: that the system isn't working for them, you see greater
Speaker 2: political polarity between the left and the right. It becomes
Speaker 2: more the hard left and the hard right, and those
Speaker 2: become irreconcilable differences that are not easily solved through the
Speaker 2: US means of operating that way, such as democracies. During
Speaker 2: the thirties, for example, four major democracies chose to be
Speaker 2: autocracies during those periods. The third is the international geopolitical cycle,
Speaker 2: in other words, of arising power challenging existing powers, and
Speaker 2: the same dominance of the dominant power fades relative to
Speaker 2: other powers, and also the order then gets challenged, and
Speaker 2: we're certainly going through that. The fourth factor throughout history
Speaker 2: has been acts of nature. Droughts, floods, in pandemics have
Speaker 2: actually killed more people than wars and actually led to
Speaker 2: more ends of the previously mentioned cycles than anything else.
Speaker 2: So nature and certainly nature, climate change and the like
Speaker 2: is a big force. And then fifth through history are
Speaker 2: man's learnings of particularly developments of new techechnologies. The developments
Speaker 2: of new technologies is what has raised living standards over time,
Speaker 2: which you can see in terms of life expectancies per
Speaker 2: capita GDP, and of course the development of new technologies
Speaker 2: now is a very important influence. So those five factors
Speaker 2: have gone evolve those of main five factors. Anything we'll
Speaker 2: talk about will be under one of those, and of
Speaker 2: course the inter relationships between them as are important.
Speaker 1: It seems like we're at the cross section of a
Speaker 1: pretty transformative moment then, because it's this cross section of
Speaker 1: all of these things, whether it's the AI aspect, the
Speaker 1: technological overlay, the monetary debt aspect of it.
Speaker 4: With respect to the debt and deficit.
Speaker 1: Can you put into perspective the fact that this has
Speaker 1: been building up over time? Where do the tariffs and
Speaker 1: some of the trade disputes of today fit into that?
Speaker 1: Do they help sort of alleviate some of these imbalances,
Speaker 1: do they exacerbate them?
Speaker 4: Are they a simple of them? How do you understand.
Speaker 1: Sort of that aspect of policy right now?
Speaker 2: Well, first of all, there are great imbalances that have
Speaker 2: to be rectified given this set of circumstances. So three
Speaker 2: major types which relate to trade, but they also relate
Speaker 2: to capital. The first is that The dynamic by which
Speaker 2: Chinese export to the United States items that are cost effective,
Speaker 2: and the Americans buy them and then they sell send
Speaker 2: the money back and the Chinese earn the money and
Speaker 2: take that money and invest in bonds has created a
Speaker 2: unsustainable dynamic because as we're living in this environment related
Speaker 2: to the next two items, where those two countries can
Speaker 2: be in conflict military comf lit, there necessarily has to
Speaker 2: be insecurities on both parties, Chinese having an insecurity of
Speaker 2: whether they're actually going to be able to turn their
Speaker 2: credit into goods and services. In other words, there's no
Speaker 2: purpose of holding a bond or an asset unless you
Speaker 2: can then sell it and get money and buy things.
Speaker 2: And when that dynamic works the other way, it's quite
Speaker 2: painful for the debtor to have to pay back in
Speaker 2: real stuff. And then in a geopolitical conflict, that's a problem.
Speaker 2: And then of course so and then in this environment
Speaker 2: of conflict, that's also the problem of it's worsened because
Speaker 2: in wars and prior times or even with Russia, then
Speaker 2: there were freezing of assets and there could always be
Speaker 2: that kind of issue, So that's a consideration. And then
Speaker 2: of course there's the loss of manufacturing and the loss
Speaker 2: of manufacturing in the United States, you know, has two problems,
Speaker 2: which are that it's connected to self sustaining. You have
Speaker 2: to be able to be in a risky world. You
Speaker 2: have to be able to produce what you need, so
Speaker 2: you need to be capable.
Speaker 3: Of manufacturing certain items.
Speaker 2: And then also the wealth, the loss of the middle
Speaker 2: class has a lot to do with the loss of manufacturing.
Speaker 2: So for those reasons that imbalance that, let's call it
Speaker 2: trade and capital count imbalance. It's both the trade issue
Speaker 2: and a capital issue, and raising tariffs is a way
Speaker 2: of dealing with that. Through history, tariffs really have been
Speaker 2: more of a tax than other tet forms of taxes
Speaker 2: going way back, and they bring in tax revenue, so
Speaker 2: you know, they'll probably bring in somewhere between three hundred
Speaker 2: million and five hundred million a year something like that,
Speaker 2: and so that's a considerate So that's the mechanics about
Speaker 2: what's happening.
Speaker 1: I just wonder if you think that that goes toward
Speaker 1: alleviating concerns about debt and sustainability, certainly in the United States,
Speaker 1: given that there will be those revenues.
Speaker 2: Yeah, right, it is a source of revenue and it
Speaker 2: will diminish that. However, the economics it's small by comparison
Speaker 2: to the gap. So as I said, the mechanics of
Speaker 2: the debt situation are really.
Speaker 3: Have a few components.
Speaker 2: The first is that when debt service payments add up,
Speaker 2: they squeeze out other spending, and so that can create
Speaker 2: the equivalent of an economic heart attack. The second is
Speaker 2: there is a supply demand issue. In other words, a
Speaker 2: deficit requires debt sale, and so there we have a
Speaker 2: lot of debt sales and we and that's and there's
Speaker 2: a lessing demand for that. And then there are the
Speaker 2: central bank playing a role. So what we have now
Speaker 2: is think of it as a big company or an individual,
Speaker 2: except the main difference between a company a country and
Speaker 2: an individual, or a company and a government is that
Speaker 2: the government can print money. So it's the basics. But
Speaker 2: figure it this way. The United States. Here are the
Speaker 2: numbers the United States spends will this year spend about
Speaker 2: seven trillion dollars and it'll take in about five trillion dollars.
Speaker 2: So that means it's spending forty percent more than it
Speaker 2: is taking in. Because it has run deficits and sold
Speaker 2: a lot of debt. The total debt is about six
Speaker 2: times the total amount of money coming in, and we're
Speaker 2: seeing those debt service payments squeeze that out. And as
Speaker 2: a result of what the projections are, it's likely that
Speaker 2: those deficits will then produce lots of bond sales, which
Speaker 2: will compound it. When you get into the point in
Speaker 2: the cycle where debt is needed to pay debt and compounds,
Speaker 2: it becomes a problem. It becomes a problem also for
Speaker 2: the central banks, because the central banks, by the way,
Speaker 2: this is not just an American problem, this is a
Speaker 2: world problem. The central banks themselves own own the debt
Speaker 2: and so, and they lose money on the debt. And
Speaker 2: so when they're losing money on the debt and they
Speaker 2: have asset liability problems, then they also not only have
Speaker 2: to monetize essentially the other the government's debt, but they
Speaker 2: also have to monetize theirs. And those are the characteristics
Speaker 2: that produce a deterioration.
Speaker 3: In the monetary order.
Speaker 2: And that's you know, that's why what you're seeing, you're
Speaker 2: seeing a dynamic of why countries, for example, are letting
Speaker 2: the reserves or their assets in bonds and so on,
Speaker 2: go down, and they're acquiring and have been acquiring gold,
Speaker 2: for example.
Speaker 3: So gold is a currency.
Speaker 2: You know, we think of currencies as being the major
Speaker 2: fea currency, but gold is a currency. It's the second
Speaker 2: largest reserve currency. And so you're seeing changes in the
Speaker 2: monetary order that are reflecting those things somewhat like happened
Speaker 2: in the early seventies.
Speaker 1: Ken Griffin yesterday of Citadel said that he sees gold
Speaker 1: as more of a safe haven right now than the dollar.
Speaker 3: Do you agree, Oh, certainly, I mean, you know, I
Speaker 3: think tell you a story.
Speaker 2: I've been trading market since I was a kid, and
Speaker 2: between my college year and going to a graduate school,
Speaker 2: in the summer of August nineteenth seventy one, I was
Speaker 2: clerking on the floor of a New York Stock exchange
Speaker 2: and I I filed markets and on Sunday night, Paul
Speaker 2: Voger and then President Nixon really was President Nixon delivered
Speaker 2: the message that you're not going to get your money.
Speaker 2: Gold was money then, so we viewed things differently, you know,
Speaker 2: like money fee up. Money as we think about it today,
Speaker 2: was like checks in a checkbook so that you can
Speaker 2: go get your gold. And we looked at things through
Speaker 2: a gold lens, and I walked on the floor of
Speaker 2: the stock exchange. I thought, this is a big crisis,
Speaker 2: because you're not going to get your money. People not
Speaker 2: and the stock market. I thought it was going to
Speaker 2: go down a lot. Stock market went up a lot,
Speaker 2: and I went and I studied history.
Speaker 3: That's, by the way, why I studied history.
Speaker 2: So I studied history, and I found out the exact
Speaker 2: same thing happened in March nineteen thirty three with Roosevelt
Speaker 2: getting on the radio and doing the exact same thing,
Speaker 2: in other words, devaluing money.
Speaker 3: Okay, in other words.
Speaker 2: So when we're looking at the world now, we look
Speaker 2: at it through our currency lens. You know, we think
Speaker 2: things go up or down in when we're measuring it
Speaker 2: in our currency, but in reality, the currency goes up
Speaker 2: and down. And so as we start to think about that, okay,
Speaker 2: think about what's happening. Yes, it's a currency, it's an
Speaker 2: alternative currency, it's not a fiat currency.
Speaker 1: So do you think that it actually makes perfect sense
Speaker 1: the stock market is hitting record high after record high
Speaker 1: at the same time that gold is hitting record high
Speaker 1: after record high.
Speaker 2: Yes, yes, it's very much like the early seventies. And
Speaker 2: then the question, because what do you put your money in. Okay,
Speaker 2: of course the stock market it has We can't speak
Speaker 2: about the stock market as a whole, of course, because
Speaker 2: the stock market is so bifurcated, you know, and the
Speaker 2: world stock markets are so bifurcated.
Speaker 3: But yes, that is the dynamic.
Speaker 2: It depreciates the value of money and then it costs,
Speaker 2: because everybody, it's all about a storehold of wealth. What
Speaker 2: is your storehold of wealth? What's it going to be?
Speaker 2: A currency should be a medium of exchange and a
Speaker 2: storehold of wealth. But when you have so much debt,
Speaker 2: you know, debt is money and money is debt. I
Speaker 2: mean debt is money, meaning when you hold debt, you're
Speaker 2: holding a promise to receive money. And when I say
Speaker 2: money is debt, when you're holding money, you're putting it
Speaker 2: in a debt instrument. And so for those reasons, when
Speaker 2: you have such a supply of debt and debt instruments
Speaker 2: and it's not an effective storehold of wealth, it's natural
Speaker 2: to go to an alternative storehold of wealth, which is
Speaker 2: why we're going to harder currencies, you know. And of
Speaker 2: course gold is the most fundamental of those, not only
Speaker 2: because of the many years but even there, it's you know,
Speaker 2: as they say, it's the only asset that somebody can
Speaker 2: hold that doesn't that you don't have to depend on
Speaker 2: somebody else to paying you money for it at a.
Speaker 1: Time of incredible uncertainty bid also potentially incredible opportunity. You're
Speaker 1: talking about the technological advancements. Can you give a sense
Speaker 1: of how you're thinking about allocations with gold versus bonds,
Speaker 1: versus us versus international versus some sort of leveraging to
Speaker 1: this story of technological development.
Speaker 2: Well, I think, first of all, in an asset allocation mix,
Speaker 2: the first thing you have to do is create your
Speaker 2: neutral portfolio. What's your balance, you know, what's your beta mix,
Speaker 2: your strategic I said allocation if you don't have a
Speaker 2: view of the markets to make tactical mods, and then
Speaker 2: you have to think, how do you make tactical moves?
Speaker 3: Who's going to make those?
Speaker 2: Because tactical moves or a zero sum game, you have
Speaker 2: to beat the other person who's doing it on the
Speaker 2: strategic acid allocation mix. Before I get into the tactical
Speaker 2: though I've expressed my views on the tactical of gold
Speaker 2: relative to bonds. I think you have to create a
Speaker 2: very good balanced portfolio. How you do that, we can
Speaker 2: take a long session. But I think you have to
Speaker 2: think of that and not in nominal terms, but in
Speaker 2: real terms. So in other words, when you're thinking you're
Speaker 2: doing your asset allocation, what is going to protect your
Speaker 2: real after tax returns, so you create that optimal mix.
Speaker 2: Gold is a very excellent diversifier of the portfolio. So
Speaker 2: if you would look at just from the strategic acid
Speaker 2: allocation mixed perspective, you would probably have something like as
Speaker 2: the optimal mix, something like fifteen percent of your portfolio
Speaker 2: in gold because of the fact that if you didn't
Speaker 2: even have a tactical because it is the one asset
Speaker 2: that does very well when the typical parts of your
Speaker 2: portfolio go down, because the typical parts of your portfolio are.
Speaker 3: Also so credit dependent.
Speaker 2: So anyway, I think all of this means that there
Speaker 2: should be some piece in that of gold. If I'm
Speaker 2: making tactical bets. I don't like dead assets per se.
Speaker 2: And I would say I don't like dead assets per se,
Speaker 2: not just government dead assets. But also if you're looking
Speaker 2: let's say a credit or private credit, and you look
Speaker 2: at where the credit spreads are, credit spreads are very
Speaker 2: very low, and so for those various reasons, my tilts
Speaker 2: would be away from those things toward gold. But again, yes,
Speaker 2: so more than would be a normal asset allocation mix.
Speaker 2: But I think you have to also say, you know,
Speaker 2: start with what is a real dollar if you're a
Speaker 2: dollar investor, a real return asset that you're going to
Speaker 2: hold as part of that portfolio. The most of the
Speaker 2: system is dependent on credit equities, and everything is dependent
Speaker 2: on credit. You change credit, and you know, then all
Speaker 2: sorts of things happen, and so it's an effective diversifier
Speaker 2: as well as probably the timing.
Speaker 1: Seems good going to the five tenants that you're talking about.
Speaker 1: Given the imbalances in the deficit, in the debt load,
Speaker 1: and the amount that people are going to have to sell,
Speaker 1: governments are going to have to sell, do you think
Speaker 1: it's appropriate for the FED to be cutting rates right now?
Speaker 3: I think I think the picture on cutting rates is
Speaker 3: slightly mixed.
Speaker 2: So, and it has to do with the split in
Speaker 2: the economy, and it has to do with split in
Speaker 2: capital markets, which means you're trying to look at the
Speaker 2: economy as a whole, but what you have is in
Speaker 2: certain sections of the economy, you have an enormous amount
Speaker 2: of liquidity, enormous amount of wealth. Things are like if
Speaker 2: you're in the top one percent of anything you know,
Speaker 2: or which is the top one percent of the income earners,
Speaker 2: the top one percent of the stocks and AI and
Speaker 2: so on and so forth. Wow, there's a tremendous amount
Speaker 2: of liquidity and fantastic And so you would say, if anything,
Speaker 2: you'd worry more about the bubble and how you start
Speaker 2: to pull the you know, the punch bowl, that kind
Speaker 2: of thing.
Speaker 3: But we have a very diverse economy.
Speaker 2: So if you're looking at let's say, the bottom sixty
Speaker 2: percent of the population and the conditions of the bottom
Speaker 2: sixty percent of the bottom population and labor markets and
Speaker 2: so on, then you have a very very different issue.
Speaker 2: I don't think monetary policy it all is going to
Speaker 2: be able to do that. I think that there's a
Speaker 2: strong situation where you know that the natural instinct is
Speaker 2: if things aren't exactly like I would like and I'd
Speaker 2: like to make them better, I should use monetary policy. Okay,
Speaker 2: So I mean that's now what we've learned that, right,
Speaker 2: because every time you do that and then things go
Speaker 2: up and people are happy and so on. But there's
Speaker 2: a cost of doing that, right. The cost in doing
Speaker 2: that is that there's one man's debts or another man's assets.
Speaker 2: And so when you artificially lower the interest rates so
Speaker 2: that it is not attractive in a sense, the whole
Speaker 2: is an asset, and it's very attractive to borrow and
Speaker 2: buy things, that creates an imbalance. So I think that
Speaker 2: I think that discipline is not something that anybody seems
Speaker 2: to want, and.
Speaker 3: Yet I think it's needed.
Speaker 2: So when I think about the monetary policy and so on,
Speaker 2: I think not much, if any, But I also think
Speaker 2: it's not really dealing with the whole so well because
Speaker 2: of the disparity in the parts.
Speaker 1: Going back to the video that you showed for you're
Speaker 1: talking about these two hundred and fifty year cycles and
Speaker 1: then ten to twenty year periods where there's a transition
Speaker 1: of a power from one to another nation, And I
Speaker 1: just wonder if you see things the same way this time,
Speaker 1: because it seems like globally, they're the same issues everywhere
Speaker 1: in terms of these imbalances and in terms of the deficit,
Speaker 1: in terms of nobody really wanting to take the punch
Speaker 1: bowl away at a time of increasing distress in certain pockets.
Speaker 4: Do you think it's different?
Speaker 2: I think, and just to be clear, that's the whole
Speaker 2: cycle of the great cycle.
Speaker 3: In there.
Speaker 2: There are breakdowns of orders, right, So nineteen forty four
Speaker 2: we had the breakdown of.
Speaker 3: The monetary order.
Speaker 2: We had another breakdown in nineteen seventy one, so nineteen
Speaker 2: forty five we had the breakdown of the most countries
Speaker 2: political orders and most countries and geopolitical order.
Speaker 3: Right, so we're really we have those.
Speaker 2: Cycles which are part of then you know, the overall
Speaker 2: greater cycle are worth keeping in mind.
Speaker 3: So they look a lot alike to me.
Speaker 2: So when I look at it and I look at
Speaker 2: the thirties, I think there's a lot to be learned
Speaker 2: about that particular dynamic. I think one shouldn't just believe
Speaker 2: a cycle is going to follow. I think it's like
Speaker 2: almost like a life cycle. You know, each person's life
Speaker 2: cycle is somewhat different, and it's caused by symptoms and
Speaker 2: conditions that could be measured. So you can look at
Speaker 2: the economy, you can look at the numbers themselves and
Speaker 2: see the health indicators. And that's what I did in
Speaker 2: the books, the books I wrote and so on, so
Speaker 2: you can look at them directly, you can see how
Speaker 2: much like a doctor taking you know, a cat skin
Speaker 2: of circulatory sense system. You could see how it's squeezing out.
Speaker 2: You can see the supply demand. You can see this
Speaker 2: dynamic happening. You can see see it politically, you can
Speaker 2: see it geo.
Speaker 3: Globally.
Speaker 2: So you could see those breakdowns. Okay, you have to
Speaker 2: then put them in the context I think of what
Speaker 2: the process is. What does a country do when it
Speaker 2: doesn't have enough money? Okay, there are a limited number
Speaker 2: of things. In order to see that, you can go
Speaker 2: back in history and get some understanding and also see
Speaker 2: what's going on now. So I think it's very very
Speaker 2: similar to that. Just to me, these all look like
Speaker 2: watching the same movie over and over again, except there's
Speaker 2: people use different technologies, and they have different clothes and
Speaker 2: so on, and there are different people, but they look
Speaker 2: so much alike. So I think that this is pretty
Speaker 2: much looking like the typical process.
Speaker 4: So everyone's asking how does it end? Right?
Speaker 1: Everyone wants to know how the book is going to end,
Speaker 1: how the movie's going to end. One thing that you've
Speaker 1: been talking about is how China has been taking over
Speaker 1: in a significant way that the economy there has been
Speaker 1: growing tremendously. I just wonder whether some of the rebalancing
Speaker 1: and the rejiggering of the trade flows in the world
Speaker 1: are styming that progress or whether they're a speed bumper,
Speaker 1: or how you see that fitting into the trajectory that
Speaker 1: you've been witnessing over the past ten years.
Speaker 2: Well, China has a number of problems that he has
Speaker 2: to deal with, which i'll touch on. However, since I
Speaker 2: started to go to China, which is nineteen eighty four,
Speaker 2: and I went first for curiosity and then because it
Speaker 2: was so interesting and I like the relationship per capita
Speaker 2: incomes increased by twenty eight times, life expectancies increased by
Speaker 2: ten years, and so on. It's done and remarkable, but
Speaker 2: it now has very significant problems. There were I'll quickly
Speaker 2: take you through four or five of those.
Speaker 3: On its debt problems.
Speaker 2: Its debts are all denominated in its own currencies and
Speaker 2: among Chinese mostly speaking, but it needs a giant debt
Speaker 2: restructuringfficult One is the local governments, because the local governments
Speaker 2: in China account for more of the economy and they're
Speaker 2: broke the model.
Speaker 3: They were.
Speaker 2: Selling off land and earning money from land sales and
Speaker 2: borrowing money to produce to high produce high production.
Speaker 3: And.
Speaker 2: So not only do they have a debt, but they
Speaker 2: have a model for those that local governments that is
Speaker 2: not an economic model. In other words, what do you
Speaker 2: do with businesses that don't work, that they don't have
Speaker 2: a profit. And related to this is the rationing system
Speaker 2: that they don't have a profit system. They've gone really
Speaker 2: mostly after quantity. So and the quantity, you know, how
Speaker 2: do I have maximize the quantity of production forgetting about
Speaker 2: the profitability of that.
Speaker 3: So when you have that, they then you have the
Speaker 3: dynam that.
Speaker 2: They're now describing, which is now called involution, which is
Speaker 2: the fact of overproduction doing harm to the economy that's
Speaker 2: going to require.
Speaker 3: A big restructuring.
Speaker 2: Like these big restructurings go similar to what they did
Speaker 2: in the nineties. You run G was the vice premier
Speaker 2: and premier at the time who did this. But the
Speaker 2: way that they go is you have to pick which
Speaker 2: company is going to stay and which go on the
Speaker 2: auction block, and which get restructured and so on. Otherwise
Speaker 2: they're going to have the problem similar to China. Okay,
Speaker 2: because China, excuse me, Japan Japan had the same thing,
Speaker 2: too much debt, but it was a surplus country and
Speaker 2: the debt was in its currency and they had locals.
Speaker 2: But you have to do that restructuring. So there's that,
Speaker 2: and then there's a number of things that we won't have.
Speaker 2: But certainly the world markets of the change China produces
Speaker 2: manufactured goods is dominant. Thirty two percent of the world's
Speaker 2: manufactured good come from China. That's more than the United States, Japan,
Speaker 2: and Germany combined. And now their markets are being close
Speaker 2: to them and so on, so they have to go
Speaker 2: to the third world.
Speaker 3: There are a number of.
Speaker 2: These types of issues having to do with a pension
Speaker 2: system and income tax system and so on that if
Speaker 2: they don't deal with well, and they're very difficult to
Speaker 2: deal with, well, that'll be a burden on China. While
Speaker 2: at the same time, it's of course doing amazing innovations
Speaker 2: in a number of ways that are government directed.
Speaker 3: So I don't want to just say that it has.
Speaker 2: Those burdens, because and has a lot of really powerful
Speaker 2: thinking and quantity of engineers, and what can be done
Speaker 2: is quite something. They're more advanced in the use of
Speaker 2: AI for applications than the United States is for example,
Speaker 2: actually using AI and so on.
Speaker 3: Anyway, that's too long of an answer.
Speaker 4: Prob would you rather invest in China than the US?
Speaker 3: No, I think.
Speaker 2: Think When I think about it, I think, how much
Speaker 2: do I ask allocate to each market?
Speaker 3: Right?
Speaker 2: And I think of that first as a strategic acid allocation.
Speaker 2: I look at things like what's the size of the
Speaker 2: market capitalization, how is it easy for me to get
Speaker 2: my money in and out of the country, what is
Speaker 2: how attractive are they and so on.
Speaker 3: So there's a greater.
Speaker 2: Amount that I'm investing in the United States than is
Speaker 2: that I'm investing in China, I think, And both have
Speaker 2: their challenges and you know, and their benefits. In the
Speaker 2: United States, if it depends what we're market we're talking about,
Speaker 2: But if we're talking about a lot of the market,
Speaker 2: it's quite expensive, and the nature of the flows are concerning,
Speaker 2: and the nature of a number of circumstances are concerning.
Speaker 2: If I'm looking at China, it's a different thing. It's
Speaker 2: relatively inexpensive some of those assets, but at the same time,
Speaker 2: capital flows and other issues also make it a problem.
Speaker 2: So I think of, you know, I have my allocations
Speaker 2: to each much greater in the United States than is
Speaker 2: in China, and then I move tactically within those That's
Speaker 2: how I work.
Speaker 4: You've mentioned really tight credit spreads.
Speaker 1: You've mentioned some of the flows concerning there have been
Speaker 1: a lot of discussions around bubble isious conditions in the
Speaker 1: AI space of particular, in that slice of the market.
Speaker 1: Do you see that there is some sort of excess
Speaker 1: building when you look at history and how this has
Speaker 1: always played out, whether it's a dot com bubble or
Speaker 1: whether it's the tulips over in Amsterdam. I mean, is
Speaker 1: this something that feels frothy to you?
Speaker 3: Yes, there's something that feels frothy to me.
Speaker 4: How it's dratastic? I think that was brilliant. I wonder
Speaker 4: how do you see it evolving?
Speaker 1: I mean, because there is this great promise, right, it's
Speaker 1: sort of the idea that the Internet did.
Speaker 4: Come to fruition and change the world. I might change
Speaker 4: the world.
Speaker 3: But I certainly will.
Speaker 2: But you're asking history on at each of the times
Speaker 2: the greatest technological revolutions were taking place during those times.
Speaker 2: In other words, the late twenties, for example, was there
Speaker 2: were more patents, more inventions in the world, and so on,
Speaker 2: and if you know, you could take two thousand or
Speaker 2: those types of period A lot of them are dependent.
Speaker 2: There was an interdependency between the capital markets and these
Speaker 2: in terms of funding and those types of things. So
Speaker 2: we have to look at valuations too, right, I would say,
Speaker 2: in terms of let's say AI valuations and so on.
Speaker 2: I think it's more in the areas of applications than
Speaker 2: let's say, the superscalers themselves. I dont wouldn't want to
Speaker 2: be short the superscalers. I just but if I'm thinking
Speaker 2: about what's going it's going to be in the users,
Speaker 2: either the users of those technologies becoming more effective and
Speaker 2: so their profits will be better and so on, or
Speaker 2: those who will provide the platforms for the effective use
Speaker 2: of those I think that that's an area of greater opportunity.
Speaker 1: You mentioned something about China that I think is a
Speaker 1: subject of huge debate in the United States, which is
Speaker 1: the way that they've sponsored certain industries and certain development
Speaker 1: of technologies in the AI space and beyond.
Speaker 3: And I wonder if, yeah, by the way, we're doing
Speaker 3: that too.
Speaker 1: That's what I wanted to go to, the idea that
Speaker 1: the United States is now taking a stake in lithium
Speaker 1: companies in Intel and a whole host of others and
Speaker 1: sort of cobble together sovereign wealth fund that we're learning
Speaker 1: about in real time. And I just wonder, do you
Speaker 1: think that is the right approach for a country to
Speaker 1: take at this moment.
Speaker 2: At this moment, I again want to compare it with
Speaker 2: the nineteen thirties because you have to look at the
Speaker 2: times and what it's like. Right, So, this is a
Speaker 2: period of great conflict, and if you take such periods
Speaker 2: of great conflict often needs a direction.
Speaker 3: You know, it can't be just consumer goods rich people.
Speaker 2: Than buying expensive things like handbags or something, you.
Speaker 3: Know, so it needs a direction.
Speaker 2: If you're looking at things like data centers and what
Speaker 2: does it mean for AI and what does it mean
Speaker 2: in many ways in order to be competitive, there needs
Speaker 2: to be much more guidance because it just is not
Speaker 2: going to be adequate by itself. So yes, I think
Speaker 2: under these types of circumstances there needs to be that.
Speaker 2: The question is whether that is done wastefully or productively.
Speaker 3: Right.
Speaker 2: The problem with governments, generally speaking is it's done wastefully.
Speaker 2: So you have state owned enterprises or state controlled that
Speaker 2: and people in Washington are not usually really good at
Speaker 2: this type of stuff and resource allocation. The question is
Speaker 2: how the balance exists. But yes, I think at these
Speaker 2: types of times there needs to be more of that,
Speaker 2: and you hope that that's done well.
Speaker 1: You've mentioned nineteen thirty several times and that this is
Speaker 1: a time of conflict, and we know how that movie ended.
Speaker 4: Is that kind of the parallel that you see this
Speaker 4: right now?
Speaker 2: I think it could. There's a certain dynamic that makes
Speaker 2: it get worse and worse, you know. So there's the
Speaker 2: debt dynamic that we're talking about, but there's also, let's say,
Speaker 2: the internal political dynamic. Do we see people coming both
Speaker 2: sides being able to work together at for results and
Speaker 2: that there's going to be votes that people believe and
Speaker 2: they believe the system is going to be fair for them,
Speaker 2: so that if they lose, they accept losing because they
Speaker 2: believe the system is fair and so on. You know,
Speaker 2: history shows that that's not likely and that things can
Speaker 2: worsen because people then and you know, you know in
Speaker 2: history it can get bad. I don't know, one side
Speaker 2: shoots on the other side and who knows where it is.
Speaker 2: You know, one would hope that there would be sort
Speaker 2: of a strong middle that would bring for most people
Speaker 2: and that you can get back to a system that's fair.
Speaker 2: But I think that's that's a difficult thing to do.
Speaker 2: I think the world order, the changing world order, we've
Speaker 2: gone from a.
Speaker 3: Multilateral world order.
Speaker 2: In other words, it was the American model that there's
Speaker 2: a United Nations, a World CORT, a World Health Organization,
Speaker 2: a World Trade Organization, an IMF, a World Bank in
Speaker 2: all of those world so that there is sort of
Speaker 2: an attempt to bring rules and systems into place that
Speaker 2: are multilateral. I think that's over. That's largely over. I
Speaker 2: don't think we're not likely to go back to those
Speaker 2: types of things. So I don't think I think we
Speaker 2: have to instead worry about not having such a bad
Speaker 2: fight with each other that that's or a financial crisis,
Speaker 2: that we make things worse than they are.
Speaker 3: But it's.
Speaker 2: You're asking me as a man who actually has to
Speaker 2: bet on this and has to be as accurate as
Speaker 2: I can. I mean, like, hope is not a strategy.
Speaker 2: So when you ask me, I say, I really hope
Speaker 2: that that's not the case.
Speaker 3: But if you look at history and you look.
Speaker 2: At the dynamics, there's more the movement toward these things
Speaker 2: being resolved in the form of conflicts that we've seen
Speaker 2: in the past.
Speaker 1: On that uplifting note, we're out of time, Ray Dalio.
Speaker 1: It has been absolutely my pleasure to speak with you.
Speaker 1: Thank you so much for being here.