#418 Ray Dalio on the Risky Period for Investors, Bubble Warnings, and a Coming Debt Squeeze

SPEAKER_1 (0:01)

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Julia La Roche (0:31)

Hey everyone, welcome to a very special episode of The Julia La Roche Show, where I have the distinct honor and privilege of sitting down with legendary investor Ray Dalio, founder of Bridgewater Associates, the world's largest hedge fund firm, and a special conversation for the Greenwich Economic Forum.

In this episode, we explore where we are in the changing world order. We also talk about the five forces that are driving the changes that we're all experiencing right now, and how investors can navigate this risky period. I really enjoyed this wide-ranging conversation with Ray. I learned a lot. I think you will too. So I hope you all enjoyed this one as much as I did.

Hello everyone at the 9th Annual Greenwich Economic Forum. We wish we could be there in person.

Ray Dalio (1:23)

Yes, we do.

Julia La Roche (1:25)

But I have the distinct honor and privilege of interviewing Ray Dalio, founder of Bridgewater Associates, head of the Dalio Family Office, best-selling author, legendary investor. What a treat it is to be with you today.

Ray Dalio (1:38)

What a treat it is to be with you. And again, we wish we were there. But we are there in spirit with those at the Greenwich Economic Forum.

Julia La Roche (1:46)

Absolutely. Well, Ray, let's start things off with the big picture, more of that macro view where we are today. I know you look at the world through this framework of five forces that are shaping all of the changes that we're going through. So perhaps let's start there.

What are those five forces? Where are we today? And where do you see things headed?

Ray Dalio (2:08)

Thank you for your question.

Just to put it in perspective, I'm a global macro investor. And then what happened when I was young, graduated college, I was on the clerking, on the floor of the New York Stock Exchange.

And that was August 15th, 1971

And Richard Nixon gets on the television on Sunday night and says, I'm not going to let you get your gold. So money was gold and there was a devaluation. And I went on the floor of the stock exchange and I thought that it was going to be a big crisis. And stocks went up a lot. And that was the first time I was through a devaluation. So I studied history and I found out that Roosevelt did the exact same thing on the radio in March of 1933 and it had the exact same effect when you lower the value of money and all that make up to it. And that taught me that I needed to understand what was going on in periods before my lifetime. And because of studying the 30s, I understood what would happen when you had a debt crisis and interest rates hit zero, which is what happened in late 2007 And we ended up making a lot of money and it was good. My main point is that I started thinking, what is going on before my lifetime that there are lessons? And so I studied the last 500 years. You have a book here.

That's my study which I made into that book. And I see this big cycle and that's the five main forces. So to answer your question quickly, that was maybe too much of an intro, but what I see is that there is such a thing as a long-term debt cycle and which, the way it works is that when you start with a low amount of debt, you can acquire that debt, but what happens is as debt service payments start, in other words, interest and your spending on paying back your debt, as that grows relative to incomes, it creates a squeeze that's like almost plaque building up in your system. And that's part of that cycle. We have a capital cycle and we have that kind of cycle. The second force is the political and social force. When there are large wealth gaps which are related to this cycles, when there are large wealth and values gaps, and they reach the point that there is populism, which means there's irreconcilable differences, there become conflicts between the left and the right, those who want to redistribute it, those who don't, and so on, and they become irreconcilable, and that produces great conflicts such as the conflicts that we're seeing now, with those irreconcilable differences. And that's connected to the economic cycle, and they evolve.