/Transcript: Ray Dalio

Transcript: Ray Dalio



The transcript from this week’s, MiB: Ray Dalio, Bridgewater Associates, is below.

You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Overcast, Google, Bloomberg, Stitcher, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.


VOICE-OVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ: This week on the podcast I have an extra special guest and yes, this week’s extra special guest is extra, extra special. His name is Ray Dalio and he is the founder of Bridgewater Associates. Ray is a fascinating guy we’ve had him on the show a couple of times, one for “Principles,” the second for “Big Debt Crises,” both of the books he’s written previously, as well as Ray did the initial Masters in Business Live,, which we would be doing, but for the pandemic and lockdown we would have continued that into this year.

This is really quite an intriguing conversation. Ray has done a deep dive into the history of the rise and fall of currencies, of great powers, of debt. He really brings an analytical approach, not just the global macro and investing, but how to think about the world, how to think about the variables that we deal with.

I am completely tickled by the idea of Ray at home in Connecticut with the ability to pretty much get whoever he wants on the phone and basically having a podcast of just him and somebody else because he’s interested in a particular subject matter such as currencies or pandemics, or monetary history. And when you’re Ray Dalio, you could pick up the phone and get whoever you want on the other end to basically give you a crash course in that area.

And he’s endlessly curious. He’s one of these people whose intellect is always hungry for figuring out what happens. I’m fascinated by the way he views the world and the economy as this big mechanical contraption that you can understand if only you take the time and effort to dive into it. And pretty much that’s what he’s done, and I find him to be just a really fascinating guy to talk to. I think you’ll find this to be an intriguing conversation.

So with no further ado, my interview with Bridgewater Associates’ Ray Dalio.

VOICE-OVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ: My extra special guest this week is Ray Dalio. He is the founder of the world’s largest hedge fund, Bridgewater. Bridgewater has generated the most amount of profits for its clients of any hedge fund in history. He is the author of several books, including “Principles: Life and Work,” “Big Debt Crises,” and the upcoming, “The Changing World Order: Why Nations Succeed and Fail.” That will be out January 12, 20201.

Ray Dalio, welcome back to Masters in Business.

DALIO: Thank you, Barry. Glad to be here.

RITHOLTZ: Well, I’m glad to have this opportunity to have a conversation with you. I know that you’re a student of history and market cycles, and you’re a big macro guy looking at the world from a — a 30,000-foot perspective. I wanted to talk to you about really what is going on in — in what can only be described as a fairly unique moment in history.

DALIO: Well, it is and it isn’t. You know, the one thing that I learned about early on, particularly, when the dollar in 1971 was broken from gold is that many things that surprised me had never happened in my lifetime before, but they happened many times in history before. And the three things that are happening now that are the big backdrop situation before we had the COVID are first, the death cycle monetary creation of debt and monetizing of debt. The last time that happened was in 1933 when interest rates hit zero, and central banks printed a lot of money, and so on. And that’s a big factor because we’re dealing with the question of the value of money and how that happened, so that’s number one.

The second is the large wealth and political and social gaps that are causing us to be at each other’s throats and also giving very different choices in terms of the left and the right and capitalism and socialism. And the third is the rise of a great power to a challenge — the existing great power — the rise of China to challenge the United States in many areas. And we’re seeing that.

And one has to go back to the 1930 to ‘45 period to look at it. And then when I felt that I needed to understand it better, I went back 500 years because I needed — you know, these cycles, they go on like 100 years. And in order to follow a world order, a rise and a decline of empires and all of those things, one has to go back a number of cycles, so that’s what I did. So we have those as the backdrop.

And then we had COVID. And COVID is the stress test. And the world had COVID and the stress test, and that’s the moments were in. So when we look at today, we have to see it in that — in that light because when we think about where do we get money from, the creation of debt and the printing of money, and where do we get the support when we’re talking about the next bill that might or might not best next (inaudible). It has big implications to the economy, to the markets and so on. And so that’s the setting.

RITHOLTZ: All right. So working within those three big frameworks, let’s start out talking about monetizing debt. So normally, Congress can’t agree on renaming a library. But back at the end of the first quarter, in the midst of the panic, they passed a $3 trillion — trillion with a T — $3 trillion CARES Act, the giant stimulus plan. Was that the right call back then? And what was its impact on the national economy?

DALIO: It was — it was a necessary call, but it’s a reflection of where we are in the cycle, and so it has consequences. It’s a necessary call because if you don’t give money to those that they gave money to — money and credit — we would have had an implosion and we would have probably had a great deal of social problems. But it’s not real money in the sense that the real money would have required taxation or it would have required cutting spending.

Aand so the easiest way to give money — throughout history we’ve seen this — the easiest way to — is to create government debt and have the central bank purchase that government debt, and — and — and provide other loans because it’s not taking money away from anybody and it’s not cutting spending both of which are intolerable. And that move is very much analogous what happened on April 9th — that was the announcement — to the same thing that happened on March 5, 1933. Except then we had an exchange rate, which was tied to the dollar, but they are tied to gold, but they need to — to sever that tie in order to do the same type of policies.

And if you look throughout history, that’s what happened. And then that’s what makes the market go up, OK, the value of money because all investments compete with each other. And so that brought down nominal and real interest rates.

We can talk about multiple — stock multiples and bond multiples, I think, might help to convey the concept. But the decline in real interest rates and the decline in nominal interest rates pushes asset prices higher in and of itself. And the putting of money into loans for companies and so on, they — they drew the line at investment grade, and those that were the fallen angels just past that and — and they would buy those things. Those guarantees or even knowing that those purchases would take place created the financial support.

So we saw an expansion in multiples. When we think of multiples, you know, we — we think of multiples that stocks and bonds compete with each other. But when we look at stocks, we think of multiples — multiple times earnings. And when we look at bonds, we think of yields, and they’re just the inverse of each other. So one could say, you know, what is the multiple on a bond.

And the multiple on a bond now with interest rates being close to zero, low with the United States and below zero in Europe and Japan, is a very high multiple, almost an — you know, an infinite multiple, more than 100 times. And because stocks and bonds compete on yield basis, that also drove up the yield. And so you’re seeing the movement of money out of cash and bonds and moving to asset class. And that has been the main driver.

And it’s been a world phenomenon because the Europeans have done an analogous version of that — the Japanese have — because there is a — a void. The void is for every individual or company or country, there’s a certain amount of revenue that comes, a certain amount of expenses and a certain balance sheet. And if your income is less than your expenses and you don’t have a good balance sheet, and you owe a lot of money, you’re going to have a bankruptcy. You’re going to have a problem unless you get that. And so it was necessary. And — but it changes the value of money.

RITHOLTZ: So let’s talk a little bit about the value of money. Let’s discuss a little bit about America’s exorbitant privilege. We own the reserve currency of the world. What does all this continuing debt modernization mean to the U.S. maintaining that reserve currency status? And what might it look like if the U.S. would’ve lose that reserve currency status?

DALIO: Well, as you point out, that is the greatest power because the United States as a whole, which is just the aggregate of the individuals is buying more from the rest of the world, spending more than it is selling to the rest of the world. We just had another large trade deficit number. And it is doing that by selling credit, by selling our bonds. And so when we look at that dynamic, there’s a certain amount of bonds out there.

And the world always wants to hold a reserve currency because that’s what you save in. If — if you want to save in something, you’re — you know, you’re not going to save — you are saving the world’s reserve currency. And that has been the exorbitant privilege.

However, what were — two things are happening that are threatening that. A bond is a currency or a currency is a bond. What I mean by that is when you own a bond, that is a promise to receive currency. And that when you have a central bank that can print currency without a boundary, that means you have to sell a lot of bonds. So when we run large deficits and we will in the future, no matter who the president is, we will run large deficits. We will have to sell bonds to the rest of the world.

And if you look at the owners of those bonds and, most importantly, I would say it’s a combination of central banks, sovereign wealth funds and, of course, some other investors, but they are overweight in bonds. And they’re going to have to buy more U.S. bonds than they had to buy. And that’s coming at a time when the rewards of those bonds are bad. In other words, there’s now a negative real interest rate of about one percent and no nominal interest rate. And it’s coming at the time when there were large production of debt and large monetization.

So we are testing the limits of how we can — how far we can go in a fiat monetary system, and nobody knows exactly. Over the short run, let’s say over the next year or two and so on, we know that everybody wants buying power and dollars are something that’s received all around the world and you create a squeeze in those, and there’s also a lot of dollar-denominated debt that has to be paid, and that’s supporting because they need dollars to pay those debts. That’s a support. But those supports are — are — are failing, will — will diminish with time. And so we are testing the limits.

Now you asked what would happen. What would happen would be if you don’t own bonds and that’s not only Americans, but foreigners because they might say — pension funds might say bonds don’t do me very much good. And if — and if you started to see their interest rates rise at all, then you’d see bond prices go down and you’d see stock prices go down, which would be intolerable. So if you have that movement, that would require the Federal Reserve to then buy more to fill in that gap, which would be monetization, and that could create a spiral.

But the answer to your question of what would happen is that you would have to then pay your — you have to cut your buying to exceed your earning. You’d have to go to surpluses to pay down your debt or you at least have to go to balances. That would require — that would be tough. And it would also mean that you would have a depreciation in the — in the value of the dollar, which is changes America’s purchasing power in the world.

So when you look at history — you’ve seen throughout history, I’ve gone back a number of years and, by the way, if everybody wants — I wrote this up on LinkedIn, “Changing World Order,” you can see 700 cases of different currencies and the value in current season what — what triggers them. But all currencies, at one time or another, have been devalued or destroyed. And — and so that’s — that is a risk that one has to watch very closely.

RITHOLTZ: So, Ray, let me refer back to something you said earlier. You mentioned in 1933 the government did a lot of fiscal stimulus. They — they basically issued a lot of bonds, of which the Federal Reserve ended up using as a basis for lending. Basically, the Fed was funding the government. That — that sounds an awful lot like modern monetary theory. Is MMT not all that modern?

DALIO: That’s — that’s right. MMT is a version of what I call Monetary Policy 3. So what I mean is Monetary Policy 1 is interest rate policy — cost of funds.

When interest rates hit zero and you can’t use that policy anymore, you go to Monetary Policy 2. Monetary Policy 2 means the central bank essentially prints money and buys financial assets. That causes financial asset prices to go up, but it doesn’t trickle down very much. It widens the wealth gap and it doesn’t get it into the hands of those who need it. It gets it into those who have financial assets. Monetary policy three is when there is a need to get it into specific cans. And the federal government — the central government is the only one who can direct where it goes. So a lot of the spending that we’ve seen in terms of its direction require the Federal Reserve to require the government to borrow the money that Federal Reserve lent the money. And that, as a result, got it to go into the hands of those who needed it the most. And that’s Monetary Policy 3.

So I would say I think you should focus on Monetary Policy 3 rather than the more narrow definition of modern monetary theory because it’s the — but it’s — it’s basically that we are now in a government-controlled capital markets. So the government will allocate resources through fiscal policy that will be monetized, and so it’s going to be a much more government-controlled fiscal and monetary-coordinated monetary policy. And that will affect all the markets. It will affect us in many, many ways.

RITHOLTZ: Let’s talk a little bit about what’s going on with wealth and income inequality. A number of people have made the case that the mostly monetary response to the great financial crisis without a whole lot of accompanying fiscal response led to a lot of widening income and wealth inequality. What’s your view on that, Ray?

DALIO: Well, it’s — it’s certainly true, although the ingredients of the widening wealth gap were on, you know, a number of ingredients. And I — we should talk about the — the widening wealth gap. But yes, the purchases of financial assets helps those who have financial assets more than it helps those who don’t have financial assets. And what we saw, of course, is those purchases cause financial asset prices to rise up and didn’t trickle down in the same way to others, and so it widened it.

Other factors …

RITHOLTZ: Let me — let me interrupt you there for a sec, Ray, and I want to just put some meat on the bones. So about half of Americans don’t own any stocks, and of the Americans that do own stocks, about half of those equities are owned by the top 10 percent of — of the country economically. So when you say stimulus of financial assets doesn’t trickle down, I’m assuming that’s more or less what you’re referring to?

DALIO: Yes, you’ve said it very well. And for a variety of reasons it’s a self-perpetuating cycle because as you have more assets like right now in terms of wealth, the top one tenth of one percent of the population has slightly more than the bottom 90 percent combined in wealth.


DALIO: And when wealth is those assets — those financial assets that the central bank buys, that perpetuates the cycle, and there are other things that relate to that. For example, I — I did a — a breakdown of the economy and the financial positions by quintile, by 20 percent. And I really wanted to look at the bottom 60 percent in relationship to the top 40 percent to see these different economies.

And what I saw, for example, is that on education, those in the top 40 percent on average spend about five times as much money on the children’s education than those in the bottom 60 percent. And it’s a natural cycle that you — you know, when you — we all want to take care of our kids, we want to educate them well and so on, but we see it. I see it here in Connecticut, which has a large wealth gap — we can get into that — but I mean, a total absence of resources and it’s become self-perpetuating because it then becomes better educated people then earn more money and so on.

And that’s becoming more and more true also as technology is playing a greater role. Because as technology is replacing people, including now more and more elements of thinking, you are getting into an environment of those who are designers of the technology and so on doing better and better because it is the process of capitalism to do things most efficiently in pursuit of the profit that then leads to those changes, which means rely less on people, rely more on machines.

So there’s a monetary component to that. There is a technology component to that widening (inaudible). And then, of course, there’s also globalization. It’s more efficient to the whole to have globalization to produce things in where they’re most efficient, of course. And — but what you see is, within countries, you have a widening wealth gap, but between countries, you have a narrowing wealth gap. In other words, those who are less lower income, they learn more and they rose. And so if you happen to be in the country that’s rising less quickly and you happen to be on the bottom end of that, that globalization hurts you in incomes, too.

And so those three things have produced the disparity that we see. And at the same time, that is what has led to the political consequences that we’re experiencing. In other words, the rise in populism across the world but, of course, it would come in the United States, particularly, because of the disparity.

RITHOLTZ: So let’s get into that a little bit. You’ve written about the hollowing out of cities and regions and, indeed, society as a whole. How is that manifesting itself? And what can we, as a nation, do about it?

DALIO: Well, again, I’m describing the mechanics of this. I’m not ideological, I’m just mechanical. There’s a formula — simple formula.

If you have a lot of debt and you have a big wealth gap, and you have an economic downturn, you have a fight over how to divide the pie. That can be dealt with either through printing money or you have to deal with it with — if you don’t print the money to finance the deficits the way we’re talking about, then you have to either raise taxes or cut spending.

Now in states, they don’t get to print money. I mean, the main difference between the federal government and the state governments has to do with this printing of money and monetizing debt thing. So if you’re in a state like Connecticut, New Jersey, Illinois and so on that has large debts, a large wealth gap and, you know, experiences of downturn, then you create a dynamic where either raising taxes or cutting spending makes the place more difficult to be in. Those with income don’t want to experience the tax increases. And when you cut expenses, those expenses are for the — the people who are really the poor people in those states are intolerable.

And so — and they also reduce services and so it makes it a less hospitable place to be. So you’ve seen that hollowing out dynamic like happen in places like Detroit or the Rust Belt places and so on where does move — they moved from one place to another place that’s more hospitable for them, and when they move, those who moved and have the higher income, they bring their taxation — their tax monies with them and it begins a self-perpetuating cycle because then services go down, it becomes a more antagonistic item environment, which creates a motivation.

So I think that when we’re looking ahead, this is going to be — this is going to be a big issue after the election, how those states are going to be dealt with and those deficits.

RITHOLTZ: Quite interesting. I know a number of people have proposed various cures for this. One concept is baby bonds. Everybody gets a small set of bonds at birth or, theoretically, a small account, which could compound over time. I know you’ve studied universal basic income. I was kind of surprised to see what you learned. Tell us a little bit about that.

DALIO: Well, first of all, I think that the basic necessities of educating children well must be done. It’s inexcusable. It’s a great it’s cost to our country and it’s the most unfair not to educate children in some analogous way.

I think the basics of what is needed, also basic health care, basic — certain basics, I was lucky to have a — you know, two parents have cared for me. I went to a public school, and I came out to a world of equal opportunity. And that’s all that anybody needs, but they need those things. And then the question is how to best get that.

They also have to be productive because you can’t just give income. Money has no intrinsic value. And so if you keep giving income and money to people, and you don’t make them be productive, that’s not going to work. What you eat and what you consume is going to be based on what you produce. So you have to make people productive and so on.

So now you deal with the question of how would you bring that about, how would you engineer for that, and what is the role of universal basic income, which has pros and cons? But let’s say, you can’t just — you can’t do everything. So if you go to universal basic income, which can be very expensive, it has the benefits of being efficient. If a parent handles that money well and has the greatest notion of how to best use that money well, you know, that could be very good. You don’t have a bureaucracy to administer it and so on, and that’s the problem.

However, the usage may vary. You know, you put money in the hands of some people, and — and that money may not go to the best uses for their children and — and beyond. And so when you think about does it go at the expense of, let’s say, certain education programs.

I’ll give you an example. In Connecticut, where the wealth gap is large and we’re intimately involved, 22 percent of the high school students — one in five, in other words — are disengaged or disconnected. Disengaged means when they’re attending school they have an absentee rate of 25 percent or more and they’re failing classes. That’s disengaged.

Disconnected means they don’t come to school anymore and they don’t know where they are — 22 percent, one in five. And if you look at the finances of that and how you could change that, they end up in detriments to the society because they — they’re in — at the cost of incarceration. All these things are terrible. So there has to be the — that usage.

And money, I — I would say through our philanthropic efforts, we get windows into some of these things. And they’re so cost-effective to use the money right in programs.

So the question is do you want to — do you want to give checks or do you want to give programs because you can’t do both? And so that’s the real question, I think. I don’t think there’s a question of the need to do take care of children well and educate them well, and — and those types of things even there. You know, so anyway, it’s a priority question.

RITHOLTZ: So we’re going to talk more about your philanthropy a little later, but I just have to ask a very basic question about the role of government. What should Americans expect from their state, and local, and federal governments? What level of service is reasonable in a modern, somewhat civilized society?

DALIO: Well, there are two ways I could answer that question, what a modern civilized society should provide and what you can expect given the structure. There are two different things. I — I think everybody should expect that the — the basics of that I — I dealt with before that I experienced when I was growing up. I was born in 1949 and I went to — and there was the American dream and we are all in it together. And I — well, that was great. I went to a public high school — a public school all through my life, and I have parents who took care of me.

And that — and — and if they have health care — basic health care and so on, that’s pretty much — and then you come out, have an equal opportunity. Everything has shown that that is — that should be expected, that it is if you don’t do that it’s not fair and it’s not productive because you cut off large percentage of the populations of people who could be productive. As you narrow that group that has opportunities, you exclude those who might be the most creative and capable people. And so you suffer in both of those ways. So I would think that basic civility and basic necessity would require those things.

Then when you asked what can you expect, somebody can’t just demand something, we have to understand how the system works and the system works mechanistically. So, you know, let’s say you’re in a state and so you’re going to get money from taxation. Where’s the money come from? You’re going to have taxation and you don’t have enough money literally, and so you can’t just say I’m in the state and I’m expecting it.

You have almost a constitutional challenge to provide that money because, let’s say, it’s education money. For example, by the constitution, education is a state issue. Like in the state of Connecticut, about eight percent of the money comes from the federal government and the rest comes from within the state. And so if — if taxpayers move and states operate that way, you can sit there all you want and say I need these basics, and — and you — and you won’t get those.

And one of the big things is that people actually really don’t have much contact or knowledge of what it’s like to be in each other’s shoes. I live in Greenwich, Connecticut, and — and up the road, you know, it could be 15, 20 minutes away is another world. And I wouldn’t have the exposure to this if it wasn’t for my wife kind of living in that world to be helping — helping this and so on. And I can understand it as — as I walked down Greenwich Avenue and — and so on.

We’re — you know, these are normal people who want to take care of their families and they have that. And the awareness and the — and the acting on that awareness, you know, is a structural — is a structural problem because at the end of the day, you know, everybody is trying to do the best they can, and if so it’s as problem. So those things, what are you going to do? You’re going to say we expected, but it’s sure that (inaudible) case to me that you need to provide those basics.

RITHOLTZ: Makes sense to me. Let’s talk a little bit about some of your recent writings about China. You have discussed the confluence of long-standing economic trends and big shifts in the political environment. How much of a collision course is China and the United States on?

DALIO: Well, there are five main areas of conflict — five or six, and they’re a manifestation of history repeating itself. So just to take a second on that, we began the existing world order in 1945, World War II ended. We began a new monetary system, Bretton Woods monetary system in ‘44 and 1945. We set the rules.

And the United States then accounted half of the world economy. It had 80 percent of the world’s gold stocks and gold stock — in other words, gold. And that — and gold was money, and we built a dollar-denominated system and an American world order, which is why the United Nations, the IMF, the World Bank are all in the United States. And that — that happened.

And then as the cycle happens, if you look at history, China, over the last 2000 years has always been number one or two, one of the most powerful countries. And then starting from 1840’s until 1949 had a collapse, and then it began to emerge in 1949. And then in 1978, Deng Xiaoping came to power, and they — he tapped into capitalism — state capitalism. He created state capitalism.

And since then until now, the average real income has increased by 22 times. It’s been very productive and it’s becoming very capitalist. And it’s — there are billionaires being formed their ideas, their IPOs. There is creativity and there’s that competition.

And so when you get a rising power challenging an existing power, there are different ways of doing that. And so there are five types of — we called them “wars,” conflicts, and they are the trade war, the technology war, the geopolitical war, the capital war. And you could have a military war.

The trade war we know very — we know a lot about, and that’s the most minor of those. It’s really the overall conflict that matters.

The technology war, you see it anything from Huawei, Tiktok and so on, and who’s going to produce what technologies in this world. That’s something we can talk about if you want to.

The geopolitical war is a very important thing. Taiwan, everybody agrees, has been agreed that Taiwan is part of China and there should be peaceful unification. And there’s a region around there that includes Hong Kong, and they have historical meanings because they used to be part of China. Then in the wars they were taken away from China, and then they’ve been promised back and they are big issues. And then there’s influence in the world as they become competitor, and so there’s — that geopolitical war.

Capital war is a very important thing. History has shown that when you get into wars, this is very interesting even before there are wars that the foreign powers cut off the other. They cut them off for capital and they cut them off for needed items. Like in World War II, Japan, when we — when there was the rise of Japan in there, they were cut-off from oil, they were cut-off from rubber, and they were then cut-off from capital.

We could and we did say that we wouldn’t pay their debt. And the United States today could do that with the bonds they owe.

China owns about $1 trillion worth of bonds. And the President unilaterally can say, you know, we’re not going to pay those bonds or cut off capital in different ways. And so you see the development of capital markets and so on.

And then, of course, there’s the military question because, at the end of the day, it’s a test of power. So if you look at the geopolitical part of this in the region, militarily, China has developed what military experts tell me is a military actual superiority in about a 2000-mile (inaudible). I don’t know — but anyway it would be very bad. That includes the Taiwan area and so on.

And because the world doesn’t have a world court to plead your case, it is always testing of each other’s limits and boundaries. And that would have big implications for the United States stature in the world. So those issues are all wrapped up together. In other words, there’s a lot to argue about.

At the end of the day though, the most important determinant of power is how we are with ourselves. I should say, you know, we got these conflicts with China. And those conflicts also mean that we’re having separation. We can get into that. I don’t want to ramble too long, but the decoupling is — is a necessity and would be part of our environment ahead.

RITHOLTZ: Now when we talk about decoupling, over the past 20, 30 years, it feels like we’ve become much more integrated with China’s economy, their manufacturing prowess. I hate to phrase “frenemies,” but we certainly have aligned our interest together in a lot of ways. Our entire supply chain comes very much runs through China. How easily can these two nations decouple? It seems like we’re both fairly dependent on the other.

DALIO: Of course, because we lived in an environment when you have globalization and you took it as an assumption, particularly, the Chinese took it as an assumption that they could build on the American technologies and they’ll be there. Chinese are more vulnerable than Americans are to a technology war at the moment. They know that. And as a result, they’re initiating ways — semiconductor chips and many other ways — so that they can be calm self-sufficient because, you know, classically in a conflict, you’re cut-off. You’re cut-off from capital, you’re cut-off from what you need and it is devastating.

And because it has to exist as a possibility that you can have war, I mean, history has shown when there’s rising power challenging existing power, that’s happened 16 times over the last 500 years. Twelve of them are actually shooting wars. That possibility certainly exists, which means there must be decoupling or said another way, there must be self-sufficiency so that one could not be cut off from what one needs. And that means that there’s a process.

Over the next five years, you’re going to see a lot of decoupling. It’s — it creates inefficiency for the world as a whole. However, you know, it’s not going to change the world. Those efficiencies are almost luxury by comparison to the necessity of surviving. And so you will see that kind of decoupling.

And the — the real question is, you know, what it will look like to systems, how do they operate in parallel, can we have harmony or are we going to get something else? But it’ll — it’s happening and — and it — it’s a pressing thing on both countries to make it happen fast.

RITHOLTZ: So you mentioned there were 16 examples of a rising power challenging the existing order. Give us a few dates and places. Where else have we seen situations similar to the rise of China challenging United States? What’s parallel?

DALIO: Well, I think the — I think the 1930 to ‘45 period is the most analogous period. I touched on, you know, that was the — when interest rates hit zero, when there was a lot of printing of money and changes and so on and so forth, when the wealth gap was the same as it is now and so on. Well, during that period, there was a depression and there the rise of Germany and there was the rise of Japan to challenge the existing world powers and — sort of out of necessity.

And there was a lot of conflict — internal conflict in those cases because during such times people become more extreme. The right becomes more right, the left becomes more left, and they fight with each other more. And when they fight it becomes more disorderly. You know, in that period, there were four countries that were democracies that chose to have autocratic systems. You know, that was Germany, Italy, Japan and Spain in terms of trying to have, you know, autocratic system to bring order to disorder.

And so that period was very analogous. And if you go down to the particulars of Japan, it’s analogous in many ways even because the geography of the place is, in many ways, similar. You know, to get oil, you know, you have to go through the straits of Malacca and you’ve got to — you know, you’ll bring resources from there and you have bonds. And — and, you know, all of those things, in many cases, the evolution that led up to Pearl Harbor when they were cut-off of resources and the idea have been if they cut off of resources, they respond. Those things seem very much analogous. I think the difference this time is that we are dealing with a more powerful country than Germany or Japan relative to the United States.

To put that in perspective, China has a population that’s four times the size — a little bit more than four times the size of the United States. That means if its per capita income is half the United States, then its size will be twice that of the United States. And so it’s an economic power and a gained economic power by following a lot of capitalist policies to create the inventiveness and allocate resources. So it’s a — anyway, it’s analogous, but bigger.

RITHOLTZ: So we have an election coming up, November 3rd, the President gets elected. The new president or I should say whatever new administration comes in, and that particular president picks up the phone and says, “Ray, you’re a China expert and you’re an economic expert, I’m concerned that the United States is slipping in terms of our world leadership.” What sort of advice would you give him?

DALIO: Well, there is internal and there’s external. The most important thing internally, as measured by leading indicators of well-being, are things by what is the education level of the population? What is the financial condition? Are you producing more than you are consuming? And though you have a balance sheet in which you have more assets relative to liabilities, you’ve got to go — so you’ve got to get productivity going. You’ve got to get education going and so on. So you have to have — internally, you’ve got to become interminably also more aligned.

You have to have the population rowing in the same direction rather than fighting with each other. And so I would say, you know, the — the ways of achieving those things, how do you achieve a bipartisan American dream and rowing in the same direction, how would you achieve that, and then make clear about productivity and how — how you would achieve that. It’s a big – it’s a big order. But if you’re going to get strong, those are the things you have to do internally to get strong and protect your financial system.

Externally, there are — there is the realization that we have these issues. And there has to be a plan, a strategic plan. And I think that both parties, I would say, internal people who fight with each other and I wish they can visualize what civil wars have been, like what fighting with each other can be like, this — this could be nothing by comparison with what we could experience. We can’t take this for granted.

So if we — the issue is most importantly, how we are with each other both internally and externally. Externally, I know that the Chinese leadership and — and I and I believe the American leadership realized that if you slip into one of those unacceptable wars, that the ways that we invented for hurting each other are, you know, greater than ever before. World War II cost more lives than any other war before it. And World War III, in its various ways, is so horrible, so one hopes that there’s a fear with that. And so that each would have to find the way of defending the others.

There’s a concept called the “prisoner’s dilemma” and basically, what it means is, if there are two people or two countries and each could kill the other or they could cooperate, what should each do? And the answer to that is to kill the other as fast as they can because if there’s some risk and you don’t know what they’re going to do, it’s an existential risk so you just get rid of the other.

And so the — the only way that you’re going to be able to deal with that is to go to the higher level and say how can you protect each other. The more that it’s done with a tit for tat and, you know, an exchange of hurts, the more problem is. And that problem is going to worsen over time for the United States position because time is on China’s side. It’s growing faster. A lot of things will mean it’ll be more independent five years from now than it is today and so on.

So there has to be the thinking through both domestically and internationally of how you have win-win relationships. And that’s a lot to ask for people who want to fight with each other.

RITHOLTZ: Fascinating stuff. Ray, over the three topics we’ve been discussing, there — there’s one overarching theme and it’s something I — I know you’ve written about extensively and I find obvious and yet so widely ignored by so many people. You have written the most important thing for an investor to do is to confront reality how it is as opposed to wishing it is something else. Explain why that even has to be discussed. Isn’t it just a given that we all have to deal with the world as it is and not how we want it to be?

DALIO: Well, neurologically, I mean, we — one would think that logically, but there are, you know, a couple of impediments. There are subliminal emotional things that enter into our decision-making. You know, like when an investment goes up, one falls in love with it. Investors tend to fall in love with I remember rather than — and think, wow, that was a great investment rather than thinking that’s more expensive. And so there are those kinds of things.

And then there’s also that many of the things that have happened over time have not happened in our lifetime before even though they repeat. So those lessons from history, we each learn them differently. I remember my dad, you know, he went through depression and then war. And then, you know, in the 1950’s, you know, he wanted to save, he wanted to secure that. He didn’t want to go into the stock market and so on and that — but there was another part of that cycle when, you know, booms come after depressions and wars because people don’t want to fight with each other, and they work together. And — and he missed out on the stock market.

And then you have through the full cycle that it’s common knowledge, you know, to borrow and to buy stocks and so on, and these things have cycles to them. So they’re understandable.

Also, the nature of the mechanics of markets lends itself to that. It’s a funny thing, let’s say the concept of long-term security produces short-term volatility. What I mean is the concept of duration. So let’s say I give the absolutely certain return for the next 25 years, like a bond or inflation indexed bond or whatever. That will produce greater near-term volatility because the duration of that asset produces a volatility as the discount rate for that changes. So all those things drive people to those, I think, bad behaviors you’re referring to.

RITHOLTZ: So let’s stick with the concept of bad behaviors. Very low rates have since investors scrambling. And as we soar in the mid-2000’s, there’s a tendency for them to chase yields and assume a lot more risk than perhaps they should. What sort of advice would you give investors who are looking for more yield without having to embrace an exorbitant amount of risk?

DALIO: Right now, the yield differences — we could start with interest rates, but we could also deal with things like earnings yield — are very small in relation to the volatility. So if you look at a bond, you get very little interest rate, less than one percent. Well, it depends what bond you’re getting, but basically, if you have a secure bond, secure of default, you have no — hardly any interest rate or even almost a negative interest rate.

And because all assets compete with each other, that’s true in inflation indexed bonds, it’s true in all asset classes. Some of them don’t let you know what the exact yield are, but because there’s so much liquidity chasing them and they compete, they all, in the future, have low yield. And so those who are looking for yield have to realize that price changes are more important than yield.

OK. One day’s price change is greater than one year’s yield. And so you have to go away from looking for yield. And — and anytime that something yields more than something else, people are not just giving away free money, free yield, there’s always an element of a risk — a default risk or something. Otherwise, the world would arbitrage that and you — you know, you’d make a ton of money by buying the one and selling the other. And then all the people have tried to do that, it’s a problem.

So be careful about yield in terms of those things. And that’s why you have to think of price changes.


DALIO: And then when you think of price changes, I think you — it’s important to think about the value of money. We started to talk about that. And so with interest rates being where they are — think of that as risky. You know, most investors think the safest investment is in cash because cash doesn’t have as much volatility to it. But cash is going to be the worst investment, particularly in this environment because it’s — it’s a tax. It doesn’t have the volatility to it, but what it does is — like now, it’s like a negative two percent a year.

So it’s this non-volatile hidden tax at two percent a year. You look at the compounded effect of one or two or three percent per year on your life and your — and so on, and it is enormous. So cash, you can’t — you — cash, no in this environment. And bonds in this environment, in my opinion, are not sort of good asset classes. And so go away from yield and you have to start to think of what are the other storeholds of wealth.

RITHOLTZ: Give us some example. I’m — I’m going to assume you’re going to talk about gold or you’re going to talk about preferreds or dividend yielding stocks, all of which have different degrees of volatility. So if you don’t want to sit in cash if cash is trash, and if bonds aren’t yielding much of anything, where should a prudent investor put their money?

DALIO: Well, two things I would say. First of all, stocks has always been a beneficiary, so I want to be as a storehold of wealth because if I — back to that March 1933 evaluation or we had one in August 1971 and so on, yes, you saw gold, but you saw stocks. And so — in other words, things — real things, income streams, and so they don’t have to be those — the most stable. They can have growth to them.

I just want to be clear. Multiples go up and so on. And then there are the assets that you refer to. But balance is the most important thing. So you don’t want cash, I think. I don’t think you want bonds, and I do think that you want alternative storeholds of wealth, but diversified wealth. So — and when I say diversification, I mean, diversification not just of stocks and stock sectors, but yes, I want some stocks, so diversification of asset classes, diversification of currencies, and diversification of countries in order to achieve balance.

If you balance well, you don’t give up any return in order to reduce your risk because all assets compete with each other and so on. So I think that my own view would be I don’t want cash, I don’t want much in the way of bonds, I want a diversified portfolio of assets that tend to diversify each other. Those are the ones we mentioned. And I want them in other countries.

And do pay attention to the currency because there is a currency risk. We have gotten used to looking at everything through the lens of our currency. So when we say the dollar, you know, how — how are you doing and you say, well, the stock market — I’m doing great, but the market is, you know, and my portfolio is increased by 10 percent this year because you’re measuring it in a currency. And those currencies that depreciate the most often have not that price rise, but you could lose my money and buying power because you’re not — you’re viewing it through that lens.

It’s a little bit like being in a — in a boat in the water that’s going up and down, and you look at land and you think land is volatile. The asset classes that you’re looking at through that lens is something, so you need currency diversification, too.

RITHOLTZ: Well, let’s stick with that concept because the all-weather portfolio, which — which has a pretty successful track record, has a lot of exposure to fixed income. If you were creating that from scratch in 2020, how might that look different than it has historically?

DALIO: Well, it’s — fixed income exposure has declined a lot as interest rates approached zero because of the mechanics of what zero interest rates means. So maybe it’s worth touching on that. When you get interest rates low enough, not only don’t they provide a return, but they don’t provide a diversification benefit because there’s a limitation of how much interest rates can go down, which means a limitation on how much those assets can rise in price.

And so the way — that’s a problem for the central banks, too. I mentioned that there’s Monetary Policy 1, 2 and 3. Monetary Policy 1, you can’t cut the interest rates. And so historically then what you get is the printing of money, buying of financial assets, buying of government assets and so on, the reflationary type of policies that we have here. And so if you’re seeking diversification when interest rates are close to zero — bond yields are close to zero, you won’t get it in bonds the diversification and the way monetary policy works to produce an easing is to have reflation assets such as that which happened on April 9th when they did fiscal and monetary policy move.

RITHOLTZ: So let’s talk a little bit about goals, which has seen a pretty good run over the past decade, although certainly not as strong as a stocks have seen. What are your thoughts about hard assets like gold? And how important is it to either all-weather or risk parity approaches to asset allocation?

DALIO: Think of gold as an alternative cash next to the dollar and the euro and — and twice as much as the Japanese yen is gold in central bank reserves. And it used to be the world’s money, and it is viewed as money. We – and there are reasons it is. It’s — there’s a limited supply of it. It’s storable, it’s transferable, and it’s universally accepted as a medium of exchange and a storehold of wealth pretty much.

But like cash, it’s not a good return in asset. It — normally over time., Very different. In depth cycles, in the early part of a debt cycle, when there’s not much debt and you get a higher interest rate by holding cash or cash deposits, it pays to own cash instead of gold. But what happens in the debt cycle is that basically debts rise relative to the amount of money there is. Money used to be gold up until 1971, and then there’s the claim. And so late in a debt cycle, you get to have hardly any interest rate, so you don’t get much of an interest rate, a benefit of owning cash relative to gold. They both — the yields are — are not much.

And you’re getting the production of the other kind of money relative to that. And that’s why you see the movement in that direction. You also see as real interest rates decline, which central banks have do by increasing the supply of money. That causes — the real interest rate causes the gold to go up because gold — think of gold as being something that’s steady. And so if — if you’re taking the present value of money out in the future and the discount rate for that, the interest rate that you’re discounting goes down, the real interest rate — it goes up in in value.

So gold, historically, has been an effective diversifier at certain times in history when there’s kind of that break down of the monetary system when you have, you know, the excessive printing of money and so on. So it is a — think of it that way. And it is — and it’s effective diversifier.

So I would say in structuring a portfolio, there’s — it’s important to have a piece into gold. It doesn’t have the big — big piece but, you know, I think almost everybody is pretty much underweighted to that, whether that’s 10 or 15 percent or something, I don’t — I don’t know. But — so that’s part of it.

But there are other storeholds of wealth. Again, I — I would want to sort of break them into, you know, are they liquid? Can you transact? Can you move them as distinct from some other assets, let’s say like real estate, which is very much situational and — and — and not very liquid. You know, you could change the picture — you have, I don’t know, commercial or residential real estate in a location — New York, San Francisco and — or X, Y, Z, London and the circumstances can change. It’s not as effective as — you know, as a form of storehold of wealth.

Liquidity, and diversification, and rebalancing are very important.

RITHOLTZ: So let me ask you a question that I have no idea what your answer is going to be, although you just mentioned liquidity, so maybe that’s a factor. What are your thoughts about cryptocurrencies like Bitcoin?

DALIO: I think that at the end of the day we — it hasn’t — they have a number problems, but — so three big problems. First is, as an alternative currency, a purpose of the currency is a medium of exchange and a storehold of wealth. And number three is it has to be — in order to be viable — not objectionable to the government. Those are the three problems.

You can’t go easily transact with a lot of things with cryptocurrency. You can’t go in and put — put the cryptocurrency on my credit card and buy in the same way. As a storehold of wealth, it has enough — it has its own volatility to that.

Libra was going to be something that would have been more — in other words, a stable value alternative. But as a storehold of wealth, if it has a volatility because it has so much speculation, it’s tough to say I want that as my storehold of wealth, so it has a little bit of a chicken and egg problem.

And then at the end of the day, governments are — if it had any viability or going to object to it and, in one way or another, will make it — you’ll have to be a criminal to use it. In other words, they will outlaw it. They’ll simply say they’ll outlaw it and then you have real problems with it. So I — I don’t think — and — and central banks don’t use it in the same way.

That doesn’t mean digital currencies. In other words, China will have a digital renminbi or yuan. Europe will and we will have digital currencies, but they’re controlled by central banks. They’re not an alternative storehold of wealth that the governments will tolerate.

And history is showing that. You know, why did they outlaw gold around the world and, you know, in the United States and — and so on because they don’t want those alternative currencies digitally. So the medium of exchange even between central banks is not going to be digital.

RITHOLTZ: Quite interesting. Let me change this up on you. I know you’ve been practicing meditation for a long time. How does that factor in to your decision-making process? Does it have any impact on the way you actually allocate capital, analyze companies, think about the world?

DALIO: Meditation has given me and it gives other people and equanimity. What I — what I mean is I feel that I can look at things in a less emotional way. I can accept realities as — as what they are. Basically, mechanically, what happens is you — you go from your conscious brain to your subconscious brain. You repeat a mantra. And now it’s a word that’s a sound basically, and it, therefore, cleans your mind of thoughts. And then when you repeat that sound, it eventually disappear and you’re in a subconscious state pretty much and — that’s very peaceful. But you’re not conscious, you’re not unconscious, you’re in your subconscious mind.

That helps to connect the subconscious and unconscious mind, and it also helps to — people to become more creative because a lot of creativity comes from the subconscious. And it allows me and other people who do it to sort of do things with the calmness accepting the world as it is and thinking the world as a puzzle and you have to solve it. So meditation, you know, has helped me in — in those ways.

And you’ve been — you’ve been practicing this for quite a while, haven’t you?

DALIO: Since 1968.

RITHOLTZ: Wow, that’s quite amazing. So I have to ask you about what’s going on with this election. Depending on the outcome, is there anything that might happen that would force you to rethink your views on the economy or how you would allocate assets or is it really just a temporary blip and things continue on afterwards?

DALIO: No, I think it’s very important. Let’s say, if I was to take both parties we’ll have large deficits and — and monetization. Both parties will have an aggressive China policy, I think. But one party will be more capitalist and let’s say favor asset holders (inaudible). One will be more left and favor the redistribution.

That doesn’t mean — let’s say if you have a Biden election and you look at the particular policies, I think it would look more like the Roosevelt years, and that you will have larger deficits probably, larger spending, larger stimulation and the like, but you will have more of a monetization of that. And that’ll be, quote, “a stimulation for the policy.” But at the same time, you’re going to have the rise of tax rates in, particularly, eliminating the tax changes — the corporate tax changes, changing capital gains, rates and so on. And those — those rate changes will have an impact. And you’ll have specific policies that will stimulate certain areas of the economy.

Like the green policies, you know, it’s roughly targeted to nearly $2 trillion. Anyway, we don’t know how much will come of it exactly, but that will be a very big area. I think you’ll see more infrastructure and so on. And so you’ll see particular areas of the economy benefit and — and other areas of the economy, not benefit. And — and so there’s — you know, you get into the — which sectors and all of that would benefit and — you know, and how much of a discounting. Those will have implications.

I think the most important issue will be whether the country can be brought together. And I’m worried that capitalists know how to increase the size of the pie. They understand the profit system. They understand productivity and so on, but they don’t know how to divide the pie that well. And socialists or those that are more of the left have a problem producing as much the increase in productivity.

And so if — you know, my — my hope, my dream would be that you have an all-encompassing that brings together smart people who understand the mechanics of economics and policy, and — and — but represent different points of view. It can be brought together to get us to be productive and do the right things, whether they’re education and be productive, and all of those things and move in the right direction. Then I think whether that happens or not will be of paramount importance.

It’s a difficult situation to be because of where we are in the cycle. In other words, every day is not a brand new day, so we — whoever inherits the presidency, whatever party, whatever president — will inherit an income statement and a balance sheet that is what it is today and will inherit certain circumstances. And that’s going to be tough.

So the real question is how we’re going to be with each other, I think. And that’s the most paramount important question, I think.

RITHOLTZ: You mentioned the Green Deal that the Biden camp has been talking about. I know that you’ve been very interested in oceans and your Blue Ocean project has been very successful. So let’s use that as an excuse to dive into your philanthropic works. Tell us a little bit about what you’ve been doing in Connecticut with schools and buying computers for kids, and what you’ve been doing in terms of the Dalio Center for Health Justice.

DALIO: You know, I’m very lucky also to have a wife who — who shares my concerns, and she really — we — we live in a state, which is the highest per capita income, has the greatest gap in incomes and owes a lot of money. So it’s a — it’s a terrible thing. But we feel like, you know, this is our community and we see — see those things. And so it’s — you know, it’s bad and basic, so COVID highlights this, but the difference in education.

So we encountered the fact that 60,000 kids in the state of Connecticut didn’t have any computers. Normally, you should have it, and they don’t have connectivity. Not having computers, not having connectivity is — you know, is not — is like not having toilets and not having running water in your house today. And when we had education as an issue, you — you know, what — what are you going to do? You just not educate the kids and the state didn’t have the money.

And so anyway, we — we bought, you know, 60,000 computers and we’re — we’re trying to deal with, you know, the connectivity and partnership with the locals. We — the — the people on the ground really, like the teachers, we have the utmost respect for the teachers who were in these positions. They know the best and we — and my wife, particularly, works with them. And so we try to help in those ways and — and, you know, other ways.

We’re bringing micro finance to here, to the state, and we’re doing other things to try to help in our, you know, small ways. We’re — we’re still, you know, drop in the bucket related to that, and then you’re asking about the health. So education is a — you know, a fundamental right and so on. And I feel with — my wife and I feel very blessed, and so we feel that that’s something we want to do education.

And then this health justice thing, yes, we created with New York Presbyterian. We initiated a health justice center because there’s such a big difference in poverty rates. You know, particularly among black and brown communities, I mean, it’s just so difficult, the poverty, the number of people together in the places, the — the — the rates of contracting COVID, all of these things, and even attention to how the bodies work differently and all of that has been neglected. And I think it must be — it must be very difficult to be in those circumstances and — and not receiving any help. So we — you know, we just made a donation, a $50 million donation to set-up that Center for Health Justice.

You know, we’re lucky philanthropically that, you know, we have those resources and we have a certain perspective because, you know, we’ve come from not having much to having a lot and — and we see these things. So anyway, that’s what we’re lucky enough to do.

RITHOLTZ: And — and I know you’ve done a couple of projects on the oceans with Mike Bloomberg, and you’ve done a number of projects. And I do recall reading you say something about The Giving Pledge. Am I – am I recalling that correctly?

RITHOLTZ: Yeah. My wife and I decided to give away more than we’re going to give away a lot of most of our network. And then Bill Gates asked me about that. And we were delighted to do it. We — we learn from each other. It doesn’t change the amount of money that we’re — we donate, but we — I learned a lot and we learned a lot through that process.

And yes, you know, you touched on ocean exploration, which is also a sort of a passion, which I could get into. But we — we do a number of things.


DALIO: Micro finance. We make it a family activity.

So we have four sons and — and daughters-in-law and so on. And — and so we view the philanthropy as pursuing each other’s philanthropic passions, and that’s how we do it.

RITHOLTZ: Sounds interesting. So I know I only have you for a few minutes more. Let me jump to our speed rounds, our favorite questions we ask all our guests and let’s plow right through these.

So everybody under lockdown these days is streaming a lot of media. Tell us what you’re either watching or listening to these days.

DALIO: Well, by and large, I’m so targeted to try to learn about the things that I want, and I’m very lucky to be able to speak to — almost speak with almost anybody that I can speak with. And so it’s not general media that I’m doing, it’s — it’s what I do — or podcasts and so on, although there are so many fabulous ones that — that I feel I’m missing out on.

But if I can get the person and I can ask them questions and do the research, that’s what I’ve been doing a lot of. And — and because I can do it so easily, I can go from one to the other and anywhere in the world, I’ve been like a kid in a candy store doing that.

RITHOLTZ: Well, everybody is stuck home just waiting for the call from Ray. That’s — that’s pretty funny. Tell us about — tell us about your early — your early mentors. Who helped shape your career?

DALIO: Well, you know, they were — they were — mostly just like individuals who — who cared about me, I remember I started Don Stott. I caddied and I was — and at 12, I bought my first stock. And I would walk around, and this nice man who was a specialist on the New York Stock Exchange floor was just a great guy and talked and — and we talked about markets and things. And his kindness and his insights and so on helped to get me, you know, hooked on the game. And so he had an effect.

You know, I remember, you know, a teacher of mine — a particular teacher, I — I — I remember — and then as I got older, let’s say, Paul Volcker, I — since before 1971 when it was just a breakdown of the monetary system, 1969, ’70, ’71, I — I just first got exposure to Paul Volcker. And then over a period of time, I was lucky enough to get to know him and have him become a good friend of mine. And he was definitely a role model.

And I think role models and heroes, I think we’re in an environment — by the way, I’m digress sing a little bit — in which we’re there’s so much criticism. It’s fashionable to criticize and break down, and we don’t have any agreed upon heroes, but he was a — he was a hero of mine.

And then — and then there — there was a — for my sons, there was a scoutmaster and — well, anyway, I can go on and on of those different people. The personal touch in my life had the biggest effect, but also, you know, seeing what heroic characters were had an effect on my life. And then I would say for markets, it was Don Stott.

RITHOLTZ: Quite fascinating. I know you’re a big reader. Tell us what you’re reading these days and give us some of your all-time favorite books.

DALIO: I don’t read as much as I hunt in books. In other words, I am like I’m going after something. And so I have many books that I then drill into, but I do it in a certain way where I — I can — I almost get to the part of the book that is the part that I need to understand. And so for the last year and a half, I wanted to study the rises and declines of reserve currencies then which led me to the rises and declines of empires. And — and that led me to study, you know, a whole bunch of — of books and then speak to the people.

Paul Kennedy’s Rise and Decline of the Empires — I mean, I can go on and, you know, and list those.

If you’re asking for good books, I would say three good books that I recommend is “Lessons from History” by Will and Ariel Durant, which is like 104-page book, I think. And it’s a summary of these great historians who wrote 5,000 pages on something like 5,000 years of history and sort of distilled the themes down so that I would say Paul Kennedy’s book of Rise and Decline of Great Empires or Great Powers is a great book.

I would say on evolution, I think evolution is very interesting and so it’s humanity and how — and goes beyond humanities, so all the species. I would say I’d really like Richard Dawkins, A River ffrom Eden.

My son gave me Joseph Campbell’s “Hero with a Thousand Faces,” which I think is just — you know, it’s an ark — a life ark and — and very, very practical, very interesting. These are the books I suppose.

I — I think some good books that are just recently came out, Reed Hastings and I believe about organizational culture. Reed Hastings, Netflix founder and running Netflix, and we believe in certain culture things in our organizations. He wrote a good book.

H.R. McMaster’s book that just came out is a very good one. Richard Haass just came out with — I’m sorry I can’t remember the exact names, but it was the History of the World or something. That gave a good overview. Those are a bunch that I all think are — are — are good.

RITHOLTZ: That’ll keep people busy for a couple of days. If a high schooler or a recent college graduate ask you for advice about beginning a career in the world to finance, what would you tell them?

DALIO: You couldn’t have picked a better area to do it. Markets, I love — I love markets because, particularly, global macro because you cover almost everything in the world and you can bet on it and test how good you are. And you could go short or long, and — and so it’s great exposure to the world.

But I would say, you know, play the game and that you don’t know what you’re doing. So be humble, get beat up and learn your lessons. What you will learn, I think, is that what you don’t know and how you deal with not knowing is even more important than anything you know. So the — the power of diversification, the ability to gain humility, it’ll teach you humility and it’ll teach you open-mindedness. And if you’re curious, it’ll be — it’ll be great and it’ll give you a measurement, you know, of every day of how you’re doing. That’s an objective measurement that’s terrific.

And — and you — and it’s — if you get good at it, you know, it’s one of those careers that’s rewarding. I mean, I — I did it because I love to play the game and I just happened to be lucky that it made money. I didn’t — and, you know, I could have been something — an architect or something else, and — and I wouldn’t have been the same, so it’s got those benefits.

But it’s a lifelong journey and it’s — it’s — expect the ride, learn your humility.

I have an expression pain plus reflection equals progress and how you make your mistakes and how you learn from those mistakes, how you learn how reality works, and how to deal with reality, and to then write down your principles that you learn, and learn and build on them that that’s — you know, it’s a great path.

RITHOLTZ: Really good answer. And our final question, what do you know about the world of investing today that you wish you knew 40 years ago or so when you were really ramping up?

DALIO: Well, what I learned over and over again is that — you know, let’s say 40 years ago, I thought I — I just learn from my experiences and I was arrogant enough to think I’m going to go in there and just pick the things. And what I learned along the way was how to systemize, how to convert, look back in time. And the same thing happens over and over, to look at reality as a machine to understand how the machine works, and then to convert that learning into algorithms so that it works in parallel with my brain because my brain is limited in its capacity to juggle a lot of things.

And — and then, you know, to keep learning that humility and finding out, you know, what’s the next new thing that’s going to happen that I might have missed. I missed the pandemic. The pandemic took me by surprise. I figured I didn’t have an edge on the pandemic, and that was stupid because, you know, you read history and you see that these acts of nature could be pandemic, could be anyway — diseases and so on about big impacts.

And so, you know, I guess I — I learn that I, you know, what’s going to hit me in the head to — to worry about that. And so I — which, you know — and that’s something I think I’ve learned in the market, so teach that new young investor that pretty quickly, so I learned it then. I knew more about the things, like I wish I knew more about pandemics before this year. But anyway, that’s kind of my answer.

RITHOLTZ: Thanks, Ray, for being so generous with your time. We have been speaking with Ray Dalio, the Founder, Chairman and co-CIO of Bridgewater Associates.

If you enjoy this conversation, be sure and check out all our previous conversations. We have over 300 interviews and you can find that wherever finer podcasts are sold — iTunes, Spotify, Overcast, Stitcher, Acast.

We love your comments, feedback and suggestions. Write to us at mibpodcast@bloomberg.net. Give us a review on Apple iTunes. You can check out my weekly column on bloomberg.com/opinion. Sign up for our daily reading list at ritholtz.com. Follow me on Twitter @ritholtz.

I would be remiss if I did not thank the crack staff that helps put these conversations together each week. Michael Batnick is my Head of Research. Michael Boyle is my Producer. Nick Falco is my Audio Engineer. Atika Valbrun is our Project Manager.

I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.



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