Ray Dalio of Bridgewater Associates sits down with Andrew Ross Sorkin of CNBC to discuss Changing World Order: Current Economic & Geopolitical Challenges.
Ray started Bridgewater out of his two-bedroom apartment in New York in 1975 and over the course of its 43-year history has grown it into the 5th most important company in the U.S. according to Fortune Magazine. For his innovative work, Ray has been called the “Steve Jobs of Investing” by aiCIO Magazine and named one of the 100 Most Influential People in the World by TIME Magazine.
Ray is the author of New York Times #1 Bestseller Principles as well as the author of Principles for Success, a distilled and easy-to-read illustrated novel of the bestseller, and Principles for Navigating Big Debt Crises. Ray has also published several studies his economic views, including “Why and How Capitalism Needs to be Reformed” and “The Changing World Order.” Both are available on LinkedIn and the latter will be published as a standalone book later this year.
MODERATOR
SPEAKER
Ray Dalio
Founder, Co-Chairman & Co-Chief Investment Officer
Bridgewater Associates
Andrew Ross Sorkin
Co-Anchor
Squawk Box, CNBC
TIMESTAMPS
EPISODE TRANSCRIPT
Andrew Ross Sorkin: (00:06)
It is a privilege for me to be here with Ray Dalio, who needs no real introduction at all to this room. I'm hoping over the next 40 minutes, we can spend some time trying to make sense of where we are in the, 'real economy' but also in the markets. And I think one of the things that you've done so uniquely, especially over the last 18 months during this pandemic, was really spend a lot of time studying and thinking about the history of markets and economies. Literally not just in the most recent period but over 500 years as we've discussed. And you've also thought a lot about the, 'economic machine', a concept that you've developed. Help us understand where you think we are in the arc, if you will.
Ray Dalio: (00:57)
Well, maybe I just briefly describe the arc and then I'll tell you where I think we are. Yeah. About two years ago, I saw three things happening that did not happen in my lifetime before but happened in the 1930 to 45 period. And there's things I really want to talk about. Then we have the fourth thing, a pandemic. They all happened before. The first is the going to zero interest rates, the creation of a lot of debt and the printing of a lot of money to monetize that debt and seeing that cycle happen. That happened 1933, that happened 2008. Very interesting. How does that money flow matter to markets and everything?
Ray Dalio: (01:45)
The second is large wealth and opportunity gaps causing a great internal conflict of value. If I looked at the statistics, I like to look at statistics, like you say, the mechanics, I saw not only the wealth gap but the political gap and all of that operating at a level. And it has an effect, right. It has an effect on tax policy. It has an effect on that but I had to go back to the 1930s and actually before to see such gaps. And the third was the rise of a great power to challenge an existing great power. The United States, China rising to challenge the United States in that changing world order because a world order is a system for operating. Our last one began in 1945 at the end of World War II. There's a war and then there's a new system and it was the American system and that's being challenged.
Ray Dalio: (02:40)
And those three things individually and collectively did not happen before that. And then when I studied it, I wanted to study the rise in declines, not only of empires but reserve currencies because we're printing a lot of money. And what does that mean? And so I needed to study the Dutch, the British and the American and that cycle. And what I saw, was the same thing would happen over and over again. And if you want me, I'll take a minute on what that looks like or you direct me.
Andrew Ross Sorkin: (03:12)
What happened? What did you learn?
Ray Dalio: (03:14)
Well, I learned that when there is bad finances, and we have bad finances.
Andrew Ross Sorkin: (03:27)
Right now.
Ray Dalio: (03:29)
Bad finances, if you're spending more than you're earning and you have a balance sheet that has a liabilities, more liabilities than it has assets, that's bad finances. You can fill that in by printing of money and continue to create debt but that's not sound finances. Central banks have the ability to do that. And when they do that, that's a no. When you have let's say, bad finances ... And by the way, that's happened repeatedly in history, we can see how that's worked and the consequences of it and we have to understand the mechanics of it. When you have bad finances and you have large internal conflicts, that is a risky situation, particularly if you have a downturn because the rich and the poorer and so on, the left and the right, those with different ideologies have greater internal conflict. And the internal conflict has a risk politically. And it has a risk in terms of the effectiveness. When people are working well together to be productive, that's great but if ...
Ray Dalio: (04:41)
If you have bad finances and you have large gaps and you have the rise of a great power challenging an existing great power, and those things happen simultaneously, that's a risky set of circumstances. I can get into the statistics of that, how many times a rising power ... You take that and then what are the mechanics of that? For example, so what does it mean to markets? For example, if you look at every one of those movements, when they immediately print money and do that, you want to buy financial assets. I'll just take another minute, a lesson that I learned.
Ray Dalio: (05:24)
I was clerking on the floor of the New York Stock Exchange in 1971. This was year after college and before business school on a summer job and it on it was August, 1971. I followed the markets a lot and president Nixon on August 15th, 1971, gets on the television. And he says basically, "That monetary system that we used to have and what money was, we're not going to have that anymore. It will not be ... You can't get the gold."
Ray Dalio: (05:59)
At that time, it used to be that money was like checks in a checkbook. They had no value. They would just get you the gold and then you'd have the gold and we're not going to do that anymore. And I figured, "Okay, now I walk on the floor of the New York stock exchange."
Ray Dalio: (06:12)
The next morning, got there early, figure we're going to have some pandemonium. And the pandemonium that we had, I thought it was a crisis. And the pandemonium I had was the stock market up the most in decades. And I went back and ... I didn't understand that. And I went back and I found out that the exact same thing happened on March 5th, 1933. It wasn't on TV, it was on the radio. And Roosevelt did the same thing and the stock market and gold and all of those assets went up again for the exact same mechanical reasons. I learned two things. I learned first of all, that I better study things that didn't happen in my lifetime before because as they might happen again, that's what helped us anticipate the 2008 financial crisis but I also learned that dynamic that when you print money and create that, that's a hell of a stimulant but it also means ... It means you don't want cash. It means that you want those other assets. That dynamic is the nature of what we're going through.
Andrew Ross Sorkin: (07:22)
Do you want financial assets though?
Ray Dalio: (07:25)
It depends, financial assets are different things. You don't want bonds, cash is a financial asset. You want cash, you don't want a bond. It's going to have a negative real return. Who wants bonds? You're going to have a negative real return. You want that, okay. And you're not probably going to get the price appreciation through the bond. You have two ways you can make money. It goes up or it gives you a good yield. It's not going to give you a good yield, negative real yield and it's not going to go up much more when you get down to that. You don't want the bonds.
Ray Dalio: (07:55)
Stocks have an asset. They're a reflation asset throughout history. There are things that you want. You want stocks, you want gold, you want tangible assets. You want real estate. You want the things that are basically anti-money and you particularly want those when there's a large portfolio of those. Think about it right now. Through history, what we accumulate are a lot of financial assets. And the only purpose of those financial assets is to take those and convert them into buying things.
Andrew Ross Sorkin: (08:30)
Yeah.
Ray Dalio: (08:31)
And when there's a lot of financial assets and we produce a lot more financial assets, then they're all claims for those other things and if you just went through the calculations and you were to say, "Okay, how much financial assets do you have relative to real assets? Or how much are there?"
Ray Dalio: (08:48)
There's too many relative to real assets. And so you want to get into those things that have more of those intrinsic values, a company is. And throughout history, you see that happen.
Andrew Ross Sorkin: (09:01)
Okay, let me throw a new wrinkle in, which was not in any of the history though. And I wonder, we can even ask this room, how many people in this room are holding some form of cryptocurrency right now? And I know you own some Bitcoin. Actually, let's do that. How many people here have some, any cryptocurrency at all? What do you think that is? 80%. It's a lot. Okay, so crypto arguably wouldn't it have been a tangible asset historically. Where does that fit in the realm, this?
Ray Dalio: (09:36)
Yeah. Crypto is like a lot of historic currencies. There are some that have intrinsic value. It doesn't have intrinsic value but it has a limited supply. And as long as it's accepted for payments and so on and has a limited supply, if the demand grows more than the supply grows, it goes up and it serves that purpose. And it's done a heck of a job of programming, stood the test of time, meaning it hasn't been hacked and so on. And so it's a viable alternative. And I think that probably ... I think most of the people ... There are different reasons for owning it but I think most of the people would say, "Is it a store hold of wealth that's limited in supply and maybe not controlled? And is it a viable alternative to a Fiat currency?"
Ray Dalio: (10:34)
Don't trust the Fiat currency. How does it compare to Fiat currency? And so is it an alternative gold kind of thing? There's probably an attraction in there and it has an attraction for me in there but then there's the question of it. And how many in the audience, let's ask the question, how many in the audience have some in gold? I'm curious.
Andrew Ross Sorkin: (10:55)
Let's do that. How many people have some gold?
Ray Dalio: (11:00)
A lesser percent.
Andrew Ross Sorkin: (11:01)
Lesser percent. I'm going to go 50% or less, 40 even maybe. Yeah.
Ray Dalio: (11:05)
Yeah. That becomes an interesting question. For me, I don't have a huge amount but I have more gold than I have crypto.
Andrew Ross Sorkin: (11:15)
Okay.
Ray Dalio: (11:15)
And my basic thing is, rather than make it crypto or rather than make it Bitcoin or the other, I would say diversification is a good thing. We could get into the merits of the one versus the other, I don't where you want to go with this but in any case, let me tell you that either one of those ... Crypto can go like that, meaning governments can regulate it, outlaw it or it can be traced and certain other things. Diversification is something I would emphasize.
Andrew Ross Sorkin: (11:50)
Part of the argument though on crypto, when it comes to the regulatory regime, is or would be that it's already reached escape velocity, that it's at a level now that there's so much value around the globe, that it'll be almost impossible to shut down. It's a little bit like Uber. I oftentimes think about it like Uber because when Uber started, people thought regulators were going to shut it down but they grew so fast so quickly that all of a sudden, regulators didn't really have a choice. They just had to figure out a way to deal with it.
Ray Dalio: (12:22)
Yeah, okay. There are a couple of things in that. First of all, no, I think that it's easier to do deal with now. If you didn't ... Let's step back. Governments don't want alternative currencies, okay because throughout history, we see that. They want control over the currencies for all of the various things.
Andrew Ross Sorkin: (12:47)
Especially when you have a successful currency but if you have a lousy currency, like El Salvador ...
Ray Dalio: (12:52)
That's what I mean. Since 1700, there have been about 750 currencies. Only 20% of those are still in existence. And all of those have been significantly devalued at one point another.
Andrew Ross Sorkin: (13:08)
Okay.
Ray Dalio: (13:09)
We don't have to pick El Salvador. We can pick the German, we can go through history and pick the most credible ones. It's the norm, right. And so in any case, what I'm saying is that you don't want ... If you're holding a currency, it's an awfully good way to print money and get the money around, which is going to devalue because what is a debt that you're holding? Currency equals a debt.
Andrew Ross Sorkin: (13:35)
Right.
Ray Dalio: (13:36)
And it means that you receive something and now you have no interest rate on it and they're producing a lot of it.
Andrew Ross Sorkin: (13:42)
Right.
Ray Dalio: (13:42)
Okay. And so it's the way out. It's ultimately the way out because when ...
Andrew Ross Sorkin: (13:48)
Cash is the [inaudible 00:13:49].
Ray Dalio: (13:49)
If you keep it hard, you have a big debt crisis. And if you don't keep it hard, you don't keep it hard. History's always been the devaluation. There's a point of that and they want that because if you look at history, if they don't have that ... But think about that dilemma, just the fact that we're talking about the possibility of that dilemma means that you're going to want something else. And I don't see why one has to be ... There's not even enough choices of those types of things. We could take Bitcoin or you could take older, you could take ... The advantage of both of those is they're money. You easily transfer it, it's very different than real estate let's say, or equities.
Andrew Ross Sorkin: (14:31)
Right.
Ray Dalio: (14:31)
Now, equities are in a sense, pretty portable.
Andrew Ross Sorkin: (14:35)
[inaudible 00:14:35].
Ray Dalio: (14:36)
Okay. And that's real value, okay. It has the same attributes, as long as it's going to be real value and when inflation changes and so on, its value can change along those lines. Equities are a very viable alternative.
Andrew Ross Sorkin: (14:49)
Right.
Ray Dalio: (14:50)
They're a good alternative but you think of this category of things that can't be devalued. The equity bull market that we're having is an extension of that. It's the same thing, don't differentiate it. What did you think happened? We distribute a lot more credit and a lot more money. There's a flow of funds. There's a mechanics to it. You have a lot more money. You get the money and then you buy things. An investor who gets the money, when there's an intervention, when the central bank buys, they buy a bond from an investor and the investor gets cash and what do they do? They invest it someplace else.
Ray Dalio: (15:26)
And all through that process, there's the mechanical part of that. And that's what you're getting. I don't think we even have to split hairs in terms of the one or another, just to make sure you have enough of a diversified portfolio of that and know what kind of an environment we're in. And we're talking now about the money and credit part of that. We also should be talking about the wealth gap part of that because that affects it, because there has to be a transfer of wealth, okay. That's going to affect investors, how they transfer taxes and those things are going to take place. And then you have to take a global view of these things, which includes China and other countries. It's all of those things [inaudible 00:16:05] together.
Andrew Ross Sorkin: (16:05)
I want to dig into the second two pillars in just a moment but I have just two follow ups. One, when we talk about escape velocity of Bitcoin, one of the things you have also said though, is that if it becomes too successful, governments will, you believe, ultimately shut it down. And so therefore, if you're right, you want to own it to a certain point of success and you don't want to own it after that.
Ray Dalio: (16:30)
Yeah.
Andrew Ross Sorkin: (16:30)
How would you define that? Cathie Wood, she was on the stage with me on Monday night, said that she believes ... I believe her base case five years from now, is that Bitcoin will be worth 10 times what it is today.
Ray Dalio: (16:41)
See, that doesn't make any sense to me because of the following reason. Look, I'm no expert in this but look, there is approximately ... Let's say, if you use gold as an example and you make the comparison, there's a certain amount of reflation, certain amount of those kinds of things going up to make a price increase. And then there's a certain market share that gold will have, that Bitcoin will have and other things might have. If roughly speaking, there's about ... If you take gold and you take central banks' ownership of gold, I don't think they're going to be owned by ... Central banks are not going to own Bitcoin, for various reasons. I don't believe so but if you take jewelry out of it and central banks, there's about 5 trillion in gold.
Andrew Ross Sorkin: (17:37)
Right.
Ray Dalio: (17:38)
If you take it for Bitcoin, there's a bit less than a trillion dollars.
Andrew Ross Sorkin: (17:42)
Right.
Ray Dalio: (17:43)
If you were to say, "I'm just going to have a portfolio of those two things."
Ray Dalio: (17:46)
Right now, about 20% of that portfolio, if you were to say, "The supply is there."
Ray Dalio: (17:51)
And you say, "Well, what's the right amount of that mix?"
Ray Dalio: (17:55)
That's going to be something like, "Okay, it's 20%."
Ray Dalio: (17:58)
And given the volatility and the total attribute, I don't imagine that the market share is going to be much greater. And so the question is, does that market share rise or where do you think the market share is going to go of that because ...
Andrew Ross Sorkin: (18:11)
Right.
Ray Dalio: (18:11)
You see what I'm saying, because if it was to go 10 times as much, then what'll happen is somehow Bitcoin not only will have to be greater than the total amount of money that's held in that non Fiat currency kind of thing, which seems like a stretch too far in terms of that but it could happen if you have a problem with Fiat currency as ... And as a percentage of one's own portfolio, that those things rise more perhaps but it's very much a stretch. And so when I'm looking at it, I'm saying ... I think, shouldn't we all pay attention to those not Fiat currencies or those things where you can take them from one place to another and that they're accepted around the world and that they're not debt and so on? It's that category that I think is a more interesting conversation. And do you have a diversified portfolio of those things? And what is good balance? That's the more interesting question, I think.
Andrew Ross Sorkin: (19:12)
And then the other question I think, relates to where we are in the cycle if you will, given that you've now studied these periods. How difficult is it to actually ascertain where we actually are and also how it ends? Usually, leverage can be a great thing until it's not. And we are now in another levered moment. And the question is where we are in that moment.
Ray Dalio: (19:39)
Well, we know we are in the late cycle phase of the cycle in which there's a lot ...
Andrew Ross Sorkin: (19:48)
Well, you and I probably would've said that four years ago.
Ray Dalio: (19:51)
Oh, yeah. No but that's ... And we're just advancing in that. I don't mean much of the differences in that type of thing and you could tell the increment. All I'm saying is there are three ... There's a cycle. There are three types of monetary policy and you could almost judge it. First, monetary policy one I call it, interest rate policy. You move the interest rates up and down. Then when you hit zero interest rate, you don't have that anymore. The next policy that you have is what I call monetary policy two, which is also called quantitative easing, where a central bank buys bonds from investors. And then it goes in the hands of investors. The money goes to other investments and investments go up. And those who have investments do well and so on but it doesn't trickle down in the same way.
Andrew Ross Sorkin: (20:36)
Right.
Ray Dalio: (20:37)
Okay. That's monetary policy ...
Andrew Ross Sorkin: (20:38)
We're in number two right now.
Ray Dalio: (20:39)
No, we're in number three right now.
Andrew Ross Sorkin: (20:41)
Okay.
Ray Dalio: (20:41)
Monetary policy three, is when there needs to be a redistribution of wealth. And the way that works is that only the federal government can determine where the money goes. Federal government gets to determine how much I tax and where I distribute it. And the central bank gets to determine how much there is of it, how much money there is of it. And so when the central bank works together with the central government to direct money, to give it to others in that way, which increasingly then bypasses investors to some extent and gets money into the checks that we sent the money around to, to be able ...
Andrew Ross Sorkin: (21:21)
Right.
Ray Dalio: (21:21)
And so we're in monetary policy three, where there's a coordination of monetary and fiscal policy to redistribute wealth, to redistribute money in that way. We're in that monetary policy three. And then you could judge the size of the deficits and how they're being met. And so the debt problem is not a debt problem like we're not going to pay you off those debts because at the end of the day, they don't choose to pay them, they don't choose to have a debt crisis. At the end of the day, it's just a question of how long it takes them to print more money to monetize those things. In 1929 to '32, and '32 was when they printed the money, then stocks went up and everything went up. 1929 to '32 took a long time, 2008 took a lot less time. One took two and a half years, one took maybe nine months, this time took like that. And so the next time along those lines, that's what you're going to experience when you have that kind of devaluation.
Ray Dalio: (22:27)
You can see that's where we are in the cycle. Each of the stimulants has been greater than the one before. If you start in let's say, 1980 and every interest rate increase and every interest rate decrease has brought the interest rates to a lower level, every peak, every trough and interest rates down to hit zero. And then when you hit zero, every QE has been larger than the one before.
Andrew Ross Sorkin: (22:55)
Is there a way out of the cycle then?
Ray Dalio: (22:57)
Well, it's like asking, "What do you do with ... What do you do with the debts?"
Ray Dalio: (23:01)
The mechanics of it is yes. The mechanics of it is, have an interest rate that is below the nominal growth rate and below the inflation rate. You must have an interest rate that way because think of it this way, if nominal growth in the economy, in other words, inflation plus real growth, let's say it was three and three or two and two, and that's four or five or six, and you kept interest rates at zero, then you are going to reduce your debt to GDP right, because you reduce debt service.
Ray Dalio: (23:40)
If you look at the times that it's been most stretched in history, the World Wars would've been the most. If you look at the amount of debt creation and the monetization, you would go back into the '30 to '45 period and you would see how that operates. They hold the interest rate down because what you have is the central bank becomes the owner and the central bank, when they become the buyer, they can tolerate whatever the central bank wants. If free market goes away and the central bank wants it, that they could hold it. And they hold that interest rate while inflation rate rises. And then what you do is you see your loss of purchasing power, such as we're seeing, if you hold it in debt. And that's one of the ways you deal with debt.
Andrew Ross Sorkin: (24:26)
Let's talk about the second pillar for a second, because one of the things you also talk about is the politics of this moment and the politics that you've seen historically, especially when we've seen the inequality that we have and what it ultimately does to taxes and therefore, what it ultimately does to the economy. Lay it out for us.
Ray Dalio: (24:41)
Yeah. Well, the issue is really most importantly, a conflict and a productivity issue. If you have conflict that becomes dysfunctional in operating, historically sometimes that's the case.
Andrew Ross Sorkin: (25:02)
And do you think we're at that point? Is this what dysfunctional looks like?
Ray Dalio: (25:08)
I think we're not ... No, no, no. We're not at that point.
Andrew Ross Sorkin: (25:13)
Okay.
Ray Dalio: (25:13)
We are going there. We're drifting there okay, that the conflict ... There's a certain amount of ... And that has a political implication. And there's a range of possibilities but I think that the system is going to change greatly because there are irreconcilable differences in some way about how do you deal with the money, wealth distribution kind of thing? And there's a battle. And right now, that battle has been diminished because a lot of people have received checks and it's not as contentious if all the money goes and we're all now feeling pretty good. It's okay. It's when it happens in 2022 and 2024, if we start to look at 2022 midterm elections or 2024. And that's also the part of the cycle where it's so easy when you give it a good stimulant and everybody's high and it's great, okay. It's a different thing. When that wears off and that stimulant will wear off and it'll produce some other consequences, and you get farther towards 2022 and 2024 and so on, it's going to be a somewhat different picture, okay. A little bit more ...
Ray Dalio: (26:36)
And then the politics around that in terms of the polarity depends how bad it gets. For example, there's talk about the possibility ... There's talk about the possibility that elections would be contested. And if you can't go by the rules of who gets to sit in the seat, you have to resolve that kind of thing. Then you take the '24 election. Now, in the meantime, you're also having other things going on in the world. For example, China in this case, is having its political changes in November.
Andrew Ross Sorkin: (27:10)
Yeah.
Ray Dalio: (27:10)
It's going to have its political changes, not probably Xi but the Politburo and the other political jobs and so on. Those things are going on. And so that clock continues to move. And as we start or to imagine it over two, three, four or five years as investors, we should think about beyond the immediate. We have to think two, three, four, five years ahead, I think.
Andrew Ross Sorkin: (27:35)
You've long argued that the critics of China misunderstand China, especially I think the investor class recently that has looked at a lot of the regulatory crackdown and said, "We can't be in here. We can't be here anymore."
Ray Dalio: (27:46)
Yeah., I think ... I've been going to China since 1920, since 1984. And for the first 20 years of going there, I didn't do any business. I went there because I was curious and then because I liked the people. And then it was an exciting place in terms of the things that were happening. And I got to know from the lowliest people to other people, senior people, what the thing is. And I think it's not understood and it's understandably not understood, meaning I think you have to answer the riddle. If you could answer this riddle, you could understand China. The riddle is, "How is it possible for a communist, Marxist economy to be capitalist, have the second largest capitalist, produce billionaires and create the capital markets?"
Ray Dalio: (28:46)
That's not a new thing, that's been something going on since 1978, so you better have resolved that. And if you can't resolve that and understand why that is, then you don't understand China if you can't give the answer to that riddle. And the answer to that riddle was made clear by [inaudible 00:29:05] and so on, when in 1978 ... And like he said, "It doesn't matter if it's a white cat or a black cat, just as long as it catches mice."
Ray Dalio: (29:15)
And what he means by that, is get rich. He said also, "It's glorious to be rich."
Ray Dalio: (29:20)
To raise the living standards and then to redistribute wealth simultaneously to make them both operate together. And if you look at Marxism, it's dialectical materialism. What is dialectical materialism? Dialectical means two things that seem inconsistent and are at odds and when they are in ... That produces product, that produces progress. And so what it means is ... Okay, here it is. Marxism and capitalism and then they're very practical people. And so to understand that it's not your grandfather's communism in that same way, it's something that's been going on there. And so where it is in terms of that evolution, if you take any measures of capitalism in China and I use a lot of measures. How much is wealth distribution? What are the tax rates? And so on and so forth. And you take capitalism and use equal measures across countries, what you have is about the same amount of capitalism going on in China as you have in the United States and way more than is going on in Europe or is going on in other places.
Ray Dalio: (30:32)
I think it's important to understand them. In other words, what would they say and what are they doing? And I think that you're getting a move toward ... There are a number of things going on. We could talk about data management and so on, depending on how long you want to talk about it but one of the things is the broadening of the benefits, the move to the left. And the move to the left is like a move to the left here. If you were to look at let's say, their move to the left, I don't think is going to be a Bernie Sanders move to the left or those types of things but there is a movement to redistribute or to deal with that kind of issue in various ways, without knocking that over. Don't mistake it for what might be a return to something else, certainly onto Xi because if you follow Xi and you follow the policy and you know the policy makers around Xi, that's not what's happening.
Ray Dalio: (31:31)
Now, you also have to understand that there's a whole different way about regulation. One of the leaders described it as that in the United States, he was saying ... And this is not ideologically, just matter of factly, is saying, "In the United States, it's a country of individuals and individualism."
Ray Dalio: (31:55)
And that's of paramount importance. And so it's a bottom up type of place. In China, it's an extension of the family and the hierarchy. And it goes back to confusion and it's very much a top down type of thing. And so it's much more regulated. And so when you see things like let's say, do they regulate how much time your kids will be on video games? We would say, "Okay, that's really a parental decision."
Ray Dalio: (32:22)
A lot of people would. Some parents might say, "I would rather the government do that than me try to have a struggle with my kids all the time."
Ray Dalio: (32:29)
... but anyway. You have to understand the approaches. Different people can have different approaches but that's basically what's going on. And then the question is, when I'm thinking as an investor ... I admire their thinking, the quality of the thinking. There were the choices that each makes and there were pros and cons. The main thing is that each country, our country, is it going to be strong? Is it going to be capable? And there are basics of what that means. Do you educate your children well? Is there civil behavior and so on? That's what we have to focus on. I think if we have a diversification of a portfolio, it's dangerous to be in any one place. You want certain chips there, certain chips there and some other chips elsewhere.
Andrew Ross Sorkin: (33:16)
What do you say to the China critics who say China represents an almost existential threat to the United States? And that actually, anyone here in the United States shouldn't be doing anything to help them get to that place?
Ray Dalio: (33:32)
Well, I think that China could be an existential threat to the United States and the United States could be an existential threat to China and so on. And I think that the more we move in that direction and don't understand and don't have contact and don't have interrelationships, the more likely that's going to be an existential risk.
Andrew Ross Sorkin: (34:01)
We only have about five more minutes. And I wanted to actually talk to you a little personally because one of the things that I've been fascinated about during this pandemic and even before then, you had published a book called Principles, which I've written about but in addition to that book ... And we talked a lot about the culture inside Bridgewater and the idea of radical transparency. You've tried to take that radical transparency concept and bring it outside the four walls of Bridgewater to the public if you will. There's software, you can now ... Anybody in the room can go do it, where some of the same technology they use inside Bridgewater is now available to the public to use on Zooms, to effectively rate or judge other people on the Zooms. I'm curious, in the post COVID world, I don't know if ... Hopefully we're past it or getting past it, what the last 18 months has made you think about in terms of that culture that you've been trying to create and what it means elsewhere?
Ray Dalio: (35:05)
Well, I'm at a stage in my life ... I'm 72 years old. I'm at a stage in my life where my goal is not anymore to be more successful myself but just to try to pass along and then I'll do that for a year or two and then I'm done. I'm basically [inaudible 00:35:19].
Andrew Ross Sorkin: (35:19)
You're done in a year or two.
Ray Dalio: (35:20)
Yeah, basically...
Andrew Ross Sorkin: (35:22)
What are you doing in a year or two?
Ray Dalio: (35:24)
Go quiet, do the things I like to do and so on. I think that there's a life arc. There's a natural with transitions. In the first third of your life, you're dependent on others, you're going to school, your parents are there. Second phase of your life, others are dependent on you. You work, you try to be successful. And then your third phase of your life, the natural thing is to help other people be successful and try to pass along the things that are worthwhile. And I'm in that particular transition phase. And so one of the things was that ... And our culture, which is ... Say it in one sentence, it's a long sentence. An idea of meritocracy. In other words, the best ideas went out without hierarchy, an idea meritocracy in which the goals are meaningful work and meaningful relationships through radical truthfulness and radical transparency. And that's worked for me.
Ray Dalio: (36:21)
In other words, if you can be honest with people and you realize that there's both the great relationships but you can be truthful, radically truthful, you could talk about things in that way, then you can know what's true because if you don't know what's true in everybody's head and you have the politics, not only is that inefficient but it also undermines trust. If you can have that trust and you can also use data, collect data so that you could speak up about what's important to you and you can collect the data, that helps you make an idea meritocracy. Anyway, there was those things that work. I won't go explain it all. And so what I wanted to do was to pass that along. And so yes, I've passed along two things.
Ray Dalio: (37:06)
On Zoom, there's now the Dot Collector, a way that people can pass along their thoughts and also collect information data so that let's say, if you go into an annual review, rather an annual review, you have a daily review and so on and you learn. And bosses should be doing that all the time with their people in an honest basis or vice versa. People who work for somebody should do it with their bosses, I think. That process has worked for me and I believe it works very well. And then I put out also ... I found that personality file tests are really great, things like Myers-Briggs and so on. About 20 years ago, I started doing these. I had four or five that I would use and then I decided I wanted to make one. And I wanted to ... That's a simpler [inaudible 00:37:55] all the information. I put out one called PrinciplesYou. It's available for everybody. It helps people understand themselves and others. You took it.
Andrew Ross Sorkin: (38:05)
I did.
Ray Dalio: (38:05)
Your wife took it, a lot of people take it and so on. I just made it available for everybody for free. And then there's a component of that PrinciplesYou if you want to take it, it's online. And then there's a part that it also, if you put in yours with somebody else's or even your whole team's, it'll tell you about the group dynamic, PrinciplesUs. And that's why, knowing what you're like and knowing what others are like allows people to play to their strengths and avoid their weaknesses rather than to try to cover them up with politics.
Andrew Ross Sorkin: (38:37)
What do you think of Zoom life? And the reason I ask, is because I know you tried to create a specific unique culture at Bridgewater, how much easier or harder you think it is? Maybe it's actually easier because you used to always film meetings. That was always part of it. Now we all film our meetings.
Ray Dalio: (38:56)
Well, I think what ... I don't know that I have unique reviews but I do think that there's pros and cons and that it's a great alternative. The capacity to then make conscious choices of whether you're doing things on Zoom and then do you collect data or not? And that's a real benefit, time benefits and so on. I think we're going to a world where then the in person will be part of that but it'll be more tailored to in person and we'll now have a more tailored mix for everybody and they'll pick their tailored mix.
Andrew Ross Sorkin: (39:28)
And the other thing that you have coming up is this new book, that you have coming up in November.
Ray Dalio: (39:33)
Now, this is the ...
Andrew Ross Sorkin: (39:33)
The Changing World Order.
Ray Dalio: (39:34)
Oh, okay. Yeah, you can order it if you want. You can order it. That's the study that I needed to do to understand where we were. And then because it was completed as a study and I want to pass things along, that's it, The Changing World Order. And it's a study of last 500 years, it brings it right up to the moment and it shows the patterns.
Andrew Ross Sorkin: (39:59)
Ray Dalio, everybody. Thank you for the conversation.
Ray Dalio: (40:02)
Thank you.
Andrew Ross Sorkin: (40:02)
Appreciate it.
Ray Dalio: (40:03)
Thank you.