Ray Dalio gives his latest insights on an array of issues from inflation, his bond market predicament, internal conflicts, why social cohesion is melting away and the growing threat of WW3.
His forecasts in his book, “Changing World Order”, available in 2020, reads like a road map into the future.
The events he forecasted would unfold are escalating in the second half of 2024.
Ray Dalio has a knack for explaining complex concepts in plain terms, and he demystifies high finance.
“A country is nothing more than the aggregate of its people.
Does the country earn more than it is saving and building savings, or is it spending more than it is earning and creating debt,” he said.
“A country is nothing more than the aggregate of its people”
RAY DALIO
Ray Dalio gives his latest insights into bonds and inflation
“One man’s debts are another man’s assets, and when someone is holding that asset, and they are producing a lot more in debt, they go down in value, giving investors bad returns,” said Ray Dalio.
In this scenario, we see higher inflation and poor returns for holding debts or bonds. People get out of cash and bonds that produce rising interest rates while there is rising inflation, and that causes stagflation,” he said.
“That is happening now, and we are producing a lot of debt, spending more than we are earning,” he added.
So, more currency creation to buy an ever-increasing public debt leads to more inflation.
“With that inflation, cash is trash, and nobody wants to buy those bonds, causing rates to rise,” said Ray Dalio.
“One man’s debts are another man’s assets”
RAY DALIO
Internal and external conflicts are worsening; Ray Dalio gives his latest insights
“History has shown that when the causes that people are behind are more important than the system, the system is in jeopardy.”
The recent riots in the UK and the attempted assignation of US President Trump could be flagging trouble ahead.
It feels like we are at each other’s throats, and the economic downturn is making a dangerous situation worse.
“It is a risky situation because it can produce disorder, a form of civil war, and it signals greater polarity in politics,” he said.
“Populists of left and right want to fight for their side, and they are not moderates who want to work together to find a compromise that is best for the whole,” said Ray Dalio.
“Populists appeal to their crowd by saying I will fight for you, which can threaten the system,” he said.
In modern history, we have seen four democracies choose to become dictators.
We have a system in elections where neither side might accept losing.
You can not be moderate and pick a side and fight.
“We are not in a shooting war with China, but we are in a shooting war of sorts with Russia” – Ray Dalio
“Saw this in the French Revolution, Russian and Chinese revolutions, the moderates got guillotined.
Polarity gets worse as the side has to fight,” he said.
The Great Power conflicts are worsening.
Ray Dalio’s previous forecast for the probability of a civil war in America and a global war is estimated to be 30%.
“I would say the numbers are a little higher now with events progressing a little bit quicker and I think it is 35 to 40%, on each,” he said.
Ray Dalio gives his latest insights into the types of wars
“There is a technology war, a geopolitical influence war, there is a capital war, then there is a military shooting war.
Ray Dalio believes we are in stage four of the wars in this competition.
We are not in a shooting war with China, but we are in a shooting war of sorts with Russia,” he said.
He believes that if capital wars through sanctions and asset seizures don’t work, shooting wars follow.
“This is where we are now, and it is risky because it threatens the dollar’s exchange value, or any currency you hold is in the form of debt,” he said.
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I would not want to be in debt or cash where there is likely to be a war. I would diversify well with a bias towards inflation-protected assets”
– Ray Dalio
Other countries could fear sanctions, putting more pressure on the dollar.
“Capital wars are the ones that accelerate immediately before the military wars,” he said.
“The world is looking at the effectiveness of American sanctions as punitive measures against the Russian invasion of Ukraine.
Militarily, we no longer have a dominant military power.
US adversaries can cause equal damage to the US military.
US dominance is in its ability to sanction other countries because it controls the world’s reserve currency.
But weaponizing the dollar is forcing an alternative system.
If US sanction power doesn’t work, that will be a problem because you only have military power.
All sides are in preparation for war,” he said.
Ray Dalio gives his latest insights into what investors should do in an inflationary environment
He noted that Cash has lost 8.5% of its buying power over the last year due to inflation. “You have to think in terms of buying power, not the number of dollars you have, and the worst thing is to be in cash,” he said.
He doesn’t like cash and bonds in an inflationary environment.
He recommends a diversified portfolio of assets, with some assets being index-proof. For example, you are better off owning an inflation index bond, compared with a regular bond.
Precious metals and inflation index bonds are inflation-resistant because their returns are linked, with inflation.
“Inflation index government bonds are like regular bonds, except their payments are inflation-linked, so they compensate you for inflation. There are tax advantages to them also,” hesaid.
“Flooding into any one asset is an issue,” he added.
Moving from nominal bonds to crypto-like gold to be overly concentrated in any asset is a mistake.
“I would not want to be in debt or cash where there is likely to be a war.
I would diversify well with a bias towards inflation-protected assets,” he said.
