Ray Dalio thoughts were revealed in his recent interview, where he discussed the recurring conditions in history that push world reserve currencies into a twilight zone.
Ray Dalio runs the world’s largest hedge fund Bridgewater with 140 billion US dollars of assets under management.
Ray Dalio’s deep thinking style has earned him the top position as a geopolitical macro analyst.
He comes across as an intellect, a guru teacher that spends his time amongst historians, practitioners, scientists in different countries.
He also has one of the largest libraries and research teams.
“I have a fabulous research team, so I go into this learning immersion,” he said.
He then evolves ideas which he puts forward to the team for their input.
“I have a fabulous research team, so I go into this learning immersion”
RAY DALIO
Ray Dalio’s thoughts on the three major cycles of history playing could be a heads-up where we are heading
The first cycle is about building the economy, it is where wealth is created in the economy, and the level of borrowing also increases, according to Ray Dalio.
“There is usually a new order, there is often a fight between left and right or foreign country, and when that begins that is a sort of a great equalizer,” he said.
Capitalism is a fantastic enabler because it gives people who may not have anything, who have good ideas capital, so they have the resources to pursue that,” he said.
“As it rises, you see debt to income ratios rise, everyone gets more funded because debt is buying power and everyone wants more debt,” added Ray Dalio.
But Ray Dalio’s thoughts on capitalism also highlight its shortfalls.
Ray Dalio noted that capitalism distributes wealth and opportunity unequally, which creates a wealth gap. “Wealthy parents can educate their children in an unfair, unequal way,” he said.
“Wealthy parents can educate their children in an unfair, unequal way”
RAY DALIO
Ray Dalio noted that buying power is some other debt.
What then happens is that central banks try to stimulate the economy by lowering interest rates, which stimulates more buying power. Ray Dalio also noted that since 1980 every cyclical peak and drop in interest rates was lower than the previous.
“So they can stimulate more debt and then when you get to zero interest rates that doesn’t work,” he said.
Ray Dalio explained that the central banks have to increase the money supply and buy the debt. “They have to print money and buy money to keep that pile going up, and that creates the cycle you see the monetization of debt,” he said.
“The British could make better ships, cheaper, then they became competitors and took market share away, the same thing with technology companies is going on now” – Ray Dalio
So we are coming out of a cycle where interest rates are near zero, and the central bank increases the money supply and purchases assets to prop asset prices and keep the wealth effect engine running.
“So with that, there are conflicts, wealth conflicts and related to that, the political left and right,” he said.
Ray Dalio thoughts concerning the US dollar reverse status retraces history
He sees the US as parallel with the Dutch.
Dutch had a big education. They won a war then they became very competitive, they went out in the world taking their goods, they built ships and brought their arms with them and made a fortune,” he said. “With that, they brought their currency because it is a world currency others want to own,” he added. “In other words, Americans get lent money because others want to hold dollars, which is the exorbitant privilege that allows us to get more in debt,” he added.
But he warned that this leads to a loss of competitiveness.
He noted that the British copied the Dutch model.
The British could make better ships, cheaper, then they became competitors and took market share away, the same thing with technology companies is going on now,” he said.
“ The hegemonic power gets more in debt, and there are challenges with that,” he said.
Dutch got heavily in debt than the British.
Since WWII, the US has been the dominant economy, and the debt since then skyrocketed to 30 Trillion.
“One man’s debts is another man’s assets” – Ray Dalio
What are Ray Dalio’s thoughts on how the skyrocketing debt will be paid?
“In the end, it is always printing the money,” he said.
In other words, the debt is going to be inflated away. “One man’s debts is another man’s assets.
So, if you are holding a bond you receive negative real yields, you don’t get compensated for inflation,” he said.
Ray Dalio pointed out that people think cash is a low risk, but when you are earning no interest and there is 5% inflation, you lose 5% of your buying power.
Here are Ray Dalio thoughts on how debts become burdensome.
“So what happens is not only is there new debt, but existing holders become sellers of that debt. So there is a surplus of debt that nobody wants to own,” he said.
“That means that interest rates have got to go up, or they have to print money. The history of all of these cycles is that the coffers are empty because you can not expect to spend more than you earn then give it to someone and expect that they will like it,” he said.
“Then you devalue it, and that becomes the cycle,” he added.
Ray Dalio thoughts on the third part of the cycle,the rise of another power, China
“How do you earn more money than you spend, and how do you build a balance sheet with more assets than liabilities, second you need internal cooperation,” he said.
He is concerned that in the 2024 election no side will concede, which could lead to conflict.
Ray Dalio believes his fund has lasted for nearly half a century because they can structure portfolios in a way that is better in terms of risk, rewards, and correlations according to their investor’s needs.
Ray Dalio thoughts on what has attributed to his success
Whatever success I have had is more attributable to Transcendental Meditation TM. What it is, it frees your mind of thought and it takes you from your conscious state into your sub-conscious state.
Regarding investments Ray Dalio recommends people shouldn’t be in cash, they should diversify both asset class and country.
He also owns a tiny portion of his portfolio in cryptocurrencies.
