I get a lot of great questions over social media. In order for you to see everything that I’ve answered, I’m going to put it all here for you in one place.
Q: A number of people have asked me what I’ll be doing now that I’ve transitioned Bridgewater to new leadership. While I’ll remain a mentor to Bridgewater’s investment team, with the transition complete, I can now do a lot more of what I love to do and less of what I have to do to get the results I want.
A: Now my highest priority is to pass along what I learned and acquired to help others rather than to just help Bridgewater employees and clients. That means I want to a) pass along the principles and the process of principled thinking that I learned, b) inform people, including senior policy makers, of things that I know about economies and markets that will help them navigate the treacherous and opportunity-filled changing world order, and c) pass along financial resources in ways that help others and help the environment, especially the ocean.
I also want to continue to research and invest which is a passion I acquired when I was 12 and will pursue until I die. And of course, I want to spend more quality time with my family and friends. For these reasons, I am more excited and more busy than ever.
Q: Are you ever concerned that BW’s unique culture and practices will not live long after you totally hand off the reins?
A: I feel like the parent of a group of family members who I raised and have reached an age where they should have their own principles, culture, and tools. They have been exposed to me and what I believe for many years as they grew from junior positions into partners. It’s now up to them to take what they want and get rid of what they don’t. I want them to make their own decisions. Of course, they will do some things differently than I would—but I will simultaneously love the fact that the choices they make will produce rewarding and painful consequences and that they will own and learn from them. It felt that way when I unambiguously turned over control of Bridgewater last year, I feel that way now, and I will feel that way in the future because that is a good thing. It would be a bad thing if they blindly followed me because I don’t want them to be blind followers. I want them to be independent thinkers considering the alternatives, doing what they think is best, owning the consequences, and learning from them.
Q: What has been the most transformative change in the hedge fund industry since Bridgewater’s beginnings?
A: In answer to your question of what I believe was the most transformative change in the hedge fund industry since I started Bridgewater 47 years ago, in my not-so-humble opinion, the two most transformative changes were the gaining of understandings of how to computerize decision-making and how to risk balance portfolios. That is what made us successful, and others followed.
Q: Technology in general is deflationary and at the same time monetary debasement in inflationary.
Do you think had the US stayed on the gold standard that the inflation of the 70’s and present day could have been avoided (also not diluting the amount of gold a dollar could claim)?
Additionally as more and more jobs get automated what are all the displaced workers supposed to do? There is in theory a tipping point where the amount of jobs shrinks substantially relative to the population. Coupled with inflation this is a really bad scenario in my mind
A: If the U.S. stayed in the gold standard, there would have been a deflationary depression. Let’s look at what that is by looking at the debt cycle. When there is more spending than there is earning, there is the creation of debt. One person’s debt assets are another’s debt liabilities. When the debt liabilities and debt assets become too great for the debtor to pay and/or the debt assets don’t provide an adequate return relative to inflation, a collapse will occur and a debt restructuring will be required. That debt restructuring can happen by either a) writing down or defaulting on the debt (which also makes the creditor broke so debtors and creditors go broke together and there is deflation because things are not bought and sold), or b) printing money and buying the debt with depreciated money. When there is the link to gold, the printed money is turned in for gold until the gold runs out or until the government refuses to let the devalued money be turned in for gold. For a complete examination of this and a complete look at last cases, see Principles for Navigating Big Debt Crises, which you can get as a free PDF here https://www.principles.com/big-debt-crises (or in print at booksellers). Also see Chapter 3 “The Big Cycle of Money, Credit, Debt, and Economic Activity” and Chapter 4 “The Changing Value of Money” in Principles for Dealing With the Changing World Order.
Q: In your books you demonstrate how history tends to repeat itself in similar patterns, and there are indicators that can be observed in order to draw upon principles for anticipating changing macro circumstances. With respect to the current macro environment, how do you foresee the current world orders will be changed in the coming 5 years? Specifically regarding the US-China relations?
Thank you very much and looking forward to your thoughtful response!
A: Regarding U.S.- China relations, I believe that we are on the brink of economic and military wars that would be disastrous. I know that the leaders in both countries know this and also don't want to back down, so we are seeing brinkmanship. Where we go over the brinks will depend on their abilities to exercise restraint while looking aggressive. In each country there are leaders who want to fight and those who want to avoid fighting, so there are internal conflicts as well as external conflicts about U.S.- China war. So, this is a precarious situation with the odds of war too close to call.
Q: My question is about globalisation. It's not entirely a new concept, and while it has heralded an increase in the standard of living within certain large countries (two specific economies come to mind), not every economy has been made better off. In your opinion, does the changing world order signify an improvement in the distribution of the benefits of globalisation across all countries?
A: In my opinion countries are increasingly falling into one of two categories: 1) increasingly nationalist, anti-global, and locked into internal and external conflicts and 2) increasingly global and not locked into internal and external conflicts. The second group will flourish while the first group will suffer. We are now seeing that happen. You can now see the smartest people and the best technologies moving from the first type of countries to the second type of countries and you can see the first type of countries suffering while the second type of countries are flourishing.
Q: Love both of your books, both of them made me look at the world in a different way so thanks. I have a question in relation to Principles. It relates to how you changed how you were recruiting. How did the people around you react to a new way of recruiting and developing people? Did you lose some internal people who disagreed with your methods?
A: Being unusual will give one unusual results which can be unusually good and/or unusually bad. What it is for each person is up to each person to decide. This was very true for our culture when I ran Bridgewater. Those who loved “tough love” loved to be challenged to find out their weaknesses to get around their weaknesses, and those who loved radical truthfulness and radical transparency loved the culture, while those who didn’t didn't like the culture. In fact, a small group hated it and were disgruntled by it. This process produced remarkably capable people who were there for decades and couldn’t work anywhere else and some people who the opposite was true for—though many more of the first group than the second group. I don’t know if I made it too radical but I can say that it was the reason for our remarkable successes in work and in a lot of relationships. Now that I have passed control of Bridgewater along, my successors will fiddle with the choices to get the balance as they like it. Hopefully, they will do it better than I did. In any case, we will see and can learn how their processes and track records compare.
Q: How do you see economic mobility evolving over the next few decades?
A: I think that the power to learn and shape thinking to produce economic mobility will be immensely enhanced by new technologies and that the capability to be mentally healthy enough to take full advantage of this to achieve the economic mobility that is possible will be driven more by the quality of early childhood development than anything else. I think that having parental guidance, being in a healthy environment and having adequate nutrition is essential. There currently exist way too many failures to deliver these things, which is unfair and turns these children into adults who are liabilities rather than assets to society.
Q: People vary in terms of their sensitivity. Is Bridgewater's radical transparency and directness a luxury for the less-sensitive personalities, or can even the most sensitive people learn to thrive in that environment? If it's best for the thick-skinned, what are the consequences of this hiring filter, in terms of balancing the team with people who are direct and with people who are more diplomatic?
E.g. Could a team comprised of mostly low-sensitivity analysts might miss the economic significance of an executive's insensitive comment, fail to grasp the consequences of insensitive marketing, or miss a catalyst that's going to lead to radical social change? Or is that not a problem when everyone is thinking analytically?
A: What people are like—most importantly whether their sensitivities prevent them from intellectually doing what they initially find difficult such as exploring their mistakes and weaknesses and being radically truthful and radically transparent—makes a big difference. I have found that with good guidance most can “get to the other side” of their painful reactions to these things because they adapt to the changes and derive the benefit from them. However, many—I’d say about one-third—can’t. Now that Bridgwater is completely in the hands of others, we will get to see how they do things and their results. Hopefully, it will be even better. I think there is an excellent chance of that.
Q: Do you believe it is possible to separate economic growth from resource consumption? If yes: How? And when?
A: I don’t believe that it will ever be possible to separate economic growth from resource consumption because there will always be the usage of resources to increase consumption. The only questions are 1) whether we can control ourselves to not over-consume to deplete the resources today in order to have more in the future, and 2) whether we can invent more efficient ways of utilizing resources (e.g., using resources that aren’t harmful and deplorable such as solar and fusion). We have been doing terribly on the first of these and have recently started but have not yet done well in the second of these. The last generation of people have shown a strong inclination to have immediate consumption rather than save for the future. That shows up in many ways such as getting into debt, letting our infrastructure deteriorate, not investing in education, and depleting natural resources. At the same time, the human species is very inventive so when faced with painful obstacles it will typically evolve. It has been late in focusing on inventing new ways to more efficiently produce in ways that don’t damage the environment because the pain hasn’t been intolerable. However, this is beginning to pick up, though it is very late and probably not improving at a fast enough pace to prevent terrible consequences.
Q: If technology is deflationary and wants to bring prices of everything lower forever, how does that work over time with our current debt based money system that requires prices to rise forever. Who are the winners and losers if we don't move to a money system that can allow for deflation?
A: While most people have strong temptations to answer questions even when they don’t have good answers so they give guesses, we are more sensible to recognize that what we don't know is greater than what we do know. I know that whatever success I had in life has been more due to my knowing how to deal with what I don't know than anything I know. You and I agree that great technological advances are deflationary, and these are likely to come at the same time as the debt and will likely create a debt problem that will probably be dealt with a lot of printing of money that will be inflationary. You ask the question of which one of these forces will dominate the other. I don’t know. So, to me the question is: if we don't know how those forces will eventually net out, what should we do?
In my opinion we should be well-diversified. Keep in mind what I call “the holy grail” of investing, which is to have 10 to 15 good, uncoordinated return streams. Simply said: hold a well-balanced portfolio that holds both assets that do well when there are great productivity gains (equities, especially those that produce benefit from new technologies that produce leaps in productivity) and assets that do well when there is the devaluation of money.
Q: Thank you for your guidance Ray. It seems like we have stopped looking at M1 and M2 money supply. Is this a mistake or is there a better way to obtain clues about the economy?
A: M1 and M2 are aggregates of different money and credit measures. They are certainly very important to look at, whether collectively in these two aggregates or individually.
Q: I’ll start with my questions, followed by additional information for context.
Question:
What actions can you take to help us avoid/greatly reduce the impacts of the coming war-time part of the cycle? The spread of misinformation (AI playing an increasing role in this) is at the root problem of creating the current internal/external conflicts we are experiencing. Do you have any proposed solutions for regulating misinformation and AI generated content?
Context:
The rise of misinformation, funding of extremist content and ability for foreign actors to utilize this technology is proving to be an effective strategy in increasing internal conflict and undermining democracy. The rise of AI generated content without quality governance structures opens this misinformation problem even more.
At Ad Fontes we are trying to solve this problem by utilizing a human methodology to rate content which we then use as our framework to properly feed our AI machine to distinguish reliability and bias more accurately. We believe social media companies require an independent third-party media ratings company to rate content. It’s a unique solution to an evolving problem.
A: The actions you should take if there is a war are the same ones you should take if there is a pandemic—go to where it isn’t. As for the spread of misinformation, seek the thinking of smart, informed people you trust. Regarding how to deal with misinformation in the media, I think reputable media outlets should set up a self-regulatory organization and make proven intentional lying a criminal offense. I think that legitimized lying and misinforming has gotten to be a serious problem.
Q: Advancing technologies (communications, industrial production, information technologies, semiconductors, biotechnologies, etc) and globalization are increasingly giving a lot of structural leverage to the few lucky/talented/affluent people in societies globally.
This creates a wider and structural inequalities in the haves and have nots, fueling a lot of disenchantment and internal conflicts.
How should individuals, groups and political institutions address this widening gap? Thank you.
A: I have seen connectivity take place in the most remote people and places in the world and have seen people there go online to do work and gain learning, so I have seen it as a great equalizer in such cases. In other words, its impact on inequalities varies according to the circumstances.
Q: I understand you are someone who likes to think in systems and is relentless in the pursuit of a truth as objective as possible which makes it difficult to insert your "guesses" in your content usually.
Since this is a comment section, what would be some big stroke guesses at various time horizons (5 - 10 - 50 years) in line with your book on the changing world order?
A: That question requires an answer that is too long for here but is covered in the last chapter of my book Principles for Dealing With the Changing World Order: https://economicprinciples.org/#:~:text=Principles for Dealing with the Changing World Order examines history's,have happened many times before.
Q: Do you believe that inflation is actually “transitory” — and if so, at what cost will the fed be able to reach a soft landing?
A: I have limited space to answer your question in the way I’d like to, which is to explain what I think are the cause-and-effect relationships so that I can help you learn how to fish rather than to just give you a conclusion/fish. For that reason, I urge you to read my two-part update that briefly reviews how the cause-and-effect relationships work to make up how the machine works, and what these linkages tell me about what is now happening and what is likely to happen. You can get these here:
Part 1: https://linkedin.com/pulse/two-part-look-1-principles-navigating-big-debt-crises-ray-dalio/
Part 2: https://linkedin.com/pulse/part-2-two-part-look-1-principles-navigating-big-debt-ray-dalio/
Also please keep in mind that even when I think something will likely happen that I have a significant chance (about 1 in 3) of being wrong (which is why I need the diversification of 15 or bets that are uncorrelated and good). That is because even though evidence shows that I understand the cause-and-effect relationships well, how the cause-and-effect relationships come together and when they happen have a lot of uncertainties. For example, though I knew that pandemics came along and had big effects, I didn’t anticipate the last pandemic (though diversification and risk controls helped make this error hurt less). Please remember that what I don’t know is far greater than what I do know and whatever success I have had is more due to my dealing with what I don’t know well than anything I know.
Q: How can the USA realistically recover from its debt spiral?
A: The path to recovering from a debt spiral is to both restructure the debts and be more productive by investing in areas that produce both increased productivity and opportunity and equity for people. (e.g., investing in education and infrastructure.)
Q: I just wanted to say thank you for writing a book that was life changing. I want to ask: in Principles, you explain that in the context of the universe, we can matter just a tiny bit. You’ve worked incredibly hard; what was it that made that “tiny bit” so compelling for you?
A: My work is not work to me. It’s an excitement to evolve and contribute to evolution as much as I can, as fast as I can. At this stage in my life is it most exciting for me to pass along what I have learned and exchange thoughts with people about what’s true and how to deal with it. So, thank you for your part in our relationship.
Q: Based on what’s going on today, what historical moment are you most looking at that’s comparable?
A: The 1930 to 1945 period.
Q: How do you incorporate your principles of radical transparency and independent thinking into your investment strategy, and what role do they play in your decision-making process?
A: In reply to your question, I will explain my investment decision making process and how I incorporate stress-testing and radical transparency into it. My investment decision-making process consists of my thinking about and writing down my decision-making criteria when I am about to make an investment decision. I need to do the following things before I do a trade because needing the perspective I gain from it has been seared into my subconscious. After I write down the decision rule/ principle I back-test in all countries and all time frames possible. Then, if there are significant differences in results, I research why the differences exist which teaches me more and I incorporate in my systematic process. I look at the differences in the results and think about why they exist and then the rules that I come up with have to be timeless (i.e., they have to work in all times frames going back many decades, often back to 1900) and universal (i.e., the same decision rules have to have worked in all countries).
Because these decision rules are turned into actions that produce profit and loss results that I call profit curves, I can see how my decision rules would have performed and I can combine these return streams to make portfolios of decision rules and return streams using my risk balancing techniques. Then I show this to others whom I work with who stress-test what I did. Similarly, others who I taught the same process do it and bring what they did to me to have me stress-test what they did.
This approach of thinking about all my criteria, writing them down and trying to back-test them is the way that I think about everything and a way of thinking that I want others to follow which is why I did a journal (called My Principles) to help people think about their own decision-making criteria (i.e., principles) and write them down. I derived so many good results when I did this and so much pain when I didn't that I am very uncomfortable making any decisions unless I do this. If you read my books about principles for dealing with different types of things—such as Principles for Dealing With Big Debt Crises” (in which I did this exercise for all big debt crises in all countries going back 100 years), Principles for Dealing with the Changing World Order (in which I look at many things back 500 years to see the rises and declines of countries and their markets), and Principles: Life and Work (which are about life and work principles)—you will see me do this (though you won’t see the exact equations because they are proprietary.) So, while we are transparent with each other to understand and stress-test each other, we don’t make everything transparent to everyone.
