WHEN: Today, Tuesday, July 16, 2024
WHERE: CNBC’s “Money Movers”
Following is the unofficial transcript of a CNBC exclusive interview with Bridgewater Associates Founder Ray Dalio on CNBC’s “Money Movers” (M-F, 11AM-12PM ET) today, Tuesday, July 16. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2024/07/16/short-ray-dalio-on-u-s-economy-and-politics.html.
All references must be sourced to CNBC.
SARA EISEN: Welcome back to “Money Movers,” with the election in focus. Billionaire investor Ray Dalio, who founded, of course, hedge fund Bridgewater, recently wrote in “TIME” magazine, the chances of a civil war have risen past 50 percent. Dalio looks at it as part of his view of the changing world order centered around five big interrelated forces in history, the big debt, big internal conflict, external conflict, nature, like pandemics and floods, and technology and innovation changes. Ray Dalio joins us here exclusively back at the New York Stock Exchange, where he’s reminding me he clerked back in the early ’70s. It’s good to see you and have you here.
RAY DALIO: Good to see you. Good to be here. It’s fun.
EISEN: Yes. Well, look, Ray, I was thinking of you when the events unfolded over the weekend, the shocking assassination attempt of former President Trump and wonder how it fits in with your historical world view of where this internal conflict goes.
DALIO: There’s a cycle of irreconcilable differences. You know, there’s an order-disorder cycle. And we’re at the part of the cycle where a lot of people feel that they’re not delivering for me. And so it’s a win-it-all-cost type of situation. I think people now understand what’s really going on. So, we all understand that this internal conflict issue can be irreconcilable. It’s starting to threaten the question of whether we will operate by rule of law and democracy in the same way. And so that becomes a question mark. Of course, all these developments are making that more apparent, and maybe that will minimize the chances of it.
EISEN: I was going to say, because your view, I think, and your concern was that, if the Democrats won, the Republicans wouldn’t necessarily accept the election results. Well, in the wake of all of this and what’s been happening in the last few weeks, President Trump’s odds have gone up materially, and so have the odds of a Republican sweep. So I do wonder if you think that diminishes the chances of a bigger conflict.
DALIO: Yes, I do, for the reasons that you said. In other words, if you have a Democratic sweep, I think that the risk is reduced. However, we still have these irreconcilable differences. What are they? Well, differences in wealth and values. Where’s the money going to come from? And, also, what types of lives are we going to live? It was mentioned, for example, children and sexuality, and these types of issues are big issues and how will they be resolved? I think the odds have significantly switched in favor of Donald Trump winning and the — and perhaps, as you say, a sweep. So that creates a scenario, I think, that is more likely to imagine what that situation will be like, which means it’ll be more like securing power in a way that will be different than democracy as we’re used to it. In other words, I think it’ll be many more appointments, in terms of the government bureaucracy, in terms of the Supreme Court to solidify that, and to then view the opposition more as an enemy than a collaborative entity in which there’s going to be democracy as we know it, in terms of that same compromise. And then the question will be how those in the left will respond. And, of course, those in the left, we don’t know from the Democratic Party even who the leaders will be, essentially, and how far left it will be relative to the right.
EISEN: So, ultimately, it sounds like you worry about the fissures that have been there within the American society. What is the upshot?
DALIO: Well, we have to be strong for most people, right? So there are these problems, the underlying wealth gap problem, or, I would say, the opportunity gap. How can you make most people productive? And all of those issues, the values gaps issues are going to be — so I think there will be more movement to states. I think people will move to the states that are more conducive to their beliefs, and then there will be questions about states’ rights versus central government’s rights and how that conflict will be worked out. But it — if it keeps orderly and by rule of law, then we are likely to have a much more conservative or, I might say, capitalist, of-the-right type of policies. And then, of course, we have the people and the issues. But I’m referring to the ideologies.
EISEN: Is that a good thing for America, in your perspective of us maintaining our global superpower status?
DALIO: I think — I think, first of all, we have to make this a country that is inclusive of all — of most of the people. In other words, I personally believe — you’re asking my personal belief. I personally believe that a strong middle in which those who are moderate and can work across party lines bipartisan and can move together and alienate more the extremists will be better, because this conflict is a problem. It stands in the way of productivity and the effectiveness of democracy as we know it. That’s a personal belief. Nonetheless, because it’ll be a more right-wing, more capitalist type of environment, it is better for capital markets in the longer run. There are common issues that have to be faced. The issue of the debt and how the debt is going to be, or foreign policy, those things are going to be very different. But I think that that’s — it’s an ideological resolution. And, ideally, we can make it — the country good so that people are productive across the board.
EISEN: I was going to ask how you envision another Trump presidency for investors because there is this narrative that good for equities, not so much for bonds because of the debt issues.
DALIO: Yes, I think that’s a good summary. You’re going to have more isolationist, nationalist policies that are going to be more — less regulatory, more capital, more capitalist. Those things, by and large, are better for the capital markets. You’re probably going to have pressure for an easier monetary policy. And so we’re also going to have greater amounts of deficits and so on. But you have to view what’s going on internally in light of the other four factors I mentioned. So we’re talking about the debt factor now. But we’re also in a great power conflict internationally, right?
EISEN: With China.
DALIO: The emergence of a great power or great powers. And you see them lining up in sides, the Allied powers and the Axis powers, essentially, lining up in sides and that. That world is going to be an expensive world. And then factor number four is climate, droughts, floods, and pandemics. And any way you cut it, that’s going to be costly, the — just one way or another. If you work to fix it, it’s going to be costly, estimated $8 trillion a year, which is in a $100 trillion — so that factor is going to be an issue. And then, of course, technology, the changes in technologies. So we’re going to go through almost what is going to appear like going through a time warp, I think, that if you just take where are we going to be in three years or five years, there’s going to be a great deal of disruption. It’ll be very, very different.
EISEN: It’s really hard for investors, I think, to wrap their arms around these kinds of concepts, even debt. Let’s just take debt. Equity investors right now just want to know when the Fed’s going to cut rates. And there’s plenty of demand for U.S. Treasuries. So it’s not a risk. So how do you look at the time horizon for when investors should be processing risk like that?
DALIO: Well, of course, I’m an investor. So, I’m — and I’m largely a macro investor. And I put together the near term and the longer term. The longer-term issue is, you’re going to have a debt problem, I believe, OK, because you either have to pay it back in hard money or soft money, and that, more than likely, as almost always, they will pay it back in soft money. And so there’s a timeline as to how that squeeze emerges. There’s a supply-demand balance. If you don’t produce a high enough return for the creditor, that then or you have to have a high enough return for the creditor without having it too high for the debtor. The more debt you have, the more difficult it is. So, if we take that out a year or two or three, I think we’re going to have issues there. So, from my point of view, debt is something that I don’t like, even at these particular yields. Think of it this way. You are going to, you have an inflation rate, all things being considered, in the vicinity of 2.5 percent and 3 percent if you don’t have a disruption. You need something like a 2 percent real yield in order to be able to have an adequate real yield, so the Federal Reserve doesn’t have to come in and intervene. So, you’re still dealing in the vicinity under normal circumstances of a 4.5 percent to that vicinity, give or take—
EISEN: High rate, yes.
DALIO: 4.5 percent 10-year rate, let’s say.
EISEN: Yes.
DALIO: OK, that’s the most important market in the world, because that is the interest rate that all markets settle at. It’s about right if you don’t have a supply-demand problem. Down the road, you probably will have a supply-demand problem. So, for that reason, I’m, longer term, not favoring bonds. I don’t like bonds. I don’t like debt. And then I’d move to other assets.
EISEN: Because, ultimately, you think what happens in two or three years? What changes the dynamic?
DALIO: I think there’s a — I think there’s a supply-demand problem, in other words, any — or — and/or a…
EISEN: China’s not buying as much, yes.
DALIO: So, what you’re going to have is, the amount that has to be sold will be a lot. But, also, the, if rates don’t stay where they are, then there will be the selling of those assets because they’re not going to provide a high enough real yield. And so that could worsen. The worst thing, the classic thing, that’s the really bad thing that often happens, is when not only is there the new supply that comes on, but those who are holding bonds choose to sell those bonds for one reason or another. There are reasons on the longer-term horizon. I could list those reasons. But those reasons would include we could have more inflationary policy. We’re going to have more protectionist policies—
EISEN: Yes.
DALIO: That we will have more of those issues going on. And then there’s also worries about sanctions in international conflicts. In other words, what is the store hold of wealth? The world is holding a lot of dollars-denominated debt. It’s holding a lot of debt of all kinds. But that kind of issue down the road is, in my opinion, a threat to the bonds. So, that—
EISEN: And the dollar?
DALIO: The dollar, to some extent. But what happens is, all the currencies rise and decline generally together. And the problems that we’re talking about here are similar problems in Europe, similar problems in Japan. They’re printing a lot of money. They’re and buying debt. Central banks have a lot of debt that they’re losing money on. In other words, it’s gone down. That creates a funding problem for central banks because that means their cost of their liabilities is high in relationship to the assets that are being produced. All of that creates a general problem in the world. So I think it’s more like assets like gold. In other words, if I was to pick that—
EISEN: This is why you like gold.
DALIO: I, yes, well, I will touch on gold. Gold is an effective diversifier, meaning that, if you take the classic mix of assets, and you have a particular problem, if — an optimal portfolio would have something more than about 10 percent in it, if you’re dealing with the risk-reduction effects of the diversification. If you were neutral, gold is an under-owned, relatively attractive asset, it’s right near its highs in the markets. And if we come into a world which has greater internal and external conflict, it’s a better asset. So I think that people are generally underweighted, including central banks are underweighted in gold. It’s — and it’s an effective diversifier. If you were neutral, you would probably have more than 10 percent in the portfolio. I have it as an overlay. In other words, if you own futures or something on top of a portfolio, you don’t have to take money away from the other assets in order to own it. It’s an interesting asset. My main point is the value of money. What is the reciprocal of the value of money or the alternative in debt? Of course, equities benefits relative to that. You have cheap money, relatively cheap money, but it goes higher. But the — but it should be part of the portfolio, I think.
EISEN: Gold, more — and even more than 10 percent?
DALIO: Yes, well, let’s start with 10 percent.
EISEN: A lot of people think Bitcoin does that job right now.
DALIO: I think that Bitcoin is — Bitcoin is a market that moves in a way that we don’t — is not connected necessarily to the same factors. If you look at its movement and try to attribute it, it’s more of a speculative asset. It’s also there’s a, the government will shut it off if you don’t want it. They could watch your transactions. It’s not as private as an asset. There’s a saying in the market that gold is the only asset that you can have that isn’t somebody else’s liability. In other words, somebody has to write a check for you to get value out of it. I’m not trying to make a comparison. I think that I have some Bitcoin. I have some gold.
EISEN: You do.
DALIO: But I think the important thing is to think about, OK, what is money — what is a store hold of wealth that is — and operates like a money, a money meaning you can take it from one country to another, you can pay anywhere and it’s widely received? I don’t want to emphasize gold because I think people will just keep focusing on gold, gold. What I’m really trying to do is, if you’re staying back, it’s probably not going to be debt, OK? So—
EISEN: Look at your options, yes.
DALIO: And then I would say diversify well, because the one thing we know is, we’re in a very turbulent, uncertain environment. And to know how to diversify well is key.
EISEN: Ray, I’m going to ask you to stay with us, if you could, because we want to get from this sort of internal conflict to the external one, talk a little bit more of China. We’re going to take a quick break here on “Money Movers.” Ray Dalio will join us on the other side of this break. Be right back.
EISEN: Welcome back. Let’s continue the conversation with Bridgewater Associates Founder Ray Dalio. And, Ray, we have just been talking about a lot of big ideas within your historical framework, like a potential debt crisis, like internal conflicts. I think it’s important, though, because we’re trying to figure out some of the takeaways for investors, to think about the short term and the long term. And what you’re talking about is a little bit of a longer-term view. In the short term, if you’re looking at the stock market right now, for instance, heading into an election, with the Fed set to begin cutting interest rates, is this a good time to buy equities?
DALIO: So, the way I look at it is, there’s the bond market. The bond market on to — on a short-term basis probably looks about appropriately priced, has longer-term risk. That term structure of interest rates then carries forward to the equities. Then, when you look at the equity market, you can’t look at them as a whole, because the differences within them are enormous. When you look at internal volatility of individual stocks, very high, when you look at the market as a whole’s volatility, very low, because there’s offsetting volatilities that are taking place largely related to AI and tremendous changes. So you have to look at the individual components of those AI — the markets. When I look at the individual components of that, I’m looking at those that are going to be the better users of the AI, rather than the developers of the AI. I think there’s going to be a technology war and it’s going to be a very expensive war for the big — it’s almost like the Internet in its early stages. They will come out a couple of big winners, but there’s going to be a lot of losses there and a lot of — but the real power will be in the using of the AI, right? Where will the transformative advantages — so to be able to look inside the companies that are using AI terrifically. Like I, as an investor, have always done AI investing in various forms. AI began in 1953. And I have — and it’s taken various forms. I think the power of AI in investing, the power of AI in each of the very — in health care and so on. So look for who — where the disrupters will be in there to think about whether you’re going to get greater growth and as priced into the market.
EISEN: Any examples or industries that you think of as best users of GenAI?
DALIO: I, well, I think the ones that I mentioned.
EISEN: Health care.
DALIO: I’m particularly excited about it. I mean, I’m focusing on the investment of — that’s the thing, I think.
EISEN: What about banks?
DALIO: I — well, I don’t know that I know enough about the applications to the banks, but I do think that there will be a revolution there. But I’m — I wouldn’t want to comment—
EISEN: But you…
DALIO: Because I don’t think I particularly have an insight there.
EISEN: It’s interesting that you have — obviously, you have used AI at Bridgewater for a long time, machine learning, right, algorithms, that sort of thing. How do you think it changes — the next iteration where we’re going into changes investing?
DALIO: I think that what you’re going to see, what we have done at Bridgewater and what you’re going to see is very similar to having a machine. There’s a — let’s say I have a factory, and I have a lot of workers in the factory, and all these people are doing things. And the right way to do this is not in your head and not with a lot of people doing it, but with a limited number of designers, who then take the criteria, take data, take criteria, understand markets. And so it’s not just follow what they did in the past, but take that understanding, put that into programming, and then be able to have them — it’s like a factory, with just the designers having the robots do the work. Here we are at the New York Stock Exchange, and I walk outside, and that was — used — that’s where I was clerk. A lot of people were running around. Now electronic trading means that you don’t really need people to do that electronic trading, and you will be able to do it better. So I think we’re entering this period where the smart guy, all in their heads wrestling around is obsolete, and that that AI platform is going to be the key, because that platform will take the data, deal with the decision rules, build the systems, use it to teach each other, use — the AI will teach you and you will work with the AI in a back-and-forth way to become much more automated, much more effective. And that — and in investment, it’s key. It’s going to be key to the future, and it’s going to be key that way in so many different areas, in health care. I look — spend a lot of time probably looking at health care, but there are many, many areas. So that kind of disruption is where the power is, more important even than where the chips are and who’s producing them.
EISEN: I was going to say, it sounds like you’re excited about it after all.
DALIO: Yes.
EISEN: I mean, I have heard you warn about dangerous situations, and you seem less nervous about the AI future.
DALIO: Well, AI is a tremendously powerful two-edged sword, right? AI is going to be a fantastic weapon, right? The winner of the AI race is going to be not only an economic winner. It’s going to be the geopolitical winner. They will win the wars. So, yes, it’s both.
EISEN: That brings us into the geopolitical conversation, which is another big theme for you historically, and that is the changing world order geopolitically. Where do you think we are headed right now?
DALIO: Yes, of course, the changing — the changing world order is not just like a political, interesting subject. It changes the supply-demand of almost everything. It changes the risks of the chips and so on. So, yes, we’re seeing — we’re in a period that is very similar to the 1930-to-’45 period. There’s an economic turbulence, and then there’s the great power conflict, right? And we see that. And so we’re seeing the emergence of Allies and Axis powers in the form of, OK, is that NATO, and how is that going to work? The U.S. certainly on one side, China, Russia on — and so on the other side. And how is that played out? The leaders that we have will determine how that’s going to be played out. But there’s a destiny here. There’s an inevitability that — of conflict, because order only comes about when there’s a power that is going to be able to sort of set the rules. But when we have that sort of conflict, there’s a lot of conflict that’s embedded in the system, which is why we see wars in Europe and wars in the Middle East and could see more wars in Asia. So, now, when we have a political change and we think about, OK, what does that mean for the Ukraine and the support for the Ukraine — that’s a good topic.
EISEN: Yes.
DALIO: And how does that change what the impact on Europe is and the European economy, but the geopolitics? Yes. So we have this very classic — all of this stuff has happened repeatedly in history. If you want—
EISEN: How does it end?
DALIO: OK. Well, there’s no definitive ending, but it is — it typically — when you look at the dynamic of that, it typically ends in turbulence, OK, meaning, if you take a look at the debt, money problem, the internal conflict problem, the geopolitical problem, climate and those, those in the future are less — we would say we’re not going to get better opportunistically in any one of those things, probably. And then we have AI and the technology. So, I think that it lends itself, anyway, when running a portfolio of diversification in various forms.
EISEN: Well, that seems to be the big takeaway from you today, Ray. Always thought-provoking. Thank you. We covered a lot of big, big ideas there. So, appreciate the time today.
DALIO: Thank you.
EISEN: Ray Dalio, of course, founder of Bridgewater.
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