WHEN: Today, Wednesday, October 30, 2024
WHERE: CNBC’s “Squawk on the Street”
Following is the unofficial transcript of a CNBC exclusive interview with Bridgewater Associates Founder Ray Dalio on CNBC’s “Squawk on the Street” (M-F, 9AM-11AM ET) today, Wednesday, October 30. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2024/10/30/ray-dalio-on-geopolitics-the-election-cycle-and-his-investing-outlook.html.
All references must be sourced to CNBC.
SARA EISEN: Joining me, a special guest. He can’t walk around here without getting stopped. He’s very recognizable. Ray Dalio is with me, the founder of Bridgewater. Thank you for taking the time.
RAY DALIO: Oh, I’m glad to be here.
EISEN: It’s good to see you here. You’ve been coming here for a long time. And I just want to frame the conversation always with you sort of in the way you look at the world right now and through history focused on the big themes like debt and the internal order changes. We’ll talk about the election.
DALIO: Yeah, five big things.
EISEN: Five big things, excuse me. Internal order on the election internally.
DALIO: Yeah, so credit, debt, and drives the economy and how that works. So number one.
EISEN: Yeah, yeah.
DALIO: And it goes through a big cycle. Number two is internal order and disorder.
EISEN: Yes.
DALIO: So number three — which we’re experiencing in the United States and some other countries.
EISEN: For sure. Debt too.
DALIO: We’re experiencing at an extreme, right?
EISEN: Yeah.
DALIO: Number three is the world order.
EISEN: Yes.
DALIO: You know, the rise of a great power and then the competition.
EISEN: This is China v. the US.
DALIO: China and then those — and then, yes. And what is the order? What is the rules?
EISEN: Right. China – on that.
DALIO: So it changes. It used to be dominant. It’s no longer dominant. Number four is —
EISEN: Pandemics.
DALIO: Yes, it was — yes, droughts — acts of nature, droughts, floods, and pandemics have killed more people than wars and toppled more orders than anything else. So climate, for example, and pandemics are a bigger part of our lives. And then number five is technology. People’s inventiveness. And they come up with technology. And these things go in cycles. The first three are big cycles. They’ve evolved. And then these others are disruptive. The four of those are concerning. The first four of those. The debt is concerning. The internal conflict is concerning. The external conflict is concerning. And certainly the climate and the cost of the climate is concerning. And then technology is a two-edged sword. So those are so everything that we’ll ever talk about and you’ll ever interview—
EISEN: Fits into that theme.
DALIO: Fits into that.
EISEN: No, you’re right.
DALIO: And understanding also the relationships between it is key. So seeing it in the big cycle way and seeing the relationship between these things is key.
EISEN: Every story we talk about, I think, on CNBC relates in some way to these themes. So what about here? How does that fit in? There’s just so much enthusiasm. I was just talking about some of the numbers in terms of growth and transitions in the economy. You’ve been coming here for years. How dramatically different is it? And what should investors know?
DALIO: Dramatically different. But I think that we go back to the elements of what makes a place successful. OK? So we take this. OK. Financially are you successful? Do you earn more money than you spend? Do you have a good income statement and a balance sheet? OK. That’s number one. Number two, do you have internal order where the people work together in a favorable way? Number three is very important. Are you going to be involved in a big international conflict that’s going to be damaging or not. These are really the first three. Then, of course, climate and technology. So when I come here and whatever country you pick, you ask yourself things like do they educate their children well and to become talented and then also civil with each other? And do you come out to an environment which lends itself to being productive and raising living standards? These are the standards.
EISEN: So this checks the boxes.
DALIO: Here it changed—
EISEN: Yeah.
DALIO: Radically when his excellency MBS took power.
EISEN: Yeah. So investment destination.
DALIO: People don’t see this.
EISEN: Yeah.
DALIO: You know, every country there’s pros and cons and there are controversial things. But if you’re talking about now seeing this and how the changes are taking place, it’s a remarkable place. He is a Lee Kuan Yew or a Deng Xiaoping of the area because of the strength and quality of the changes.
EISEN: Yeah. Well, certainly that’s how it feels here from the investors and that’s the message. I do wonder about I was hearing you tick off some of those boxes of what investors should be aware of and whether destinations are stable, you know, for capital. What about the US? Where do we fit in right now? We’re going into this election.
DALIO: Well, we have a real debt problem. OK. That is going—
EISEN: You’re still not touching Treasuries.
DALIO: I think one man’s debts is another man’s assets. And the question is, do you want to have it as an asset? It’s increasing in supply a lot. And we have a problem here. The supply demand is a problem ordinarily. And I think that you either have to pay back the debt in hard dollars or depreciated dollars because they’re going to print. And at the end of the day, I don’t want those things. That’s not going to be I think a good investment for the whole supply demand, OK. And that Treasury market, that is the basis of all capital formation. So it’s — you know, it’s a bigger thing. And also, at some point, when you combine it with the internal conflict issue, if you have a downturn, and we always have a downturn, when the downturn comes, I’m worried about the internal political conflict and the social conflict because we have irreconcilable differences now. In other words, compromising, which is essential in democracy, is considered a sign of weakness. So we now have more of the hard left, hard right kind of conflict.
EISEN: Extremes. Yeah, no, you do not back candidates, right? You’re pretty apolitical. But I do wonder—
DALIO: But I’d be clear. Both of the candidates worry me in their own ways.
EISEN: They both worry you?
DALIO: Yeah, in terms of—
EISEN: What worries you about Vice President Harris?
DALIO: Well, I think this left-right and fighting each other is a problem as it becomes more of the extremes. I think that there needs to be a bringing of Americans together, that middle of that, and making great reforms. In other words, there needs to be a strong leader of the middle, I believe, that makes great reforms, because there needs to be reforms. If we’re looking at the composition of this, you know, it needs to have great reforms. So neither of the candidates does that for me. So that’s—
EISEN: What about President Trump? Do you have concerns related, for instance, to tariffs or any of the economic policies? I’m wondering if you see a big difference in maybe the near-term outlook depending on who wins.
DALIO: Well, there’s, of course, a very big difference in policies. You know, one is more capitalist. Trump is a lot more capitalist. And she’s a lot more left. OK. And the question is, how left is that? It would be great if she clarified things, you know. But we have that. And then we have this irreconcilable differences. So big differences. There’s going to be big differences in, let’s say, tax policy. He will get what will tariff revenue will be like tax revenue. And the reality is that he’s going to collect a lot of tariff revenue. You know, I estimate it will probably be a half a trillion dollars a year, something like that.
EISEN: So that’s a good thing.
DALIO: It could be larger from a tax revenue point of view. But at the same time, then that tax revenue is protectionism. Prices of those things are going to go up. But it depends how much he converts that to internal productivity and being competitive and efficiency and all of those things. But either case, you have a totally different picture of how the revenue. And so he’s better for the capital markets. He’s a capitalist. More going to be better for the capital markets. Be the case, they’re going to be big deficits. OK, so we’re going to deal with that issue. So it’s really more left, right question. And it’s a shame because we need to bring the country together in a smart way and make great reforms. We need to do that. And that’s my concern.
EISEN: Yeah, well, I don’t see anyone doing that.
DALIO: And then when that happens so we take the election.
EISEN: Yeah.
DALIO: Let’s take the election. The first question is, can we make an orderly transition of power?
EISEN: I know you’ve been worried about this, yeah.
DALIO: If Donald Trump loses by a small margin, that becomes, I think, a question. It’s not a probability. You know, I think we will.
EISEN: You’re worried about a repeat of January 6?
DALIO: But you can — you can have — you have irreconcilable differences. So when you go beyond even the election, how will decision making be made? Will they accept each other? How — let’s say — I think they’re going to win the Senate. There’s a decent chance of the House and then the possibility of president — presidency.
EISEN: Presidency. Yeah.
DALIO: So how that works and then the playing by the rules. This is all going to be key to watch.
EISEN: Right. I guess the question for investors in the long run is if we don’t. And you root for the middle. You root for the compromise that doesn’t seem to exist.
DALIO: There’s a lot of great, sensible middle and smart people to make the reforms. We need to make reforms.
EISEN: Right. So until then, though, I mean, treasuries.
DALIO: Well, yes, I don’t—
EISEN: You consider a risky investment?
DALIO: Yes. You look at it this way. If you — the way I look at it is, let’s say you take the inflation rate. And whatever your estimate on the inflation rate, it’s not a precise. But let’s assume it was 2.5%, by way of example. And then what is the real interest rate that is going to balance the debtors and the creditors? In other words, interest rates cannot be so high that they’re bad for the debtors, nor so low that they’re bad for the creditors. And roughly a 2% real rate on that is what matters. So you take a 4 — under normal circumstances, you take, let’s say a 2.5, you add 2 to that number or something, you look at the bond yield, I mean just making it simple, and then you see variations around that, but it looks thick. But the supply-demand issue is really the big issue. The quantity of new offerings, and if you look at who holds them, about a third of our debt is held by foreigners.
EISEN: Yes.
DALIO: And so that they have —
EISEN: And China’s been decreasing.
DALIO: And they have an issue with that debt. And then that — so you have — we’re going to produce a lot more, so it’s not going to be — so the supply-demand issue, if you get selling of the debt, we think of supply-demand as new debt that’s being issued.
EISEN: Yes.
DALIO: But there are a lot of holders of that, if they don’t have an adequate real return or they’re worried about it, they could sell it. That’s the cycle. So there’s more upside risk on that number than there is debt.
EISEN: You’ve been worried about that for a while, though, and you’ve been warning about the supply-demand mismatch, and yet there still continues to be demand for treasuries. I do wonder if we — if you think we’re near some sort of breaking point.
DALIO: It is becoming much more of an issue, but, you know, we’ll see it when it comes.
EISEN: Yeah.
DALIO: But I don’t know when I go down and I say, who are the big owners and what are they likely to do? The central bank’s bought.
EISEN: Yeah.
DALIO: Banks bought. Commercial banks bought. Foreigners, Japanese bought.
EISEN: Now, they’ve been tightening, going the other way. Yeah.
DALIO: Now, they don’t want — they have more than enough, so they’re being hurt by it. The central bank’s losing money on it. Foreigners are losing money on it. And then there’s this issue of the conflict in sanctions. So on the margin, you have a problem, but you’re also threatening those who have demand, you know? It’s an issue.
EISEN: Is this why you’ve been a fan of having gold in the portfolio?
DALIO: Yeah, gold is —
EISEN: Gold’s done very well.
DALIO: Don’t look at — you have to look at having diversification. My mantra is I want 15 good, uncorrelated return streams. That’s my mantra, right? Start off with diversification. And what you look at when you look at gold, which should be a part of that, is as an overlay on a portfolio, it reduces the risk of the portfolio, doesn’t increase the risk of the portfolio. So it’s a part of a good diversification. People would have more of it if they just said what is a balanced portfolio, aside from the dynamics I’m talking about. But then when you put the dynamics I’m talking about, about the supply and demand, and then you talk about, you know, what the world is looking like in terms of what it becomes confidence in holding, that’s a risk for the Treasury market.
EISEN: I also want to ask you, Ray, about China, because you’ve been in that country for a long time. You have great relationships there. Investors have been sour about China in recent years. There’s been a little bit of excitement lately because they’ve been trying to stimulate. And I just wonder if you think, first of all, what you think they should be doing to really get their economy back on track into growth mode and whether you’re encouraged so far.
DALIO: Well, there are a number of — there are a number of challenges. Let’s take the debt challenge, economic challenge. OK. They have a large debt issue. And a lot of that debt went into real estate. 70% of all savings in China were in real estate. And so — and then you think the other things that they’re saving in, stocks and other things, have gone down a lot. So there’s been a big negative wealth effect. And if I was to take you through who owes the money to whom, local governments were raising money by selling off land, and that can’t happen. And then they also borrowed money from companies and so on, and that can’t happen. You have a financial classic issue in terms of debt. And there needs to be a debt restructuring. In other words, how do you deal with these things? There have been many of them through history. You need to do two things. You need to restructure the debt and clean it off the balance sheet and so on. Very difficult process, very politically sensitive because—
EISEN: It’s painful.
DALIO: The person making the decisions has an effect on the wealth. And then you need to have a monetary policy which makes negative real rates so that it’s not desirable to hold cash and savings in a deposit. That’s what we call pushing on a string. And then when you think about that for an individual or something, when you have deflation, cash is good. When you have credit problems and other markets not doing well, cash is good. So you have to make cash not so good, and you have to do that. That’s the formula all through all time. Now, it’s a challenging formula. How they approach that will be very important, and they’re in the process of trying to figure that out. So there’s that problem. In addition, of course, we have the world economic problem, the problem with the United States in terms of the conflict, the problem with foreign money, the worries about a lot of these things in China, the nature, is it still glorious to be rich? You know, Deng Xiaoping said, it’s glorious to be rich.
EISEN: Do they still feel that way?
DALIO: And there was an entrepreneurial environment in which there was, you know, a lot of buzz happening and a lot of entrepreneurship and so on, and it’s more difficult now in these things. So it’s a very, very challenging environment that could end up being, you know, is China like a Japan situation in which that lingers and it becomes a problem, or are they going to do the reforms and make that move? It’s been too long, and then we have that internal conflict thing. So it’s a different situation.
EISEN: Yeah, some longer-term, bigger structural factors to consider. Ray, we so appreciate it. Thank you for some of your insights there. Thanks for taking the time.
DALIO: Oh, it’s always a pleasure.
EISEN: Yeah, you too. That was Ray Dalio, of course, a trip around the world a little bit and some of the thinking behind how he sees the world and what it means for investors.
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