Microsoft’s Bill Gates has called it “a terrifying picture that is hard to disprove,” while former Treasury Secretary Hank Paulson says it “sheds new light on the key reasons countries win in the global economic and political arenas, and today applies to China and the US”.
But Dalio, whose Bridgewater Associates fund manages $5 billion for the China Investment Corp. sovereign wealth fund, gets irritated when people think this is about picking winners and losers.
“Please don’t make an anti-US, pro-China argument out of this, because that’s not what I’m doing,” Dalio says, “I’m not saying China will be a winner, or the United States will be a winner. I’m just watching to the different health measures of their conditions.
“Sometimes people misunderstand – like I’m pro-China and anti-US. It’s not at all, I’m just trying to describe the dynamics, the reality as accurately as possible.”
But Bridgewater’s latest investment overview clearly indicates that some of his biggest bets were against the currencies of traditional world powers.
Bridgewater also tells investors that it has made significant returns on interest rates – shorting the US, Europe and the UK. This was followed by commodities and currencies from developed countries – for example, shorting the [Japanese] yen,” the company’s statement said.
US heading for stagflation
With the Federal Reserve beginning to cut interest rates to curb 40-year high inflation, Dalio thinks America is headed for a period of stagflation, low growth and high prices, which means he will shy from investing in US debt assets such as bonds†
“As a global macro investor, I have to be realistic,” says Dalio, “So I have to paint an accurate picture.”
That photo, as Kissinger, Gates and Paulson say, is scary – and Dalio says Australians should be wary of it.
“If you take all those measures and look at them objectively as health indices [America] falls. And yes, as an American I worry about that.
“And if as global citizens we believe in the world order that we have had since 1945, and Australia is an ally in that belief, then you should be concerned about the things that are unhealthy.”
Three things happen
He says there are three things that happen that make people wake up. The first is creating a lot of debt and printing money and its effects.
“The second is major internal conflict between the population of the left and the population of the right, particularly in the United States, which threaten to threaten the democratic system.”
Dalio, who bought his first shares with his golf caddy money at the entrepreneurial age of 12, cautions that while some redistribution of wealth is warranted, it needs to be done much more carefully than in the past.
“It’s a reality that if you redistribute wealth and lower your productivity, you as a whole will suffer.”
Legendary figure: Bell CFO Colin Bell, pictured in 2007. “Colin was my best friend,” says hedge fund founder Ray Dalio. Sasha Woolley
His third major factor is that there is a “great power conflict”.
This he says, “where there is no longer a dominant power like the United States and the American old world order. And so there are similar powers queuing up for a major power conflict.”
China is clearly the big one, and the power that Australians must recognize.
“China’s measures of global power have risen significantly. Since I went to China, per capita income has increased 26 times. By all objective measures, you now have something close to power equality with the US.”
Asked if he thought the US government should spend more on military and diplomatic efforts in the Pacific to counterbalance? China’s aggressionhe avoids.
“These are the kinds of tradeoffs that come when you don’t have enough money. It is up to others to choose whether it is better to spend on defense in Europe or on defense in Asia.
“People often say: are you on this side or that side? Do you think democracy is better than autocracy? I don’t know the answers to those questions.
“The important thing to see is that if you have a lot of debt and you don’t have enough real money, hard money, you’re in a very difficult position.”
While his safe-haven bet is inflation-indexed assets and, of course, Australian farmland, Dalio says the real solutions to all these risks to a country’s power and economy are the two things that are probably the most difficult to find.
“Productivity and togetherness is what is needed.”
And one of Dalio’s longest-lasting investments – an Australian farm – is proof of that.
He met his Australian agricultural business partner, the late Colin Bell, through a friend in London.
“I bought some Australian wool options from him. He came to my house in New York and we got to know each other, and we’ve been good friends ever since. We bought a number of agricultural properties and we still have them.”
“Colin was my best friend. So sad to lose him.”
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