The Interview about the Principles for Changing World Order

by Ray Dalio

Five Factors:

  1. Economy, Debt, Money, Market
  2. Internal Order or Disorder/Conflict
  3. External Order or Disorder (Power Rivalries)
  4. Acts of Nature (Impact of Climates)
  5. Technologies (the advance of productivity)

Cycles Factors, as the below three, generate the cycle. (, are marked by wars. Starting the cycle at the end of WW II.)

  1. Internal Order – Productivity increase
  2. Debt raises relative to Incomes. (Debt is money, and debt means more buying power.) Increase the gaps of wealth, -> Internal Conflicts start to emerge
  3. External Conflict:

Climates, and Technologies (Mans inventiveness, new technologies)

Apply those five factors into the current world.

  • The current Debt Climate condition:

    Currently,

    Private debt sectors (individuals) get more and more indebted.

    Public debt sector take on the debt, and the central bank is supporting that effort.

    On a cyclical basis, total debt relative to GDP continuing to rise near its high.

    Debt service cost (a function of interest rate) increase, and public sector takes the burden.

    Then, Public sector starts to get indebtedness.

    That is the short-term cycle.

The cycle for development, Ray considers there are four stages.

  1. A poor country that has no capital accumulation starts to recognise the poverty.

    Country gets money to get capital formation, and conduct infrastructure (such as build roads). Do not waste that money, and put money into productive uses.

  2. Mentality. As the country getting richer, it still think it is not rich enough, is still poor.

  3. The country keeps getting richer, and start to realise it do not have to work that hard, and start to enjoy the life.

  4. As there are less works, the country gets poor, but still think itself is rich. So start to borrow money.

How to create a portfolio.

  • has a diversified portfolio that is able to absorb risks and unforeseen.

  • The types of assets in the portfolio might include

    1. Inflation index bonds
    2. Gold
    3. Real Rates
    • Avoid the credit risk. (The above three are the government obligations, so less credit risks are there)
    • Such as, we short Inflation index bond and long Gold (we could avoid the credit risks, and diversify the portfolio with certain target)