Bridgewater founder Ray Dalio: We are definitely in a bubble, but that doesn't mean you should sell [9:10]

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0:00 · jobs report and weekly jobless
0:02 · claims for the week of November
0:04 · 15th, both of those numbers
0:06 · coming at 8:30 a.m. eastern
0:09 · time this morning.
0:09 · >> Okay, now to our newsmaker
0:11 · of the morning. He's here
0:12 · joining us to discuss the
0:14 · markets, the history of
0:15 · economic bubbles, artificial
0:16 · intelligence, so much more.
0:18 · Bridgewater founder Ray Dalio
0:19 · is with us. Good morning to you
0:21 · sir.
0:21 · >> Good morning.
0:22 · >> So you've been providing
0:24 · lessons for us for a very long
0:26 · time about economic cycles and
0:27 · where we are and what's going
0:28 · on. The big question in the
0:30 · market right now, because we're
0:31 · looking at Nvidia this morning,
0:32 · and I think a lot of people are
0:34 · waking up thinking, where's the
0:36 · market headed? Next has been
0:37 · this question of an AI bubble
0:38 · and curious where you
0:40 · ultimately come down. Are you
0:41 · with Jen-Hsun Huang, who says
0:42 · he doesn't see it that way, or
0:45 · do you see something else?
0:46 · >> There's definitely a bubble
0:48 · in the markets and bubbles.
0:52 · What is a bubble? What is a
0:54 · bubble? What is a bubble?
0:56 · Bubble is that there's a lot of
1:00 · creation of wealth from various
1:04 · ways, such as you decide that
1:06 · you're going to have a cell,
1:10 · $50 billion worth of stock and
1:12 · value it at trillion dollars,
1:15 · or you have multiples like that,
1:17 · and then you create the wealth
1:19 · that way. And then the question
1:20 · with all this wealth relative
1:22 · to money is who needs the money?
1:25 · So it's it's a matter of who
1:26 · the buyers and sellers are. For
1:28 · example, if we had a wealth tax
1:31 · or if you had a tightening of
1:33 · monetary policy, then there has
1:35 · to be the selling of those
1:37 · assets. So in order to pay
1:39 · those things. So there's a
1:40 · mechanics of who owns it, is it
1:42 · over owned and so on. It's not
1:45 · the long term duration of the
1:47 · earnings. So you think about it,
1:49 · isn't it interesting that we
1:51 · have such a short term reaction.
1:54 · It's great that what the
1:55 · results are. But this is a it's
1:57 · valued as a long duration asset.
2:00 · So for 25 years the next 25
2:02 · years it's very unknown. We
2:04 · don't know what's going to
2:06 · happen. And bubbles don't go
2:07 · happen. Right. Because of good
2:09 · estimates of of what in the
2:12 · future it happens because of
2:14 · the need for cash. Do you sell
2:16 · that asset? Do you have to sell
2:17 · that asset for cash for some
2:19 · reason?
2:19 · >> That's a question though.
2:20 · >> Your book I thought, did
2:22 · such a good example. I mean, I
2:25 · thought, by the way, your book
2:27 · is fabulous. Thank you. But you
2:28 · take the 1929 and then you say,
2:31 · what made it go up and what
2:33 · made it go down. And that
2:34 · dynamic is the way bubbles work,
2:37 · right? And so if you take who
2:39 · has exposures, how much
2:41 · leverage is used, and so on,
2:43 · this is about 80% into a bubble
2:46 · that was 100% would have been
2:50 · 1929 and 2000.
2:51 · >> So how much leverage do you
2:53 · think is supporting all of this?
2:55 · Because we were talking to
2:57 · Partsinevelos in the last hour,
2:59 · and she was explaining this
3:01 · idea that Jen-Hsun Huang
3:02 · doesn't see a lot of the
3:04 · transactions that he's been
3:05 · doing. We've been talking about
3:06 · these circular transactions
3:07 · where he's effectively taking
3:08 · an equity stake in some
3:09 · business, and that business is
3:11 · then committing to buy his
3:13 · chips, if you will. Yeah. A
3:15 · form of vendor financing with
3:17 · sort of a equity overlay, maybe,
3:20 · is the way to think about it.
3:21 · Do you look at that and say
3:23 · that's a problem. It's not a
3:25 · problem. Should we think about
3:26 · vendor financing in a different
3:27 · way? That was something that
3:28 · got a lot of the fiber guys in
3:30 · trouble in the late 90s, for
3:32 · example.
3:32 · >> I think it's an issue, but I
3:34 · don't think it's the main issue.
3:36 · I think the real issue is who
3:37 · owns the stock. Okay. Is it in
3:39 · strong hands? Not not not just
3:42 · one stock. Isn't it amazing?
3:43 · We're talking about one stock
3:46 · for the stock market bubble.
3:47 · And we're talking about for the
3:49 · economy bubble. So you have
3:51 · such a small percentage of the
3:53 · economy such a small percentage
3:55 · of the American population in
3:58 · terms of wealth and so on,
4:01 · concentrated, so concentrated.
4:03 · And everybody in it and, and in
4:05 · a leveraged way, in various
4:07 · ways, it has leveraged.
4:09 · >> What are strong hands. What
4:10 · how would you define that?
4:13 · >> Weekends would be the public.
4:15 · >> So retail investors are
4:16 · weekend right. Strong hands are
4:19 · the owners of these companies.
4:20 · The the the right.
4:21 · >> In other words strong hands
4:23 · is that they primarily invest
4:25 · their own money. There it you
4:28 · don't have public right.
4:30 · Weekends is largely let's say a
4:32 · leveraged public and all united
4:35 · about that. That's that's one
4:37 · of the key ingredients of a
4:38 · bubble. So it's not just
4:40 · pricing because we have to find
4:42 · out. You know, your book did
4:43 · such a great job of looking at
4:45 · the wonderful companies in the
4:48 · 1920s. And then and it
4:52 · enumerated how electricity came
4:53 · out and General Electric and
4:55 · RCA and so on. And those
4:57 · companies went down a 90%, not
5:00 · because of the economy and so
5:02 · on. The bubble burst first
5:04 · because they needed cash. So
5:06 · what is you have to understand
5:09 · that wealth can't be spent in
5:11 · order to in order to get money,
5:14 · you have to sell wealth in
5:16 · order to get cash, to get the
5:19 · money to buy things. And so
5:21 · when that happens, bubbles
5:23 · burst. So bubble bursting means,
5:25 · let's say, a tightening of
5:27 · monetary policy is classic. But
5:28 · also something like wealth
5:30 · taxes can happen. For example,
5:32 · think about wealth taxes
5:34 · forcing sales of assets that
5:37 · you have to. By the way.
5:39 · >> There's a proposal for
5:41 · wealth tax in California right
5:42 · now.
5:42 · >> Yeah. So state and national
5:44 · right. State and national. I'm
5:46 · not I'm just trying to describe
5:48 · the mechanics of a bubble.
5:50 · >> But you said we're at 80%.
5:52 · >> Yes. There's I have a bubble
5:54 · indicator that goes back to
5:56 · 1900. And it just makes it it
5:59 · has a number of indicators how
6:01 · how much leveraging. Who has
6:03 · the leveraging is it? What is
6:06 · the amount of money in wealth
6:09 · that relative to the amount of
6:11 · cash that needs to exist. And
6:14 · so on these indicators, there
6:15 · are a number of them show that
6:18 · we're on that on that chart. If
6:21 · I was to show you the chart,
6:23 · it's about 80% of where it was
6:27 · in those two times. That
6:29 · doesn't mean that that's the
6:30 · end of the move, okay? Because
6:33 · bubbles have to be pricked.
6:34 · Right. And so you can measure
6:37 · that there's vulnerability a
6:39 · lot of vulnerability
6:45 · holding what.
6:46 · >> Here's my question to you
6:47 · about that, which is if the
6:49 · bubble hexametric there are
6:50 · folks, we had Paul Tudor Jones
6:52 · come in here a couple weeks ago
6:54 · and he said, look, I think
6:55 · we're in October of 1999, by
6:57 · the way, the market would still
6:58 · have 40% to go back in 1928.
7:01 · Charles Merrill, who founded
7:03 · Merrill Lynch, told everybody,
7:05 · get out of the market because
7:06 · he thought it was a bubble and
7:08 · he was right, and he was wrong
7:11 · insofar as from the beginning
7:11 · of 1928 to September of 1929,
7:13 · stock market went up 90%. And
7:15 · so.
7:16 · >> But I think that when you're
7:18 · looking at that, you're looking
7:20 · at it incorrectly. Okay. What
7:23 · is a bubble? Is the definition,
7:26 · right? I want to reiterate a
7:27 · lot can go up before the bubble
7:31 · burst. A bubble is an
7:34 · unsustained set of
7:35 · circumstances. It has
7:36 · unsustained amount of buying
7:38 · and has an unsustained amount
7:41 · of valuation. It has. And then
7:44 · there's something that pricks
7:46 · the bubble. Is there okay.
7:47 · >> Is there a way to sustain
7:49 · this though?
7:49 · >> You can't look at, you can't
7:51 · look at don't sell just because
7:53 · there's a bubble okay, okay.
7:55 · Don't sell just because of
7:56 · bubble. But if you look at the
7:58 · correlations with the next ten
8:00 · years returns, when you are in
8:02 · that territory, you get very
8:04 · low returns.
8:06 · >> JP Morgan just did a report
8:08 · on this that showed that if you
8:10 · got in at over a 23 PE multiple,
8:14 · typically over a ten year
8:15 · period, your your return is a
8:18 · delta between 2% and -2% a year
8:21 · over ten years. Oh yeah. So to
8:23 · your point.
8:24 · >> I just put out today a post
8:27 · on this and you'll see the
8:28 · charts. And if you go on that.
8:31 · So I think that you have to say
8:33 · it's unsustainable. Then you
8:35 · have to go to the timing. What
8:37 · is it that pricks the bubble.
8:39 · Right. Typically a tightening
8:41 · of monetary policy. We're not
8:43 · going to have that now okay.
8:44 · Right. But but you could have
8:46 · something. In other words the
8:48 · need for cash. Right. The need
8:50 · for cash is always that which
8:52 · pricks the bubble. Because when
8:54 · you have wealth, you can't
8:57 · spend wealth. You have to sell
8:59 · wealth in order to get the
9:00 · money to buy the things you
9:02 · need or pay the bills you have.
9:04 · That's the dumb. So I think
9:06 · that the picture is pretty
9:08 · clear in that we are

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0:00	·	jobs report and weekly jobless
0:02	·	claims for the week of November
0:04	·	15th, both of those numbers
0:06	·	coming at 8:30 a.m. eastern
0:09	·	time this morning.
0:09	·	>> Okay, now to our newsmaker
0:11	·	of the morning. He's here
0:12	·	joining us to discuss the
0:14	·	markets, the history of
0:15	·	economic bubbles, artificial
0:16	·	intelligence, so much more.
0:18	·	Bridgewater founder Ray Dalio
0:19	·	is with us. Good morning to you
0:21	·	sir.
0:21	·	>> Good morning.
0:22	·	>> So you've been providing
0:24	·	lessons for us for a very long
0:26	·	time about economic cycles and
0:27	·	where we are and what's going
0:28	·	on. The big question in the
0:30	·	market right now, because we're
0:31	·	looking at Nvidia this morning,
0:32	·	and I think a lot of people are
0:34	·	waking up thinking, where's the
0:36	·	market headed? Next has been
0:37	·	this question of an AI bubble
0:38	·	and curious where you
0:40	·	ultimately come down. Are you
0:41	·	with Jen-Hsun Huang, who says
0:42	·	he doesn't see it that way, or
0:45	·	do you see something else?
0:46	·	>> There's definitely a bubble
0:48	·	in the markets and bubbles.
0:52	·	What is a bubble? What is a
0:54	·	bubble? What is a bubble?
0:56	·	Bubble is that there's a lot of
1:00	·	creation of wealth from various
1:04	·	ways, such as you decide that
1:06	·	you're going to have a cell,
1:10	·	$50 billion worth of stock and
1:12	·	value it at trillion dollars,
1:15	·	or you have multiples like that,
1:17	·	and then you create the wealth
1:19	·	that way. And then the question
1:20	·	with all this wealth relative
1:22	·	to money is who needs the money?
1:25	·	So it's it's a matter of who
1:26	·	the buyers and sellers are. For
1:28	·	example, if we had a wealth tax
1:31	·	or if you had a tightening of
1:33	·	monetary policy, then there has
1:35	·	to be the selling of those
1:37	·	assets. So in order to pay
1:39	·	those things. So there's a
1:40	·	mechanics of who owns it, is it
1:42	·	over owned and so on. It's not
1:45	·	the long term duration of the
1:47	·	earnings. So you think about it,
1:49	·	isn't it interesting that we
1:51	·	have such a short term reaction.
1:54	·	It's great that what the
1:55	·	results are. But this is a it's
1:57	·	valued as a long duration asset.
2:00	·	So for 25 years the next 25
2:02	·	years it's very unknown. We
2:04	·	don't know what's going to
2:06	·	happen. And bubbles don't go
2:07	·	happen. Right. Because of good
2:09	·	estimates of of what in the
2:12	·	future it happens because of
2:14	·	the need for cash. Do you sell
2:16	·	that asset? Do you have to sell
2:17	·	that asset for cash for some
2:19	·	reason?
2:19	·	>> That's a question though.
2:20	·	>> Your book I thought, did
2:22	·	such a good example. I mean, I
2:25	·	thought, by the way, your book
2:27	·	is fabulous. Thank you. But you
2:28	·	take the 1929 and then you say,
2:31	·	what made it go up and what
2:33	·	made it go down. And that
2:34	·	dynamic is the way bubbles work,
2:37	·	right? And so if you take who
2:39	·	has exposures, how much
2:41	·	leverage is used, and so on,
2:43	·	this is about 80% into a bubble
2:46	·	that was 100% would have been
2:50	·	1929 and 2000.
2:51	·	>> So how much leverage do you
2:53	·	think is supporting all of this?
2:55	·	Because we were talking to
2:57	·	Partsinevelos in the last hour,
2:59	·	and she was explaining this
3:01	·	idea that Jen-Hsun Huang
3:02	·	doesn't see a lot of the
3:04	·	transactions that he's been
3:05	·	doing. We've been talking about
3:06	·	these circular transactions
3:07	·	where he's effectively taking
3:08	·	an equity stake in some
3:09	·	business, and that business is
3:11	·	then committing to buy his
3:13	·	chips, if you will. Yeah. A
3:15	·	form of vendor financing with
3:17	·	sort of a equity overlay, maybe,
3:20	·	is the way to think about it.
3:21	·	Do you look at that and say
3:23	·	that's a problem. It's not a
3:25	·	problem. Should we think about
3:26	·	vendor financing in a different
3:27	·	way? That was something that
3:28	·	got a lot of the fiber guys in
3:30	·	trouble in the late 90s, for
3:32	·	example.
3:32	·	>> I think it's an issue, but I
3:34	·	don't think it's the main issue.
3:36	·	I think the real issue is who
3:37	·	owns the stock. Okay. Is it in
3:39	·	strong hands? Not not not just
3:42	·	one stock. Isn't it amazing?
3:43	·	We're talking about one stock
3:46	·	for the stock market bubble.
3:47	·	And we're talking about for the
3:49	·	economy bubble. So you have
3:51	·	such a small percentage of the
3:53	·	economy such a small percentage
3:55	·	of the American population in
3:58	·	terms of wealth and so on,
4:01	·	concentrated, so concentrated.
4:03	·	And everybody in it and, and in
4:05	·	a leveraged way, in various
4:07	·	ways, it has leveraged.
4:09	·	>> What are strong hands. What
4:10	·	how would you define that?
4:13	·	>> Weekends would be the public.
4:15	·	>> So retail investors are
4:16	·	weekend right. Strong hands are
4:19	·	the owners of these companies.
4:20	·	The the the right.
4:21	·	>> In other words strong hands
4:23	·	is that they primarily invest
4:25	·	their own money. There it you
4:28	·	don't have public right.
4:30	·	Weekends is largely let's say a
4:32	·	leveraged public and all united
4:35	·	about that. That's that's one
4:37	·	of the key ingredients of a
4:38	·	bubble. So it's not just
4:40	·	pricing because we have to find
4:42	·	out. You know, your book did
4:43	·	such a great job of looking at
4:45	·	the wonderful companies in the
4:48	·	1920s. And then and it
4:52	·	enumerated how electricity came
4:53	·	out and General Electric and
4:55	·	RCA and so on. And those
4:57	·	companies went down a 90%, not
5:00	·	because of the economy and so
5:02	·	on. The bubble burst first
5:04	·	because they needed cash. So
5:06	·	what is you have to understand
5:09	·	that wealth can't be spent in
5:11	·	order to in order to get money,
5:14	·	you have to sell wealth in
5:16	·	order to get cash, to get the
5:19	·	money to buy things. And so
5:21	·	when that happens, bubbles
5:23	·	burst. So bubble bursting means,
5:25	·	let's say, a tightening of
5:27	·	monetary policy is classic. But
5:28	·	also something like wealth
5:30	·	taxes can happen. For example,
5:32	·	think about wealth taxes
5:34	·	forcing sales of assets that
5:37	·	you have to. By the way.
5:39	·	>> There's a proposal for
5:41	·	wealth tax in California right
5:42	·	now.
5:42	·	>> Yeah. So state and national
5:44	·	right. State and national. I'm
5:46	·	not I'm just trying to describe
5:48	·	the mechanics of a bubble.
5:50	·	>> But you said we're at 80%.
5:52	·	>> Yes. There's I have a bubble
5:54	·	indicator that goes back to
5:56	·	1900. And it just makes it it
5:59	·	has a number of indicators how
6:01	·	how much leveraging. Who has
6:03	·	the leveraging is it? What is
6:06	·	the amount of money in wealth
6:09	·	that relative to the amount of
6:11	·	cash that needs to exist. And
6:14	·	so on these indicators, there
6:15	·	are a number of them show that
6:18	·	we're on that on that chart. If
6:21	·	I was to show you the chart,
6:23	·	it's about 80% of where it was
6:27	·	in those two times. That
6:29	·	doesn't mean that that's the
6:30	·	end of the move, okay? Because
6:33	·	bubbles have to be pricked.
6:34	·	Right. And so you can measure
6:37	·	that there's vulnerability a
6:39	·	lot of vulnerability
6:45	·	holding what.
6:46	·	>> Here's my question to you
6:47	·	about that, which is if the
6:49	·	bubble hexametric there are
6:50	·	folks, we had Paul Tudor Jones
6:52	·	come in here a couple weeks ago
6:54	·	and he said, look, I think
6:55	·	we're in October of 1999, by
6:57	·	the way, the market would still
6:58	·	have 40% to go back in 1928.
7:01	·	Charles Merrill, who founded
7:03	·	Merrill Lynch, told everybody,
7:05	·	get out of the market because
7:06	·	he thought it was a bubble and
7:08	·	he was right, and he was wrong
7:11	·	insofar as from the beginning
7:11	·	of 1928 to September of 1929,
7:13	·	stock market went up 90%. And
7:15	·	so.
7:16	·	>> But I think that when you're
7:18	·	looking at that, you're looking
7:20	·	at it incorrectly. Okay. What
7:23	·	is a bubble? Is the definition,
7:26	·	right? I want to reiterate a
7:27	·	lot can go up before the bubble
7:31	·	burst. A bubble is an
7:34	·	unsustained set of
7:35	·	circumstances. It has
7:36	·	unsustained amount of buying
7:38	·	and has an unsustained amount
7:41	·	of valuation. It has. And then
7:44	·	there's something that pricks
7:46	·	the bubble. Is there okay.
7:47	·	>> Is there a way to sustain
7:49	·	this though?
7:49	·	>> You can't look at, you can't
7:51	·	look at don't sell just because
7:53	·	there's a bubble okay, okay.
7:55	·	Don't sell just because of
7:56	·	bubble. But if you look at the
7:58	·	correlations with the next ten
8:00	·	years returns, when you are in
8:02	·	that territory, you get very
8:04	·	low returns.
8:06	·	>> JP Morgan just did a report
8:08	·	on this that showed that if you
8:10	·	got in at over a 23 PE multiple,
8:14	·	typically over a ten year
8:15	·	period, your your return is a
8:18	·	delta between 2% and -2% a year
8:21	·	over ten years. Oh yeah. So to
8:23	·	your point.
8:24	·	>> I just put out today a post
8:27	·	on this and you'll see the
8:28	·	charts. And if you go on that.
8:31	·	So I think that you have to say
8:33	·	it's unsustainable. Then you
8:35	·	have to go to the timing. What
8:37	·	is it that pricks the bubble.
8:39	·	Right. Typically a tightening
8:41	·	of monetary policy. We're not
8:43	·	going to have that now okay.
8:44	·	Right. But but you could have
8:46	·	something. In other words the
8:48	·	need for cash. Right. The need
8:50	·	for cash is always that which
8:52	·	pricks the bubble. Because when
8:54	·	you have wealth, you can't
8:57	·	spend wealth. You have to sell
8:59	·	wealth in order to get the
9:00	·	money to buy the things you
9:02	·	need or pay the bills you have.
9:04	·	That's the dumb. So I think
9:06	·	that the picture is pretty
9:08	·	clear in that we are