The Ray Dalio Transcript

A few weeks back Ray Dalio, head of hedge fund Bridgewater Associates, sat for an extensive interview of Maria Bartiromo sponsored by the Council on Foreign Relations. Only the hour-plus long video was available at first. Now, the CFR posted a transcript of the interview. It’s well worth your time to read it and review Dalio’s approach to investing. You’ll find in principle it’s very similar to our approach at Retirement Watch, especially our “hedge fund” mutual fund strategy.

Now, the mistake of monetary policy — I think, most common mistake of monetary policy is that it’s targeting inflation and growth. And while inflation and growth are important, it — really, what it does is it produces debt. And what it has to pay attention to is debt growth relative to income growth, debt growth relative to sustainability.

And so what happens is lots of times you have a lot of debt growth that goes into the purchase of financial assets. And that’s a classic bubble. That’s worse than — that’s a riskier situation than inflation. So you take 2007 or such periods, and you see that there’s a lot of debt growth, which is accumulating for the purchase of financial assets. And then you look at the financial assets, and you say, they will not be able to service that debt. And so that produces a bubble. That’s what produced the 1929 bubble. That’s what produced, in Japan, the 1989 bubble, 1990 bubble. That’s what produced the 2007 bubble.

MODERATOR: Are you always looking for this opportunity where, whether it be debt is growing faster than they can service it or — in terms of your approach to investing, are you looking at it to get an edge?

DALIO: I’m just looking at what’s happening and trying to stay one step ahead of it, you know. (Laughter.) You know, things are happening — there are certain — things happen for reasons. They’re cause-effect — I’m just trying to understand those reasons, and I’m saying the same things happen over and over again, and you — if you see that that’s happening, I know that in a bubble that that’s not a healthy thing; that’s not going to work. And I just therefore don’t want to own the assets that are going to go down when the bubble’s going to burst and move into the assets that’ll be safer. That’s what I do.