Ray Dalio's latest interview: Many phenomena today are strikingly similar to those in the 1930s

Compiled by: Smart Investor

"A systemic order collapse occurs once in a lifetime. But in history, it has never been absent."

"I certainly agree that 'not manufacturing things is a big problem', but the question is, do we have the manufacturing capability?"

Ray Dalio, founder of Bridgewater Associates, posted an article on LinkedIn on April 7th, discussing tariff issues.

He stated that we are currently witnessing a typical collapse of monetary, political, and geopolitical order. Such system collapses typically occur once in a lifetime, but historically, they happen when unsustainable conditions exist.

On April 8th Eastern Time, Ray Dalio was interviewed by CNBC, reiterating his views in a 15-minute conversation. Facing sharp questions from three ace hosts, Dalio was straightforward.

He did not use buzzwords or sound pessimistic, but more like an experienced mechanic, opening the system, examining its structure, dissecting stress, trying to answer a fundamental question: Can we maintain our current operational mode?

In this interview, Dalio provided the essential background for discussing tariffs using his usual thinking framework: three existing orders are disintegrating, and five important forces in human history have always been at work, "Tariffs are actually addressing global imbalance issues".

He admitted to completely agreeing that "not manufacturing things is a big problem" and acknowledging the goal of manufacturing reshoring, "But are we capable of manufacturing? This is a deeper structural issue."

Dalio's pragmatism lies in his analysis of the US population structure, which he finds highly challenging.

"Our population structure is like this: About 1% are extremely smart, attending the best schools and creating 'unicorn' companies after graduation (about half of whom are foreigners); then 10% are also doing well; but 60% of the population has reading abilities below sixth-grade level, making it difficult for them to be productive participants in modern manufacturing."

He further warned that many phenomena today are strikingly similar to those of the 1930s.

Facing such a massive uncertain market, Dalio ultimately provided his practiced approach for ordinary investors.

He emphasized that only when you are in a sufficiently safe financial position can you truly build a diversified investment portfolio that suits you. Cash may not be a good choice, as the investment goal must be to maintain purchasing power after inflation adjustment.

However, at the same time, we are promoting a policy that will significantly increase costs and bring multiple side effects. These problems are not easy to solve.

I am worried because these deeper issues remain: debt is still there, overspending is still there, and lack of competitiveness is still there, and they will not disappear just because of policy statements.

These problems have been repeatedly occurring in history, and we are currently in a stage very similar to the 1930s.

Question 4: But we really don't know how to ultimately resolve these issues with China?

Ray Dalio:

I am not an ideologically driven person. I am more like a mechanic, doing system analysis work.

So, when we discuss these issues, I am thinking from a "system perspective".

For example, I completely agree with what you just said: China's current manufacturing scale has exceeded the total of the United States, Germany, and Japan, and it is the most competitive manufacturing powerhouse globally.

Meanwhile, the United States has lost its manufacturing capacity and become the world's largest consumer country.

We rely on massive debt to finance our consumption, which has put us in a very, very difficult situation.

Question 5: In this situation, what does it mean for foreign investors to buy US Treasury bonds? How do you view the short-term supply and demand of funds?

Ray Dalio:

Foreign investors have overall over-allocated debt assets in their investment portfolios.

The scale of Treasury bonds we now need to sell to them is equivalent to 6.5% of GDP, which is a quantity they are not willing to continue buying.

Part of the reason is that they already hold too many; another part is that the current world is full of uncertainties, such as concerns about sanctions.

You see, these things actually happened in the 1930s.

The conflicts, asset freezes, and sanctions between the United States and Japan at that time are being re-enacted.

The current situation is: supply and demand imbalance.

We have too much debt, and the market's willingness to buy is insufficient, which leads to an imbalance in the bond market.

Question 6: Do you think this might lead to rising interest rates? Because it seems that some plans of the Trump administration hope to lower interest rates, which can reduce our debt payment costs - last year's interest alone was nearly one trillion dollars. Do you think we can achieve this goal?

Ray Dalio:

You are right. But we must understand that there are two ways to lower interest rates:

The first method is to achieve this through improving supply-demand balance, which is a healthy approach;

The second method is to forcibly lower interest rates by printing money.

Changes in interest rates essentially come from the balance of three parts: expenditure, taxes, and interest costs.

If the government can achieve more fiscal balance, I don't care how they do it (this involves political choices), but if they can truly improve the supply-demand relationship in the bond market, then interest rates can be lowered in a healthy and sustainable way.

This can also help us achieve the goal of reducing the deficit to 3% of GDP.

But you cannot forcibly lower interest rates by printing money, which is unsustainable and unhealthy.

Question 7: Then I'll ask a direct question: Looking at the market now, what are you thinking? Would you say the market is overvalued? Reasonable? Or undervalued? Would you think this is a "falling knife" market, or a "great buying opportunity"? How should ordinary people think about the current market environment?

Ray Dalio:

Some things are certain to happen, while some things might happen. I don't want to say "now is a buying point" or "now is a selling point". I won't do that, and I never give market timing advice.

What I want to tell the public is that you need a well-structured, balanced, diversified investment portfolio, and a long-term investment plan that you can stick to.

In my years as an investor, I have experienced 9/11, the 2008 financial crisis... I have experienced many things.

The most important thing is to have a robust, diversified investment portfolio that can withstand various environmental changes.

I won't go into details.

But if you ask me, "How should I diversify my investments?" Then first, you must understand one thing: know what you don't know.

When you realize that you cannot accurately time the market, you will understand that relying on market timing will not work. You will ultimately fall into emotional reactions.

When I didn't have much funds at the beginning, this is what I did:

I would ask myself: "How much savings do I have now? If I have no income starting tomorrow, how long can I live on these savings?"

I would first calculate how many months I could live, and then calculate how many years I could survive.

Then, I would ask myself: If asset values drop by 50%, how long can I still survive?

Only when you are in a sufficiently safe financial position can you possibly build a diversified investment portfolio that suits you.

But there's a misconception here: don't think cash is safe.

From a long-term perspective, cash might be the worst investment decision you can make.

You must look at whether your purchasing power is maintained - that is, purchasing power adjusted for inflation.

For example, when the Federal Reserve lowers interest rates and starts printing money, the "price" of cash drops, and your purchasing power is weakened.

This has happened in the past few years, and everyone should be able to relate.

So, to summarize: maintain a diverse, diversified investment portfolio; and at the same time, pay great attention to our country's debt problems.