The Changing World Order & the Power of Diversification — ft. Ray Dalio

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0:55Today's number, 38 inches. That's the height of the world's tallest dog, a great Dane named Kevin. Okay, let's be honest. The team doesn't want me to talk about dogs. 38 inches. That means they want dick jokes, Ed. Well, I'm here to give the people what they want. So I'm praying on the side of the bed at night. I'm being very contemplating. I'm asking for guidance. And my wife says, just get hard. I'll guide the sucker in. And I say, that pisses me off. I bet you couldn't tell me something that makes me both happy and sad at the same time. And just said, FYI, you have a bigger penis than your brother.

1:27Ed, what do you call, what do you call someone who doesn't masturbate? A liar.

1:46Welcome to Prop G Markets. Today, we're speaking with Ray Dalio. Oh my God, he's going to freak out when he hears this. Founder, co-chief investment officer, and board member of Bridgewater Associates, arguably the best investor in the history of the West or the planet, I guess. I'm sure someone will come back and go, actually, technically, Napoleon was the best. Anyway, but from a pure ROI standpoint, Ray is arguably the best investor in history. Also a nice, thoughtful man. But first, here with the news is PropG media analyst Ed Elson. Before we get to the news, how was St. Bart's? It was absolutely incredible.

2:28But, you know, as with every good trip, I'm now feeling depressed. And I think I've maybe lost around, I don't know, 5 to 10 % of my brain cells. So if I'm bad on this podcast from now on, just don't blame me. Well, you're setting a good role model for other young men. I think that's nice that you're telling young people to let substances get in the way of their career. Anyways, get to the headlines. That was very inspiring. Get to the headlines. All right.

3:04Virgin Galactic stock dropped 17 % after it announced a 1 for 20 reverse stock split. The company's goal was to boost the stock price in order to meet minimum listing requirements for the New York Stock Exchange. Sam Altman is reportedly considering shifting OpenAI to a for-profit business. He has discussed changing the governance structure to relinquish control from the nonprofit board, which could lead to a potential IPO. And finally, the U.S. Surgeon General is calling for warning labels on social media to alert parents about the negative effects platforms can have on children's mental health.

3:36The labels would be similar to those on cigarette packages and would remind parents that social media has, quote, not been proven safe. Scott, any thoughts? There's so many technologies I've hated. There's so many companies I've hated. And I think Virgin Galactic, maybe the exception of WeWork, I think Virgin Galactic actually makes less sense than WeWork. WeWork will survive. There are some WeWorks that make money. It's actually shared office space kind of makes sense in a post-COVID economy. Virgin Galactic never made any sense. Companies are one of two things. They're either supply constrained.

4:11So if you're Boeing, no matter how fast you need an aircraft carrier or a Boeing 777, nine women can't have a baby in a month. They're supply constrained. And then there's demand constraints. And the majority of companies are demand constrained. And that is almost as many Nike shoes as people need, they can produce. It's just not a complicated product. With Virgin Galactic, what you had was a company that was both exceptionally supply constrained. Sending people into space is exceptionally expensive and dangerous, right? They never launched on time. It's really hard. It makes no sense. It's fraught with risk.

4:49And also, demand constrained. The number of people who want to spend$400 ,000 to go seven minutes in the air, feel nauseous, and then float back down, there just aren't that many people that are that fucking stupid and rich. I don't even know what it's trading at right now. I just know it's overvalued. This thing is going out of business. Any thoughts on Virgin Galactic? You ask, where is it trading at right now? It's below a dollar. It's at around 70, 80 cents. And that's why they're doing this reverse stock split, because they're in danger of being delisted from the New York Stock Exchange, because you're literally not allowed to be trading shares for below a dollar on the New York Stock Exchange or the NASDAQ.

5:27So instead, they can do this reverse stock split, because the alternative is that they're going to have to go to the pink sheets where they will be trading alongside all of the penny stocks. And I think it's actually a really bad call by them because I don't think there's basically any worse signal that you can send to the market than, oh, we're going to need to reverse because the stock is so cheap. And now what they've done by doing this, though, is they've brought more attention to it. So now they have to deal with people like us talking about how bad the situation is, people are going to hate what they're seeing, which I think will increase the selling pressure on this stock.

6:07So I would not be surprised if six, seven, eight months from now, they're in the same position as they are today, which is the stock has fallen so far again that they have to contend with another reverse stock split. So it is fascinating how far this company has fallen. I do also want to give you credit because you called this basically earlier than anyone. From the very beginning, you said this was a shitty company, and then we have the recording as well from last year where you predicted it would go to zero. Do you have any predictions for us? Well, the obvious one for me is I think Virgin Galactic is going to zero.

6:42I think this company will go through a restructuring. It'll be sold to somebody for its IP. It probably has some IP in there. Maybe they sell it. I don't know who they sell it to, but I just think this thing is just, you know, anyways, enough said. And no Virgin Galactic space flights in 2023? Yeah, that's just not... Let's bring in Claire. Claire seems more adventurous than either of us. Claire, would you go on Virgin Galactic? No. Why not? I would go to space if I had that opportunity, but I don't think I would pay any huge sum of money for it, especially not to this company. So you're like every girl I met in New York in the 30s.

7:21I'd love to go to St. Bart's, but I'm not going to pay. Exactly. As long as someone else is bang. I heard that a lot. I heard that a lot. So you actually got two predictions right there. So first and foremost, the real question is, did Claire meet anyone in St. Barts that took her over the moon? Hello, hello, exhibit 17 in the lawsuit, the harassment lawsuit against Guy Galloway. Look, the other stat that you guys pulled up here, since Chamath sold his personal stake, by the way, I don't even know if he went on this thing. and I know he didn't go on this thing. I know he didn't do it. But since he sold his personal stake, he just wanted to go on CNBC and talk about how it was a software company.

8:00I remember him saying this about this company. There was actually a software company. Since he sold his personal stake, the stock is down 98%. I mean, I wonder if him and Keith Rebois just get together and have let them eat cake parties. Yeah, I think they do in San Francisco with Trump. Yeah, that's right. It's called a Trump fundraiser. Exactly. Anyways, buyer beware, but in space, no one can hear you scream and no one can hear you lose everything. Sam Altman considering shifting OpenAI to for-profit. Well, that's a shocker. I mean, Ed, I'm shocked. I'm shocked. I'm shocked. He shifted it. It's always been a for-profit, so at least you're coming out of the closet and saying, hi, my name is Sam Altman.

8:45Exactly. And I am a for-profit person. Yeah. It's got a valuation of$86 billion. And to your point, actually, at that valuation, it's undervalued. They're running away with it. By the way, Sam, if you give me allocation in the IPO, all is forgiven. Yeah, exactly. All is forgiven. Exactly. I think it's a great company. And I think the move to for-profit makes a ton of sense. A scholar and a gentleman, yeah. Yeah, and I think your concerns around AI are really thoughtful. And I love the hushed tones and the cool t-shirt. Yeah, I mean, I think you sort of nailed it. This has always been a for-profit company, which is why it's funny that we're even talking about it.

9:18because they just did such a good job of pretending they were a non-profit. And I think the biggest, the most revealing thing about this whole situation is the fact that they were calling themselves not a non-profit organization, but a capped profit organization, which I've talked about before, but I'm so obsessed with this. It was such BS by them because one, they said investors were limited on the amount of returns that they could make from this company. But one, the limit on your return was 100x. And any investor will tell you that's pretty much as close as you can get to a limitless return.

9:57And two, the cap only applied to the first round of investors. And in all subsequent rounds, the cap disappeared and it was just a regular negotiation. So the whole thing was a smokescreen for this company to pretend it was a charity, to pretend it was like a nonprofit, it, and then just run business as usual. The most irritating part for me, though, is how we all fell for it. And actually, not you and I didn't really fall for it, but the traditional media for sure fell for it. Every news outlet, even the most credible ones, I remember this, they were all saying things like, you know, OpenAI is different from other companies because OpenAI is what's known as a capped profit organization.

10:38And what they forgot to mention is that capped profit is a made-up term. It was invented by, you guessed it, OpenAI. It's totally fake. It's meaningless. It has no legal basis. And yet it was reported on as if this is something that other companies do. No, the answer is we have NGOs and we have companies. This was a company. There's a reckoning coming around the quote-unquote non-profit industrial complex. And that is private companies use this public benefit corporation bullshit into a certain extent. Which, by the way, sorry, OpenAI is going to, they want to be that. They want to be a B Corp versus a regular corporation.

11:19Oh, Jesus Christ. Really? At least there's a legal framework for that. Okay, let's talk about what it really means to be a non-profit and doing actual good. Surgeon General Murta, Vivek Murta, is a really smart, accomplished, credentialed man. He makes good money, not great money, a lot of prestige, hopefully after he serves as Surgeon General, he'll go on to make a shit ton of money on boards that come out of the closet and say, no, we're just here to make a shit ton of money. And there's nothing wrong with that. But this guy is probably going to be the most consequential Surgeon General in a long time.

11:48And let's be honest, it's a pretty low bar. Other than all these guys who walk around in a white outfit and then leave the office and go on Fox to talk about life alert, endorsed by Surgeon General, whoever. These guys, he is really making a difference. He's talking about the loneliness epidemic. He's taking on big topics. And I just think the world of him. Also, Eddie has really good hair, which I think is important in a leader. I think it makes him much more effective. Hashtag why I'm not running for president. I was very cynical about labeling. And then someone, I don't know if it was you guys showed that there's some research that shows that just putting that label on cigarettes actually does help.

12:29It reminds people every day that they're making a bad decision. Having said that, I think all of this is incremental change. We have to age-gate social media. There is no reason anyone under the age of 16 should ever be on social media. And unless you have collective restrictions where everybody is off of it, it's actually worse for the kid whose parents decide, oh, we're hippies and we don't believe in screens, we're taking their phone away. Guess what? Your kid doesn't know what's going on. Your kid's not invited to anything. Your kid is ostracized because they're not on SNAP. So unless there is collective legislation, and then it just fucking cracks me up and sort of like, I'm really pissed off that they're saying there's first, the big tech saying there's first amendment, first amendment issues.

13:16You should see what happens when my kid decides he has free speech rights in his house, when he decides to assess the situation open and freely. Yeah. Okay. Anyway, I don't know where I was going with that, but until we have age gating and then they say, well, how could you do that? How could you pull that up? How could they do? They know how much you weigh. They're like, oh, it's a 5 '11 girl who's 95 pounds who's having suicidal ideation. They know exactly what content to give her to normalize suicide and get her addicted to extreme dieting sites, but they don't know her age. it would be so easy to do.

13:54Do you really think that Medicare is about a 14-year-old's free speech, right? Anyway, age gating. On this warning label decision from the Surgeon General, I think a lot of the response is going to be, you know, it's a Band-Aid solution. Like, it's not a big deal. That's not going to do anything, which might be true. But honestly, the takeaway for me on this is that any progress is good progress. Because we've been talking about this for so many years. You've been talking about it for as long as I've been a fan of you, which was since high school, and we've seen literally no changes in policy.

14:32And, you know, it's just laughable, the lack of progress we've made. Is this demonstrative, illustrative of the lack of progress we've made? Yes, but it's still progress. And as you mentioned, there are studies that show that these warning labels do have a certain level of impact on cigarette smoking behavior. So it's not going to solve the problem. It's not going to reverse the fact that we have depressed the majority of teens in our nation. But in my view, it's something, it's a start. And honestly, given our track record, anything is good enough for me. I'm just worried that when OpenAI flips to a for-profit that they're not going to solve this problem.

15:13I'm worried they're going to stop caring. I'm worried they're going to stop caring, Ed. Anyways, enough of this shit. We'll be right back after the break with our conversation with Ray Dahlia.

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16:43Welcome back. Here's our conversation with Ray Dalio, founder, co-chief investment officer, and board member of Bridgewater Associates, the largest hedge fund in the world. Ray, thank you so much for coming on. Thank you for having me. There's so much to get into, so I'm going to get right to it. I want to start with the premise of your book, which is Principles for Dealing with the Changing World Order. And you've studied how empires rise and how empires fall over the past several hundred years. And you've said that, generally speaking, empires collapse for three main reasons. The first is debt, that we're, you know, borrowing and printing money in excess, which leads to inflation and defaults.

17:23The second is internal conflict, so, you know, polarity within a nation. And the third is external conflict. So, you know, there's a rising power that contends with the position of the leading empire. This all sounds like America. So I'll start with a darker question, which is, is the American empire in decline? The American empire since 1945 was the dominant empire, almost singularly the dominant empire. And the American empire is in relative decline, has been in relative decline by using measures. That's not a subjective interpretation. That is using measures of share of world GDP, share of the military, the quality of education, and so on.

18:15It is in relative decline. And so each of the three factors that you described are very, very relevant. And I should say that I discovered two more, which are acts of nature, Droughts, floods, and pandemics have killed more people and wars and changed more orders than any of the first three I mentioned. And then, of course, man's inventiveness and technologies have also created big orderly changes. So all five of those are at work in the United States, and four of those are becoming worse. one of them, the technology one, may be a great breakthrough for productivity and is also a risky one depending on how it's used.

19:06Where do they rank for you in terms of which is of most concern when you look at America's situation? History has always been that they're interrelationships. They affect each other a lot. So if you have more debt and you have a financial problem. And then you have large gaps in large conflict over wealth and values, as we have. And that causes that conflict and that bad crisis together can work to be a real challenge. And if you have also the third, which is the great power conflict, which is expensive to maintain a world dominant position is very expensive. So that has a money implication. And it also has a geopolitical.

19:54And then you have the fourth, which is the climate issue, which is a very expensive issue. And then you have these technologies. I would want to emphasize, if I was to say one thing that is most important, that one thing is how we are with each other. In other words, the capacity to deal with all of those things in a way that is both smart and doesn't produce fighting. If we produce fighting, we'll have a terrible, terrible set of circumstances. If we can rise above that, we can be very effective. So the number one thing is how we deal with each other. There was a survey done of issues for young voters, and it looks as if young voters are going to turn out in greater numbers than they think they are than they have in the past.

20:46And they ranked all of these different things. And bodily autonomy was near the top of the list. And what was interesting is that climate was actually further down the list than it has been. The Middle East ranked like 16th out of 17th. So it's clear that the media, I don't want to say it's overdramatized it, but it's not as big an issue with youth as the media would have you believe. What was shocking was that number three, I believe, was the deficit, that young people see the economic situation that they're being left, and they are really concerned about it. That's a backward way or reverse engineering into a question about the deficit.

21:26We're spending seven plus trillion dollars, taking in five. And I hear about modern monetary theory that maybe deficits don't matter anymore and putting points on the board. Give us your view of deficits. And do you buy this notion that our generation isn't paying it forward the way previous generations have? What we have done, my generation, unfortunately, has allowed debt to build up, has allowed infrastructure to deteriorate, has instead borrowed forward. And so if we think about what this debt restructuring and renovation is going to cost, and we think about that's not measured in money, it really money just produces productivity.

22:12So the work and how we're going to have to be in order to be effective has to overcome that deficit for this giant renovation. So we haven't done it. But back to your first part of the question. The first part of the question is, it's very simple. There are debtors and there are creditors, and the system has got to work well for both. One man's lending has got to be rewarded to compensate for making that lend. And so you have a process. If you accumulate debt, you are accumulating the need to pay back in real terms. You have to pay back the principal and you have to pay back the interest in real terms.

22:58Otherwise, nobody's going to want to lend and the system doesn't work. And the two issues that you have a choice of is to pay that back in hard money. In other words, money of value that's of comparable value, or you have to print money and you pay back in deflated money. And so what has happened over a period of time throughout history. These cycles, by the way, go back to the Old Testament, years of jubilee and the same cycle always happens. And there's a tendency for debt to rise relative to incomes that are needed to service that debt. And so you see different societies. In our society, we have high debt service costs, which then will rise as we have large deficits and large amounts of money to pay back.

23:52And if that balance is not well achieved so that the creditor does not receive an adequate amount of compensation, they will sell that debt. They will not hold that debt. And so it's not just the amount of new debt that's created. It is also the amount of debt that is outstanding that could be sold and therefore create a huge imbalance between the amount to be sold and the amount to be bought. And so in history, it's all repeated in the same way. When that time comes where they have to do that, when they do that selling and central banks come in and they think they're saving something because they're printing the money in order to pay back the debt as had been done, monetization as we call it, that that creates a bad compensation and devalues money.

24:46So that's the mechanics. So there's no getting it around it. Wouldn't it be wonderful if it was like that, that you could just, that debt didn't matter and you could keep borrowing. But think of it as just you're borrowing a proxy for stuff and it has to be paid back. Scott mentioned that the third issue on young voters list is the deficit. I want to point out that I would not be surprised if you were the single biggest contributor to that being the case, because I know many young people who read your book or watch your videos, and they suddenly become single-issue voters overnight. The thing they are worried about most is debt servicing and the deficit.

25:26But I'd love for you to sort of portray that or paint a picture for us of what could actually happen, because it feels like we've had all these no-go numbers about what is too much debt. You know, we're now at 123 % debt to GDP. But there are other countries that have higher numbers. You know, Singapore has 130. Italy is at 150. Japan's at 260. They've been above 100 % for more than two decades. And it feels like throughout the last, you know, 30, 40 years, there have been many moments where we said, we're on the brink of collapse. This is too much. So I'd love to get your view on what is the time frame, you think, for when this is going to get really bad.