When others hear noise, T. Rowe Price interprets market signals to find investment opportunities.
That's the power of active ETFs from T. Rowe Price.
Their portfolio managers approach data from multiple perspectives, analyzing trends and conducting deep research to give you their curiosity-backed active management expertise.
Learn more about their active ETFs at T. Rowe Price dot com slash explore ETFs.
Exchange traded funds ETFs are bought and sold at market prices, not NAV.
Investors generally incur the cost of the spread between the prices at which shares are bought and sold.
Buying and selling shares may result in brokerage commissions, which will reduce returns.
T. Rowe Price Investment Services, Inc.
Are you seeing signs that we're in an AI bubble and therefore a economic collapse?
Classic signs.
And that has implications for the economy and it's bad for the society.
And everybody loses money.
But we also have some other things that are going on that happen around the same time.
And I can go through things if you want.
Please.
So what I'm saying is clear because I'm a global macro investor.
And you were one of the few managers to foresee the great financial crisis.
Yes, and so right now we're very excited about AI, and we should be very excited because it's going to be revolutionary changes.
But it's creeping into almost everything.
The way I look at it is I look at the human body, and I see, like, it's replacing the body and so on.
And then it replaces...
Some aspects of the mind, levels of thinking and reasoning.
But at the same time, we have another problem that's existing, geopolitics.
I mean, China is a larger trading partner with most countries than the United States is.
And that's a changing of the world order.
That is one of the ingredients, right?
And then also, you've got large wealth gaps.
The government don't have enough money.
And so when you have the downturn, then you have people at each other's throats.
So a lot of people, they're thinking about how to sort of secure their future.
How do they all prepare?
Let me say that history has shown that it's not the most intelligent people that are the most successful.
But the key thing to keep in mind is intelligence.
Guys, I've got a favour to ask before this episode begins.
The algorithm, if you follow a show, will deliver you the best episodes from that show very prominently in your feed.
So when we have our best episodes on this show, the most shared episodes, the most rated episodes, I would love you to know.
And the simple way for you to know that is to hit that follow button.
But also it's the simple, easy, free thing that you can do to help us make the show better.
And I would be hugely grateful if you could take a minute on the app you're listening to this on right now and hit that follow button.
Thank you so, so, so much.
Ray, for people that might not know who you are, you founded Bridgewater Associates in a two bedroom apartment in 1975.
And you grew it to the world's largest hedge fund.
What was the total amount of cumulative net gains that you delivered for those investors over that period?
I think it was something like $53 billion.
We produced about a 12% return with never any significant losses, and it was uncorrelated with other investments.
And you were one of the few managers to foresee the great financial crisis which allowed Bridgewater to post positive returns of 9.5% in 2008, while the S&P 500 plunged by almost 40%.
Yeah.
Let me start with the thing that I'm most curious about, because I sat here with an investor called Jeremy Grantham, who you might know.
He told me that we're staring in the face of an AI bubble and therefore a economic collapse potentially.
If you look at the data, it would be compatible with history for the peak to be very soon.
Everything is in line.
This is, I think, the biggest investment bubble in American history.
What's your perspective on that?
He's right.
I don't want to jump to conclusions as much as I want to explain reasonings that lead up to conclusions.
I'm at a stage in my life that I want to help people understand cause effect relationships.
What they call a bubble is when the price goes up a lot and companies do very well, and then it collapses.
And that has implications for the economy.
That has implications for the markets.
Like 1929 bubble.
Okay.
Or the 2000 bubble.
Okay.
Which is the dot com bubble.
Does it impact real people as well?
Because you said the economy.
Did 1929 bubble bursting impact real people?
Yes.
The Great Depression followed.
Because what happens is there's a new technology that comes along that's revolutionary.
The dot-com bubble, which was 2000, all the stuff that we have that's wonderful new technology, people get into that technology.
They say, that's miraculous.
I can bet on that.
I'm sure it's going to be successful.
And then they bet on it.
And sometimes they borrow money to bet on it.
And they lose sight that the price of it matters.
So it goes up and up.
And it's everybody's thing, you know.
It's like right now we're very excited about AI.
And we should be very excited because it's going to be revolutionary changes.
And it did at the same time.
So I want to buy some of that.
And everybody wants to invest in some of that.
And what they do is they don't pay attention to the price.
And there's a certain mechanics.
People will borrow money.
Wealth is not the same as money.
So you see a lot of people getting wealthy, but you can't spend the wealth.
You have to sell the wealth to get money because you can only spend money.
So what happens is when they need money for one reason or another, taxes change or interest rates go up and so they have to pay their debt service and so on.
There is a pricking of the bubble so that what happens is it falls.
And when that happens, people lose money.
And as they start to lose money, the process works in reverse because when they made a lot of money, they have a lot of collateral, right?
They can go borrow money because they're worth a lot.
And that compounds on its way up.
And then when it comes down the other way, it works the other way.
Okay, now you got to pay your debt and so on.
Then you have to start to sell assets.
And then there's less demand for things, right?
So there's less demands because if you're losing money because you put some money in the stock market,
And that company and so on, you're going to spend less.
And as you spend less, then somebody else's income goes down, right?
You don't go to the restaurants.
The economic downturns that typically follow a bubble, like the Great Depression, the late 20s was fantastic.
If you talk about changes...
And experiencing – this was the first time there was electricity in houses.
So it was the first time you would have refrigeration and you would have lighting in houses.
This was the first time that you had cars popular that you could – first time airplanes, first time you had radio.
And so everybody knew that they were going to be great in the future, and they were great in the future.
But at the same time, what happens is as they buy them and the stocks go up and they borrow money to buy them and so on, and the profits don't live up to the price, then that causes this other dynamic and it produced the Great Depression.
So let's say that I buy this and this is a unit of artificial intelligence.
So let's say I buy one share in one of the big AI companies right now.
Because investors are so excited about AI, they value this at $100.
This unit that I have here.
They say it's worth $100.
So my net worth is now $100.
I go to the bank because I have this net worth, this paperwork for $100.
And I asked the bank for a 50% loan on this thing that I own.
They give me $50.
Now I have $50.
And then something happens in the economy, which means that
The investors who've invested in this and investors generally now need money to pay off their other debts that they have.
So this could be a war.
It could be some kind of event that takes place.
And suddenly everybody rushes to sell their assets like this one.
And so when I go to sell this, the price of it has now plummeted to say maybe $25.
But I took a loan at the bank for $50.
So I own the bank $50.
But now this thing that I have that was worth $100 a couple of months ago is now worth $25.
And I'm $25 in the hole.
So I have to quickly sell.
And then with everybody selling, all the price of assets dropped.
People stopped spending money at the restaurants.
Like you say, there's less money around.
And then the bubble has burst and we're in this sort of declining.
You got it.
Okay, good.
All right, fine.
And it happens.
Because it must happen.
I mean, meaning in these tremendous changes, there's very little that's known.
So anybody who's in the business of making AI can't be precise.
They don't know exactly how much money is gonna come in, right?
So there's either one of two things.
You either don't invest enough and then the competition runs away or you invest a huge amount.
And you can't be precise, okay?
And so when that dynamic happens, it's a problem.
So, yes, you said it very well.
So I'm going to repeat one other thing to emphasize.
What's quite common now is you can issue stock for –
Let's say you raise $50 million and you value the company at a billion dollars.
Only $50 million was actually spent on that company.
But now if you raise that, you're a billionaire.
Mm-hmm.
OK, because the accounting value of that, what do you own?
You own stock that is valued at a billion dollars.
Nobody paid a billion dollars or whatever it is.
Right.
And now you own that stock.
But that stock you can't spend.
Because you can't spend wealth.
In order to spend it, you have to sell some of that stock to get money.
And quite often, there's an interest rate rise because, you know, let's say there's a fever and there's an inflation,
Then the central bank wants to try to put the brakes on that a bit.
Okay, what does that mean?
It means people who have debt, in a sense, have to come up with more money.
Because when you hold the debt, you have to come up with money to pay the debt.
And that dynamic works.
Between us, we've said it clearly, I think we understand the dynamic.
So they have to exist.
Now, we have another problem that's existing, okay?
So we're talking about the bubble.
But we also have some other things that are going on that happen around the same time.
A big gap between the rich and the poor, and which also means the left and the right, the politics of it, right?
Just as we have now.
When you have the downturn...
Then you have people at each other's throats.
So if we take politics, what you see is this, that they don't have enough money, that the governments don't have enough money.
We have big budget deficits.
Okay?
Where do you get the money from in order to pay those bills?
The UK has had, I think, six out of the last seven years, there's been a new prime minister.
And because there's not enough money for the government and so
What you start to see is people come in with their claims, but there's this, how do we get the money?
And then people run.
Who have money, they say, I don't want to be in this tax zone.
That's going to be, and then they leave.
And so there's a domestic political problem that is not people compromising the same way they used to compromise.
So now you have the politics which compounds this.
And then you have a world.
This is what I call the big cycle.
You have a world in which also the geopolitics changes.
By geopolitics, I mean country to country.
Right.
Okay, there's a system under normal circumstances.
When there's a more dominant power, they impose their order, and that becomes more peaceful.
But when you have arguments of how things should go, those arguments start to turn into conflicts.
And so those things tend to happen together.
That's why I refer to that as the big cycle, that dynamic.
Now, that is the confluence of the money, the internal conflict politically, and the external conflict, which is what we're going through.
And the problem is, I think, that people don't know the cycle.
So every day we go to our sources of information and you see this latest news, but they don't connect the dots in understanding that cycle.
Closing off on this point of the bubbles, what is it that makes bubbles pop?
So if we are in an AI bubble at the moment, and it is going to pop at some point, what is the like, they call it a black swan event?
There are a few of them.
There are bubbles, and then the things that prick the bubbles, okay?
The things that prick the bubbles typically in the beginning are something that means that I have to sell some wealth to get money.
And that's usually a rise in interest rates.
It could be something like wealth taxes.
Something that means I'm very wealthy, but typically the tightness of money, because during that spot, there's inflation pressures and central banks decide that they want a tight monetary policy.
And so on.
It becomes that the amount of money that I can get by owning that debt at the higher interest rates is greater than the amount of money I could get on my equity investments.
That's part of it.
Also, what you see is a lot more production of stock.
And what I mean by that, issuance of stock,
Think of the supply and the demand.
There's demand, right?
And we've been talking about the demand that makes stocks go up, you know, how we create this well.
But there's also supply.
So you can issue stock, right?
It's very issued.
There's almost nothing that's easier to produce than stock.
So if I own a company, I can just print more equity?
Yes.
Today, you could probably go out and say, I'm going to make a company, and I'm going to take it public.
And you go to your audience and your crowd, and you can say, I'm going to make stock.
So it becomes, when there's a market that wants stock, there's a production of stock.
And that supply of stock, together with the other that I'm mentioning, the need for getting money and so on, causes the bubble to pop.
Are you seeing signs that we're in a bubble?
Yeah, yeah, yeah.
The classic signs that we're in a bubble.
And the bubble, I should emphasize, it's not a you're in a bubble or you're not in a bubble.
It's a degree thing.
There is also that it's in weak hands.
I can look at now who is in these companies, right?
And is it in strong hands or weak hands?
Classic strong hands is that when weak investors, not knowledgeable investors, then put a lot of money into it, particularly if that's in a leveraged way.
And way with debt.
With debt.
Or they can buy a leveraged version.
Like there are ETFs now that are leveraged versions of the stock market and so on.
And so they get into that.
It's more like they're crapshooting.
Okay, and then that's a sign of a bubble.
So I've listed a few of those signs.
Those are the major signs of those bubbles.
And so that when it goes down, then you get the fear, then you get the need to raise cash,
And that dynamic works its way out in the form of then the reverse happening.
In other words, everything becomes cheap and everybody has the spending and the things you mentioned.
If we are in an AI bubble and it is going to burst, you know, I had a friend of mine contact me and he said, Stephen, I think we're in this AI bubble and he's running an AI company.
So he said to me, I'm going to raise lots of money now so that when the markets come down and investors are fearful, they don't want to invest in companies.
People stop spending as much.
They start thinking about their subscriptions and start canceling subscriptions.
We're going to be good and we're going to be able to buy up some of our competitors who are going to be struggling.
So he's just raised hundreds and hundreds of millions of dollars for his AI company.
Right.
And it's probably like that.
Easy.
Yeah, it was easy now.
Right.
The question here is, at different levels, so like the average Joe on the street up to entrepreneurs that are running companies, how do they all prepare for an economic bubble that might burst?
He's such a good example.
And what that does, just following up through on what we were saying a minute ago, is that increases the supply of AI stock.
Okay, yeah, because he sold stock.
Because he's going to sell more.
Yeah.
Right?
And so as he and others do that more, this greater supply of stock comes in.
And so he wants to get ahead of it in that dynamic.
And then, you know, that contributes to the bubble.
But how do they prepare?
I would also say something.
The future is very unknown.
And people should not be timing.
Sophisticated investors have a real challenge even in timing a bubble.
So the important thing always is to diversify.
Now we're going to go back to money, the basics of money management.
And by the way, I personally have gone through the cycle because I didn't have any money and then I had a lot of money.
And I remember the cycle very well.
What happens is as you start off,
I used to count how many months I would be okay, a certain amount of money, how much I would be okay if no more money came in.
If I lost my job or whatever I did, I'd mostly never...
I worked two years for somebody, but in other words, if money didn't come in, and it would be months and then years and so on to build that security because I had to take care of my family and so on.
And so as we're looking at these things,
These are the choices that you have in order to be able to say, do I buy my house or apartment?
Do I put my money into cash?
And what happens to money is you have to put it into something.
Because they'll pay you interest on it.
Okay.
So that's your cash deposit and so on.
And people think that that's the safest.
It's not.
It's the worst investment over a long period of time because inflation will eat it away.
You mean putting it in a bank, just leaving it in a bank?
In whatever form, a money market fund, whatever it is that is that short term, I'll deposit it and it'll give me an interest rate.
Okay.
Okay.
And that's what they think about as cash.
You know, nobody leaves it literally in cash because if it's literally in cash, it doesn't earn interest.
So why shouldn't I put it there and get some interest on it?
And so that's cash.
And people think that that's the safest and has the lowest return, guaranteed almost, to have the worst return over the longer period of time.
People keep cash because it feels safer.
That's right.
And I'm saying it's not safer because of inflation.
Explain that to me in simple terms.
Okay.
Well, if I got no interest rate,
Then what I would do is I'd lose to the inflation rate.
And what's the inflation rate?
Well, 3.5% or 4% happens to be about where it is now.
A year?
Yeah, a year.
So I lose $3.5 a year.
That's right.
If I just leave it in cash.
That's right.
Okay.
Now I'll get an interest rate on it if I put it someplace and it'll give me maybe an interest rate that's somewhere in that vicinity, similar to that.
Three, four, five, 4%.
And then I have to pay taxes on it.
But you have to pay taxes on the gain.
Yeah.
Okay, fine.
Even though you really didn't gain relative to inflation, you still have to pay the taxes on whatever you've earned or something.
Anyway, over the long term, it's a lousy return.
Because also think about returns also come from productivity.
And over a period of time, people learn how to do things better and so on.
So then you can invest in, let's call this stocks, okay?
We'll call that the stock market.
This is cash, and then you think on the stocks.
And then the stocks can go up or down, and then they have this dynamic that we're talking about that creates these big cycles and the busts.
And those cycles, when they go down—
Go down 60%, 70%.
Okay, that's what a bear market looks like.
Whoo, what a dive.
Okay, this is gold.
That's gold.
And these are bonds.
And this is your house.
And that's Bitcoin.
Okay, so these are the choices.
They each...
Change for certain reasons.
I'll digress into that in a minute.
But what happens is they go like this when gold goes up, tends to be, that the bonds will go down.
And value or your house.
And these change in a certain way.
And so the best thing to do is to have a diversified portfolio of that.
When you have that rather than any one, you won't reduce your return, but you will reduce your risk.
And diversified means having a little bit of each.
Right.
A certain amount.
And you have to know how to balance them because of their volatility.
This one, stocks, is more volatile than this one.
And my own recommendations are you start, first of all, with what you need.
Should I buy a place or should I use that money and I could travel more and so on?
One of the advantages of the house, the apartment and whatever is it's your environment.
Your environment is important.
It produces forced savings.
Sometimes that forced savings is good.
It typically is taxed better.
It's a better vehicle for tax over a period of time.
But I'm not arguing for this alone, but I'm saying when I'm looking at this, then I think this one, gold, is very interesting because when all of these tend to do badly—
This tends to do well.
Okay.
So it's a very effective diversifying because this was money not until 1971.
And it's still the second largest reserve currency.
Central banks hold reserve currencies.
So it has qualities that are different from this.
And this has qualities like when the value of money goes down because of inflation, this... Bonds.
And bonds are basically lending the government money.
That's right.
If you lend the money at a certain interest rate,
And then inflation and interest rates rise.
You're kind of locked into that interest rate.
And so it has its own problems.
The more important thing I would say is, you know, you save up and you say, how many years can I live if money doesn't come in?
And then you take that and you say, how could I be secure?
So I don't want to put it into one thing that can go down 70%.
So how do I diversify that?
That's my main question.
A lot of people in the comments of our last episode, they were asking this like how does this apply for someone who doesn't have much money, maybe doesn't have any assets,
Say they're 30 years old, they have $100 disposable income.
And they're thinking about how to sort of secure their future.
What is the advice for someone in that situation?
Your only asset is yourself.
And I guess what you're going to get from the government.
How do you sell yourself at getting a better income?
Or how are you getting money from the government?
You selling yourself is the main thing.
This is one of the big problems now.
With artificial intelligence and other machines replacing people and different types of jobs, it becomes more difficult.
It produces that big wealth gap while you're having more productivity.
Everybody wants more productivity because it means how do you produce things more efficiently?
But that contributes to the income gap because your productivity equals your income for a large extent.
And then you have the political dynamic.
It's tough to get yourself out of this position that you mentioned.
You know, I'm imagining that person.
Okay.
It's not easy.
There is this giant polarity.
If you're in the top 10% of talent, let's say, the world's your oyster.
But nowadays, in order to be there...
Okay, that's difficult.
Find something that gives you the ability to sell your time for good money.
Is that going to be that you're driving an Uber?
Is that going to be that you have the talent and you're going to be able to understand AI?
And contribute that understanding to a company that values that?
Or what is your skill?
You found this, okay?
And you found the way, okay?
But you need money, okay?
And the thing that you want to do, what you're doing, and I'm lucky enough to do, is to make your work and your passion the same thing.
And don't forget about the money part.
Yeah, one of the things that I think I didn't realize earlier in my career is that whatever skills you have will be valued differently in different contexts or industries, should I say.
So, for example, say that my skill here, and I'm not trying to flatter myself, but say my skill here is having conversations, right?
Let's say that's what it is.
There's lots of places I could have conversations.
And those places would value my ability to have conversations wildly differently per hour.
So I often think this and speak to my friends about this when they tell me their skills.
I say, let's look at the different industries and how they would value the skills you currently have differently.
A good example, again, you know, you could be an Uber driver or you could chauffeur.
Ray Dalio.
Now, I imagine those two things pay wildly differently.
But the same skill of driving a car, broadly speaking.
I agree with all that.
And so I think that's one way to just...
The other way is you go ask your current boss for a promotion.
But again, they're going to value you in the context of their other employees, the market in that industry, et cetera.
So you might get 10%, but you're not going to see a step change necessarily.
So that's something that I always say to people.
Absolutely right.
And another law of something, and I think it's almost a law of everything, it's a law of view.
Buy almost anything is those at the top, whatever the thing you're buying, if you're buying a painting, a piece of furniture, a piece of clothing, a person's time or whatever, command premiums that are many multiples of the average.
It's almost like if you could invest a
10% more of your time, your effort, your skill to go up, okay, you will get...
Twice as much for 10% better, something like that, okay?
So that's part of the formula of life and a formula of employment.
And so I think if you keep what you brought up and what I'm bringing up in mind, that helps you position yourself and know what to do.
There should be a button just down below here.
And if it says subscribe, you're already subscribed.
If it says subscriber, that means you're not yet.
And if you're not subscribed, please could you do us a favor and hit that button?
It helps the show more than you know.
And according to the algorithm, you're someone that watches our show, but you haven't yet hit that button.
Thank you so much.
We didn't mention this thing here, actually.
So I probably should talk about it because people are talking about it a lot right now, which is Bitcoin.
What's your perspective on Bitcoin?
I know the market in Bitcoin is down at the moment.
I have about 1% of my portfolio in Bitcoin because there's different kinds of money.
And the money that you can't print, that's one kind.
This is the other kind of money that you can't print.
Gold.
Yeah.
You cannot crack it with technology.
You can...
Hold it, you own it.
There's a saying that it's the only financial asset that is not somebody else's liability.
Somebody has to give you something for it.
It has that.
So in my category of wanting
Let's say, make sure that I have some hard money, which for most people should be between 5% and 15% of their portfolio.
I prefer that.
I'm pointing to the gold bars here rather than the Bitcoin.
Is it still, in your view, a gold light asset?
Yes.
Yes, it's a type of money that can't be printed.
But there are technologies that can hurt it.
In other words, if there's quantum computing and it can be monitored by governments and so on, it could be taxed.
And digital currencies are somewhat similar.
But you don't like Bitcoin as much as gold because of privacy reasons as well.
And when the governments say, I don't want it, they have the power, therefore, to do whatever they want with it.
And central banks...
Will not own any significant amount of that because of the reason I said.
They want their transactions to be private and in their control.
Think about how different it would be for Russia, okay?
They confiscated these kind of other assets.
They didn't get these.
Okay, gold.
And so what you're seeing, even particularly in this time of conflict, is that there's a sense that if I'm holding this, others won't get it.
You mentioned a second ago the impact you think AI is going to have on the economy broadly, but also, again, to real people's lives.
There's lots of debate.
I mean, there's been a debate over the last 10 years or so within the world of AI.
You had the big AI CEOs originally saying that AI would cause job disruption.
And that, you know, you've even had some of the CEOs more recently saying work will become optional in a world of superintelligence.
At the same time, we have robotics coming over the horizon.
So you've got this sort of convergence of intelligence and then, I don't know, you could think of it like muscles, like physical muscles or ability.
At the same time, we're seeing AI accelerate in its capabilities more.
What does this mean for the average person and their job and who's going to benefit from this AI revolution in your point of view?
It means that you will either be cutting edge and capable and among that top fraction of a percent down to 10% of the population who is cutting edge and using it and accelerating, or you will, if you're in a thinking job...
Be at risk of being replaced.
We're coming into a world where we can automate everything.
The evolution of man
Was we had the agricultural era and there was no real inventiveness.
And then man invented the machine.
And what the machine did is it replaced man's physical necessity.
So men used to be like oxen in the agricultural field and so on, and they were replaced by tractors.
And then there was, we entered the industrial age.
First, you had the printing press.
That allowed people to learn.
And then you had these inventions, the Industrial Revolution, the first Industrial Revolution.
And what you had is the...
Replacing the physical that man would do in factories then and so on.
And so the way I look at it is I look at the human body and I see like it's replacing the body and so on.
And it's coming up
Higher and higher, and then it replaces some aspects of the mind that you can computerize, and it's coming up and up, and it's replacing higher and higher levels of thinking and reasoning.
Okay, so that path is part of the evolutionary path that is happening.
So then you start to say, what do I have to offer?
And so in answer to who benefits from it?
Those who benefit from it are those who are the capitalists with the ideas that replace the workers.
And so if you look at there's revenue for businesses when you buy something in a store, there's revenue.
And if you look at the share that is going to workers, you see that share going down.
And if you look at the share that's going to those who own that business, that share is going up.
How do they share that revenue in terms of the cost?
And you see that that's rising.
And so this is an evolutionary process.
And it's true that what happens is you get more free time, okay?
So now the society has to think, how do I deal with this?
So for example, the work week.
Which used to be a 60- or 70-hour workweek, goes down to less than a 40-hour workweek, and there's more time.
But there needs to be, you know, how do you create a bottom?
And so we're going through this phase in which there is this upper end,
That is making incredible amounts of wealth, as we described, and then this lower end that is then having these challenges.
We have a relatively good economy, and the difficulty of college graduates to get employment
Has increased significantly.
And I can tell you that in many businesses, it becomes more of a pain in the neck to have a college graduate, let's say, do it.
You have to train them.
You have to
And many of those tasks, many of that thing can be done very quickly with the AI and with computerization.
And as you get into robotics, you're going to have that happen, right?
The speed of the disruption that we're seeing because of the amount of capital that's flowing into these AI frontier models like the anthropics and open AI, et cetera, et cetera, is quite different from anything else, sort of the historical precedences we've seen through the Industrial Revolution where it took time to build the tractors.
There's an element of speed.
What happens usually...
Is the bubble bursts.
And now you have the cyclical dynamic of that while the technology evolves.
But the supply-demand and the debt problem that we just talked about then come in
And so unemployment is due to typically some sort of a combination of a financial crisis that, like we talked about, the debt and stocks going down and people not having collateral and then therefore not buying assets and that dynamic.
That causes the unemployment rate, that factor.
That's the sort of economic reasons.
But in terms of the AI agents, robotics being able to replace you, I've sat with Dara from Uber.
And Dara said that he imagines in the future, the 9 million riders that they have around the world doing deliveries will be replaced by autonomous vehicles, autonomous robots, robots.
Those 9 million drivers' careers that you have will be out of work, conceivably, talking about being honest about the situation.
Yeah, I think, again, it goes to physical AI as well, right?
So I think 20 years from now, you can imagine that those 9 million will be gone.
20 million AVs maybe.
But we have time between now and then, partially because we don't operate in the virtual world, right?
We operate in the physical world.
You have to get the regulations up.
You have to build the cars.
You have to build the sensor stacks.
The models have to get there.
So there is time between now and then, but you can imagine the majority of our trips being fulfilled by robots of some kind.
The unemployment rate gets very influenced by the bubble bursting and the economy going down.
You see that spike.
You certainly have the evolutionary change
In other words, there's this evolutionary thing in which they, like he says, you know, the tractor replaces the laborer or the assembly line worker as technology is replaced.
And that is an evolutionary thing.
That goes continuously for many years in the way that you're describing.
Because you asked about the unemployment rate, I just wanted to emphasize that the unemployment rate is very heavily affected by that bubble bursting.
So you've got two forces at once.
Then you've got when the bubble bursts, everybody, as we said, needs cash.
So they start cutting their costs.
So that's when they start laying people off.
They start looking around their company and go, forget growth.
We just need to survive.
So we're going to lay off that team and that team and that team.
And then you see unemployment going up.
And then you've got this sort of underlying shift happening at the same time, which is workers are replacing their team members with AI agents or robotics or in the factories.
They're now using robots to do factory work, et cetera.
And that's the sort of current slow march forward.
So I have this chart.
OK, what this represents, this line is the evolution of technologies.
In other words, we have greater and greater learning and doing things better.
And that's the evolution that we're talking about, that also machines replace people or replace their tags over that period of time.
Then you have this big cycle, which typically lasts for about a lifetime on average, about 80 years.
We went through that last time, 1945.
There are orders.
There's a monetary order.
There's a domestic political order.
There's a geopolitical order.
Okay.
You have the bubble bursting.
Okay.
You have this.
This is what we're talking about, that dive.
And then when you go through that, you break down these orders.
Okay.
And when they break down, then you would get rid of the debt burden.
So you get rid of the monetary system as you're used to it.
You may get rid of the domestic order.
Many countries' orders, their systems—
I mean, they all end at some point.
And so they can break down quite often in a time of great internal conflict.
Does the system last?
And that happens at that time.
And so that's that big breakdown.
But still, what you're talking about is, and I agree with you, this keeps going up.
OK, because learning you don't unlearn what you've learned.
So as this goes up and you're you still keep this thing going up.
OK, but you have the big cycle, the debt, the conflict type of movement.
And these little cycles are the cycles that we see in this.
Roughly, on average, let's call it an 80-year period.
But you see the recession, and the recession has higher unemployment.
And so on.
Then they stimulate monetary policy.
They make money looser.
Then the economy goes up and you have prosperity.
Then you go into a bubble, okay, and you run lower on capacity because you're using up the capacity.
Inflation rises.
They tighten monetary policy.
And then you have
The recession that follows.
So these movements from one recession to the next recession, that cycle that I've just described, on average has lasted about six years, give or take about three.
So that's the way it looks.
So I'll play this back to make sure I understand it.
There is a sort of bigger macro bubble, which is over 80 years, which is the changing of the world order.
Yep.
You get deeper and deeper and deeper in debt over a lifetime.
So let's say your debt capacity, you have a certain amount.
So the government's debt capacity, for example, it can borrow.
When you wipe it out here, then you can build it up and build it up until it starts to squeeze.
Debt service starts to squeeze out.
And that's a changing of the world order.
That is one of the ingredients, right?
So, okay, we have too much debt.
At the same time, what you're building up is you're building up great wealth gaps because capitalism – and I love capitalism, but here's the reality – it creates big differences in income.
And when it does that, that also creates differences in people's opportunities because the rich people can educate their children well and they can give them all the benefits.
I mean, education is a big benefit.
And that's why there should be broad-based, excellent education.
But all of that happens.
And so you see wealth gaps build up.
So like the Industrial Revolution leads into the Gilded Age.
OK, the Gilded Age looks a lot like now, you know, people buying expensive things and looking very gilded.
And then it leads to the robber barons.
And the robber barons are people who are considered, you know, that they're taking advantage, the billionaire class.
And it becomes that cycle.
So that's the way it works.
So you've got this 80-year sort of, you know, boom, and then there's a collapse, which sort of ends in conflict and the changing of the New World Order.
And then within there, you have these little bubbles, which are really economic bubbles that go up and down, recession.
People get very excited.
They contract.
They get excited.
They contract.
And then you have the straight line here, which is the sort of technological improvement across the spectrum of ideas and technologies and all these things.
It keeps going.
And it keeps going regardless of this boom and bust, because as you say, people never forget.
So a couple of questions on this then.
I don't even know which one to dive into first, but let's go for, I guess, just closing off on the last point that I was getting at is there's this narrative that there'll be new jobs created because of AI and robotics and everyone will be fine.
A lot of this narrative comes from Silicon Valley.
Who is producing the technology that doesn't want to be attacked because they're... Making a lot of money.
They may have a desire to have a certain perspective.
I think objective people in Silicon Valley, and there are a number of them, would say it's going to have a big employment.
But you can see it in the wealth.
Who owns stocks and who doesn't own stocks?
Okay, now if you own stocks, you're very happy now, okay?
And if you don't own stocks, you're not getting that benefit of owning stocks.
So that in and of itself creates a greater wealth even aside from employment, okay?
So there are these forces to create the greater wealth gaps, right?
Roughly 61% of US adults own stock in some form, and most of them hold it indirectly through their retirement plan.
Only 20% of Americans directly own individual stocks or shares through a brokerage account.
While over half of Americans own stocks, ownership is heavily concentrated.
The top 10% of households hold almost 90% of the stock.
How do you feel about this narrative coming from predominantly Silicon Valley that there'll be new jobs created that we can't yet forecast and everyone will be fine?
They point to the industrial revolution.
They say, look, when the tractors came, we thought everyone was finished.
When factories came, we thought everyone was finished.
But look, we figured some other stuff out.
Because if you look at that, this is this thing I'm saying that as your body is more and more replaced with your mind, then you can do that.
But when your mind is replaced and your body is replaced...
What is it that you have to sell?
What is it that we have to sell as humans once our body and our minds are replaced?
What man has is emotions and has intuitions.
There are certain things that artificial intelligence doesn't have.
And so if you have to get down to what those things are, you know, does the robot give a good massage?
You know, what is it?
That is left.
And so we will wrestle with what it is that is left, okay?
But I think that for the foreseeable future, those who can work very well where they have an exceptional human intelligence and work in partnership with the artificial intelligence,
That they are going to be at the cutting edge of all of this.
I'm going to post into our Slack channel, which rewards whichever team member conducted the most experiments this week.
Hi, everyone.
Here is this week's Experimenter of the Week.
Congratulations to the Diary of a CEO trailer team, which is Ant, Liv, Dom, and Cam.
You guys have won.
Okay, now I'm going to open Gmail.
So here is one of our founders on an email chain that I want to connect my team with.
All I have to say is, add my team's emails and Whisper will do exactly that.
Now, a quick message to Juan, who does my schedule every single week.
Hey Juan, can I record on Wednesday at 2pm?
Actually, no.
Do you know what?
Let's record at 3pm on Wednesday.
WhisperFlow is four times faster than typing and it is incredibly easy to use.
So if you want to give it a go, all you have to do is head to whisperflow.ai slash steven to download it today.
Just like John Jones, where marginal improvements in your cognitive performance can have a massive impact.
Sometimes I podcast for 10 hours a day.
Over the last couple of weeks, I've been in filming for a TV show and I have like one or two days off to get all of my work done, which means there's lots of cognitive load.
And so I turn to ketones because I find myself more articulate.
Able to think more clearly, able to work out better when I'm fueled by ketones.
And so the reason I became a co-owner of this company and the reason why they now are a sponsor of this podcast is because I remember one of my team members called Christiana, she tried it once and came up to my desk and she goes, this is the best product ever made.
And I think in part that's because she really cares about those cognitive benefits, as I do, as Jon Jones does, and as I think most of my listeners probably will.
So if you haven't tried these yet, all you have to do is go to ketone.com slash Stephen, and you'll also get 30% off your first subscription order.
You'll get exclusive Ketone IQ merch, and of course, cognitive benefits that might just change your life.
So if you had kids that were 16 years old now, Ray, and they said, Dad, what do you think, based on everything you know about the future, what should I be doing?
First of all, there's the question of what matters most in your lifestyle.
So I'm going to get philosophical, not assuming that the highest income is the best, okay?
Because happiness...
You want happiness and health.
And so in answering your question, there's very little correlation between the amount of money you have and the level of happiness that you have past the basic level.
And so I could be...
Answer your question first, which the obvious way is to say to earn the most amount of money.
And I want to start off in saying that my experiences and so on is like, I love being in nature.
And it doesn't cost me hardly anything.
I mean, it depends where your pull is.
And so don't lose sight of your pull and what it's about.
What you want to do is you want to get above the level that you don't have to panic.
We just earlier discussed how many months can I live and to be able to secure that and to be excited and have that passion or whatever it is, the life that I want to have.
So I just want to emphasize, keep in mind of that.
But then also, you know, my principle is make your work and your passion the same thing.
And don't forget about the money part.
Right.
So know your nature.
This is what I tell my grandkids.
OK, you have a feel and you also have a nature.
It's not just your preferences.
People think differently.
Some are more adventurous.
Some are less adventurous.
Some are more creative.
Conceptual or artistic and can think with imagination and they love doing that.
Some people don't like that.
Some people want to make life should be more concrete and more certain and so on.
That's your nature.
You're partially, you're a lot born with that nature and you also learn it in your earlier years.
We know this of how neuroplasticity works and so on.
So we are all on a journey to find the match between our nature and
And our path and you find that path but you can't forget about this money part
So you're pursuing that path don't forget about the money
So if your you know grandkids came to you and they said i want to become a lawyer
Would you say, listen, that's forgetting about the money because I think AI might take that job?
Or would you say yes?
If they said, I want to be...
I think you...
I want to do a thinking job.
Let me say that history has shown that it's not...
The most intelligent people or the most intelligent species that are the most successful.
And it's not necessarily those that work the hardest, although these things are very important.
It is those species and people who are also most adaptable.
And so there's going to be great change in your lifetime.
Okay.
And so, yes, today it's artificial intelligence.
But if you went back not long ago, we didn't even know artificial intelligence would exist the way artificial intelligence today exists.
And the future will be like that.
So when you're nailing it down, you know, it used to be make sure that you know how to code.
And then Claude Code comes along.
And all of those who are coding are worried about their jobs.
Okay.
So what is it?
That matters, okay?
It is the approach to life in a sense that produces that, you know, the general understanding and also the adaptability.
I think a lot has to do with knowing yourself.
That's why in building Bridgewater, the personalities of the person
Were very important in what suited their jobs.
And then I built this personality profile test.
Then I made it online for anybody to go take.
It's about 30 minutes.
It's free online.
It's called Principles U.
That'll tell you a lot about your nature, okay?
But your goal is to find that nature and what are the paths.
And there are several paths, and they're constantly changing, to find that nature, okay?
You experiment.
You learn.
OK, but, you know, you probably were pulled into this job by your nature.
Right.
And so and you made it work.
And here it is.
It works in all of those dimensions.
And it's like that for everybody.
Yeah, it's interesting because you look forward to the future.
And I think if I was a young person at this stage and I was trying to set out where to aim my career, I would be more confused now than ever before, especially because they're also contending with this...
Unemployability crisis amongst entry levels
But if you're talking about you'd be confused because you can't anticipate the future
That's right
That's just the way it is right
And if you say what is it that i need given that reality
Okay,
I need to learn,
I need to know how to maximize the use of tools like AI to be able to increase what I know and how do I use that to the best of my ability to be as useful as possible doing things that fulfill me.
Mm-hmm.
OK, so that's what you need to do.
You're asking what you need to do.
Just get over the fact that you don't know what the future is going to be like.
So if you're looking for an answer, is it going to be a computer program or is it going to be this or that?
No, just be maximize your ability to know, which is so easy to do nowadays.
Right.
So maximize that and then use that to maximize your usefulness and jobs that make you happy.
And that's the thing that that's the best I can give you in terms of more my 16 year old.
That's the best I can give them because I don't want to mislead them that it's the thing.
That it's a particular job, okay?
That'll mislead them.
You talked about this 80 year cycle, which results in this new world order.
And it sounded like you were saying that near the end of the cycle, you see wealth inequality and you see the gilded age where some people have lots of nice things and other people at the other end are struggling.
And this is a function of capitalism.
First of all, um,
It's a reality that it's not only just a wealth gap difference, and if the majority system is not working for the majority well, you're going to have a problem.
And yes, it's contributed to these things where...
One wants to create more opportunity through education and through other basics, that there's a certain level at a floor that nobody should go underneath because it's bad for them and it's bad for the society.
And just to embellish on that point,
My wife and I live in Connecticut.
It's the, on a per capita income basis, I think it's the second richest state.
But 22% of the high school students have either dropped out of high school or are failing with absentee rates of greater than 25%.
And as a result, a lot of it is gangs, shootings, drugs, and so on that leads to a lot of incarcerations.
And the bill for incarcerations has become larger than the education budget.
When you have that kind of cycle and so on, the system has to work for most of the people and so on.
So you have that dynamic.
But it all comes down to productivity.
And so the way I look at it is the government run by almost anybody.
Can't make these things run well.
I mean, governments do not make things run well.
So what is it like to give them the money and expect that they're going to make things work well?
And so you look at this set of circumstances and you say, who is going to make it work well?
And I don't know the answer.
And there's a budget considerations and so on.
You have to prioritize the things that make it work well.
And you know what that is?
That is educating people to be productive and civil.
We don't talk enough about civility, how we work together to be able to achieve a productive result.
And the way these cycles go, it's more likely that they're going to have a big fight and we're going to have a debt problem and those kinds of things than how we're going to come together
Capitalism leads to inequality, it seems.
Yeah.
That doesn't have to.
There are some societies like in Singapore, some of the Scandinavian countries, some societies, there is a floor that everybody...
Can have good education, adequate housing, and adequate health care, the foundations, okay?
Because if you go below those levels, the society will pay terribly for it because those people...
Will become liabilities, not assets of the society.
They'll be disruptive.
So what about wealth taxes?
Because this is the big debate now.
The big debate in the UK at the moment is tax the rich.
It's been all over our news over the last couple of weeks.
The big debate in New York and LA is wealth taxes and tax the rich.
Good idea, bad idea.
It's a very difficult idea in the following ways.
I'm just talking about the mechanics.
They have to sell the wealth...
And that contributes to get the money to pay the taxes.
That's one of those things that can cause the bubble to burst as we're talking about.
And then operationally, it's very difficult, unlike if they did it as stepped-up tax bases.
Right.
In other words, right now, when you die, your capital gains gets put aside and you don't have to pay capital gains taxes.
You pay inheritance taxes.
And there are ways that you can raise taxes and not hurt the economy.
But we do have to realize that it will lessen investment.
Because what wealth is mostly used for is to put it into investment.
So you have to do this with, at the same time, the improvements in those that are going to improve productivity, like education and so on.
If you're just making transfer payments, wealth payments,
And you undermine the productivity of the society by doing that.
In other words, you're just giving it for consumption and so on.
And the money is going from what was capital expenditures and those kinds of investments that make money
A better, more productive society to go to, in a sense, consumption and so on that doesn't produce that productivity, that's going to be a problem.
So you have to think, how do you make people productive?
And how do you make your society productive for most people?
Or you're going to have to find a way where you say that other group of people who is not productive
The overall society can have a higher level of productivity, but we're going to still establish this bottom that I'm talking about, the bottom in education, the bottom in conditions.
And then you have to say who is capable of doing it, building a society that will be productive.
And who is that?
Well, as I say, you have this dynamic problem that typically a privately owned, capitalist owned business will do better than their government counterparty.
Okay, so a business is more productive, typically, than a government entity.
That system.
So entrepreneurship.
You need entrepreneurship.
Yeah, and capitalists.
In other words, people who are capable of making the thing they're responsible for productive.
Okay?
Run efficiently.
Run efficiently.
So you need those...
Indisputably.
And if you're doing that in government, you need that in government in order to be able to do it.
And government has its own—first of all, it doesn't attract many of those people.
And then it also has, by its nature, knowing many people have gone into it—
It is almost dysfunctional as it causes all of this arguing and problems.
So those who want to be most productive tend not to go there.
And also, it doesn't distribute well.
These people do not—they're not on the ground.
They don't have the direct contact.
They don't know what it's like.
As I'm describing, I see this.
Politicians.
The politician who says, I'm going to, you know, so you still have to come back to the question, who's going to make it run efficiently?
This is something that I've made for you.
I've realized that the Diary of a CEO audience are strivers, whether it's in business or health, we all have big goals that we want to accomplish.
And one of the things I've learned is that when you aim at the big, big, big goal, it can feel incredibly psychologically uncomfortable because it's kind of like being stood at the foot of Mount Everest and looking upwards.
The way to accomplish your goals is by breaking them down into tiny, small steps.
And we call this in our team the 1%.
And actually, this philosophy is highly responsible for much of our success here.
So what we've done so that you at home can accomplish any big goal that you have is we've made these 1% diaries.
And we released these last year and they all sold out.
So I asked my team over and over again to bring the diaries back, but also to introduce some new colors and to make some minor tweaks to the diary.
So now we have a better range for you.
So if you have a big goal in mind and you need a framework and a process and some motivation, then I highly recommend you get one of these diaries before they all sell out once again.
And you can get yours at thediary.com.
And if you want the link, the link is in the description below.
What is the UK currently a cautionary tale of?
It's the classic cycle.
They have gotten over-indebted, under-productive, and they've run out of choices.
In other words, there's not enough money.
Okay.
And because there's not enough money to do all the things, then they've gotten this internal political conflict going.
And you've had six out of the last seven years, you've had a new prime minister because somebody else comes in and they got their promise.
And the promise doesn't pan out.
And it doesn't take long to be that I don't believe your promise anymore.
So you bring the people in and then you throw them out.
We just had a new prime minister yesterday.
Yeah, I know.
It's all part of this cycle.
And so what happens is they don't have the financial and the people move.
It's just logical, right?
It's just when you're heavily indebted and you're not as productive and you've got large wealth gaps.
What are you going to do?
It's politics.
You're going to say, I can't raise taxes because if I raise taxes, besides having great in conflict, people are going to leave.
Okay, so I can't cut benefits because those who are receiving whatever those benefits are are the ones that are suffering.
I mean, what am I going to do, cut those benefits?
So now, okay, but wait a second.
I'm running a big deficit or I don't have enough money.
So where does the money come from?
How do I get out of not getting more in debt?
And then what does that mean for the person who's lending to you?
They don't want to lend to you, right?
So you're not going to get the money to finance the deficits anymore.
It's mechanics.
So what is it they have to do to get out of that situation?
They're going to have to have a major restructuring.
You're going to have to... Go bankrupt?
Yeah.
Well, the way the central banks work now is they do a mixture of printing money, which produces inflation.
And then restructuring the debt in some way, like maybe changing the maturity.
And in these cycles, quite often they put in capital controls because they think people are leaving.
So they don't want them to leave and take their money with them.
So they put in capital controls that says you can't leave with your money.
Okay.
And they'll have exit taxes.
And that's the type of thing that happens until, you know, there's a period of great turbulence.
Then you, through a combination of restructuring the debt, restructuring the debt means like quite often you lengthen the maturity of
The debt.
I think what's needed is a strong middle.
What does that mean?
Right now, there's a left and right and they're extreme.
And as long as they're at war with each other, that's going to make things worse.
Yeah.
If you can find that middle course so that those at most extreme are more alienated than those who say, you know, we're going to have to figure this out together.
And then what I would do, that leadership, that core, I would have something like a bipartisan commission.
In which smart people, meaning who understand how economics and these things work, both parties work together to come up with a small and difficult plan.
In other words, you're going to have to make difficult changes.
In order to make that work well.
But if you can achieve that, like sometimes in history, great leaders of opposing sides have been able to come up with
I mean, that's how the Constitution was made.
You come up with a plan for operating that way, and then you impose those difficult changes.
And when I say this, I say that that's very difficult and very long shot.
But unless you have bipartisan support, unless you do it in a way where the pain is shared and there's a sense that there is a we're doing the right thing.
As well as not a sense, just a reality of doing the right thing, to make most people productive, that is the best path forward.
If you were a young entrepreneur,
You know, 21 years old, would you build a company in the UK now if you had a choice?
And if not, why not?
And if so, why?
I would exist without and try to exist without borders.
What does that mean practically?
In other words, put aside all of these things that we're talking about to a large extent and say, where are the places in the world that are...
That have the vibrancy, that have the capital, that have the elements that are needed.
There are bright spots in the world, and I want to be around the most intelligent, doing the most cutting-edge, terrific things, and be global.
In other words, don't be just stuck in a provincial place.
Go to these places that are what I might call almost Renaissance states that are good things are happening.
And these qualities exist that not only good education, the civility, the vibrancy, be in those places, but be able not just in one.
There's a Chinese – not a Chinese Hong Kong expression.
I think that a smart rabbit has three holes.
And what it means is like if the one place that you go to, it may not be the place that remains the best place.
There are riskier places.
The riskier places are those that don't have the elements I mentioned.
The education, the civility, the productivity, all of those things.
So would one of those places for you be the United Kingdom?
Because me and my friends talk about this sometimes.
I've invested in lots of companies there, and the founders come to me and ask me these kinds of questions, which is, based on everything that's going on with this turmoil and the big cycle,
What's going to happen if I continue to build my company here in the United Kingdom?
I think the United Kingdom, as it goes through these difficulties, is as a whole a more difficult place.
And then there are pockets of it that, when they're operating, are in their pockets.
Very stimulative having those elements.
Just like in the United States, there are places and pockets that have those.
However, they're within a system and a place that is not...
Not healthy.
The real dominant narrative we're seeing, as I said this week, is that because there's this problem, you said there's not enough money.
The most popular narrative, which I think is supported by about 70% of people...
Is that people over 10 million net worth, this is something proposed by one of my former guests, Gary Stevens, who did a documentary last week, should have a 2% wealth tax.
My preferred way is to stop people from hoarding enormous amounts of wealth for enormous amounts of time.
That's basically my preferred method.
There's also the wealth tax method.
There's also capital gains as a method.
There's a lot of different ways here.
There's a lot of different ways here.
But you have to deal with the problem of...
If you do not tax very wealthy individuals and very wealthy families, their share of the pie will obviously grow over time, and they will, and they are, as we are watching, squeezing out ordinary families.
And this is kind of, it would raise, I think it was, I think they said $20 billion or something like that, but it would raise some money.
So the big debate in the country at the moment is, yeah, do we, one way to raise money would be this wealth tax.
Proponents of that, or I should say people that are against that say people will leave.
If you took all of the money of people in the top,
In other words, taxed at 100%, you're not going to come up with enough money because it's such a small percentage of the population.
But in addition, yes, the people will leave.
Then you change the laws so that you make them retroactive.
In other words, you say the law means you're going to be taxed as of a past date so that if you leave, we're going to get your money.
Or then you put in capital controls.
All of this has happened before.
Wealth taxes would be new.
Wealth taxes are administratively difficult because how do you value all this wealth that is not easily valued and such things?
But yes, what you've just said is well-recognized.
You mentioned earlier that this big cycle takes place, this one here on the front of your book, The Changing World Order, happens roughly every 80 years.
Yes, it's like health.
What I mean is...
It varies.
On average, let's say, what is the life expectancy of a person?
But life expectancies or how long people live vary.
I wouldn't emphasize too much the amount of time exactly as much as I would look at your condition.
Where are we in this at the moment in terms of the symptoms or markers of the next big
Well, over in this vicinity over here, you know, we're on the, when we say that, the U.S., the U.K., a number of other countries.
Are later in that cycle when there's the loss of the things that we've been talking about, over indebtedness, more over indebtedness, the loss of power.
So we're in the collapse period of the decline.
Yeah, the decline.
I'll call that the decline.
And you've studied this for how long?
Well, 500 years, the cycles for 500 years.
I'm in a number of countries that's in that book.
These are objective measures.
This is not subjectivity.
You can measure these things.
You can measure the level of indebtedness.
You can measure the education levels and the competitiveness.
You can measure all these things in clearly measurable numbers.
That show the health just like a physical exam.
When there's a new world order because of this decline, through history over the last 500 years, has there ever been two superpowers that emerged as the dominant superpowers?
Or is it just tends to be one?
In the past, prior to World War I, there was no...
World War I happened and then World War II happened because the world came together and there was one world, essentially.
Before that, there were regions and they would have the different powers and you could have a powerful region
China or India could be very powerful at the same time as the UK or the Dutch and whatever would be powerful.
And they weren't in that one world.
And the basic issue is when you have one world and you have disagreements,
You're always going to have disagreements.
How do you resolve those disagreements?
War.
War.
Okay.
Maybe it's not physical war.
Maybe it's whatever it is, but there's a disagreement.
Where does the border lie?
Where does this – okay.
The rules-based order is a theoretical –
Um conception of the united states coming out of world war ii because there's the idea of how do you govern and you have representatives and you have them in the united nations and so on and that you know that's a nice theory but the reality is when that comes in is inconsistent with power
Which wins, power or that rule-based system?
So by nature, to answer your question, it tends to be a dominant power.
We will see.
China and I think the United States, I think the most likely beneficial outcome is that it becomes more regional.
China has no desire to occupy, control other countries for various cultural reasons and things that I can go into.
And their basic objective is to not be cut off, not be harmed, and then also be as good as they can be and be competitive following their approach to a system which is very much a top-down controlled system that's an extension of Confucianism, which is like the family system.
And that's what they want to do.
You can possibly have this region thing, but you're not going to have the dominant world power if that's the case.
You have some chance that there's a great conflict, but I think that there's enough wisdom, in a sense, to not want to go there.
So there's pretty much always been a superpower through different cycles.
There's been one dominant power through these historical cycles.
You're saying that you believe in the next decline, there won't be one dominant power, which has been the US for the last 80 odd years.
There will be
Two.
Because you can't foresee there being a conflict of a scale that would result in one dominant power.
The strength of each country will be how they take care of themselves.
Are they going to be strong or are they going to be weak based on how they educate their population, how they spend their money, how they manage themselves?
Those will determine the relative powers of those countries, right?
And so that'll be true, certainly for the United States and China.
And so as we go forward, how will those systems deal with those issues in the best possible way?
And that I would say as long as the United States remains a power, but it's in it has a risk.
Of having a very bad set of circumstances through debt and conflict and these things that erode it, it'll be from within that those things particularly could change that relative balance of power.
And similarly, if China managed itself badly, that could change that.
Given that if they both remain powerful entities, then what you're going to see is, I believe, more the recognition that there are regions
Okay.
Just like there's the Americas.
Okay.
And that becomes heavily much more the region and where that spills over.
And then there's the region.
Around China, the APAC countries and that region, and that there would be the development within those regions.
And I do believe the avoidance of the big war
That would be very detrimental.
There are issues like the Taiwan issue, but the Taiwan issue will be handled by, in my opinion, most likely not militarily in the sense that there will be a great war between the United States and China over it.
But in the pressures that are going to be created so that there is a reunification of China.
You mentioned conflict there.
The United States are at war with Iran, and it seems to be a war that they can't seem to get out of.
This is going to have an impact, presumably, on lots of things you've described here, but also the feelings of people at home, as we face the prospect of the United States sending troops on the ground into Iran, because this trade of Hormuz is going to become this choke point to global energy and
They're going to, you know, and what does Trump do about that?
He can't, it's like Vietnam, he can't leave or else he is going to look bad.
If he stays, he looks bad.
Midterm's coming up.
What's your thoughts on this war in Iran?
Do you think it was a bad idea?
Do you think it was a good idea?
Do you think it was, do you think it's, does it play a role in all of this stuff here?
Yeah.
This war in Iran, I think it,
Here's what's happening.
Internationally, I get to speak to world leaders and so on, and particularly in Asia, there's a recognition that
That the United States doesn't want to fight a war.
So the litmus test is, who controls the Strait of Hormuz?
And that the United States, the population in the United States
Is worried about gas prices and losing people, and they want it to be all over fast, that you can't fight a war that way.
And so what you have is the United States will not show up in Asia.
What does that mean, show up in Asia?
In Asia, there are all these countries who believe that the United States was going to play an important role as a counterbalancing influence for power in the region because China is the dominant power and the others are much less power.
And so the United States being in there
Was going to balance those power.
And because they have a military presence, the idea of having bases in their countries was believed to be that will help that happen.
Okay, now there's a recognition that not only they want to show up, but maybe these bases can become liabilities and that the Chinese economy
Have a lot of influence and power under that set of circumstances.
For example, chips come out of Taiwan.
We could imagine what would happen if they blockaded chips leaving Taiwan.
Okay, you'd see the world stock markets crash.
You would see terrible...
Terrible things.
That represents a non-military power, just even the ability to threaten that.
Say, the Chinese say, for five days, we're not going to have it.
What will the United States literally do?
Or if you go to countries like the Philippines or
Which has a treaty with the United States that's like a NATO treaty.
How would the American public react that we're going to send military, you know, aircraft carriers and so on into the Philippines to stop the Filipinos from being picked on by the Chinese?
I mean, so what you're seeing is a change that is very similar to the British Empire in terms of being weaker.
I remember a time not long ago
That the United States would just have to almost hint to a country that we would like this thing – it to be this way or you would like it to do that.
And they would do it because of the American power, not just military power but economic power and so on.
Well, as you're seeing that power –
Being eroded.
For example, China is a larger trading partner with most countries than the United States is, or capital turning up.
So these things matter.
So you're seeing that kind of a shift in power.
I'm a global macro investor, and my goal is to be as accurate as I possibly can.
I can't let biases stand in my way of doing that.
So I look at statistics and measures and indicators and so on.
So what I'm saying is clear.
It is, you know, it's apparent.
It's mechanics.
So what does that mean for the Iran situation?
Does it mean that... Well, it means that it's a very, very difficult situation.
What is all through history,
And the Chinese know this very well because their way of having a war is conveyed in the art of war and also the tribute system, as they call it.
You cannot easily go in and control a country for a long period of time occupying.
There are, you know, 90 million Iranians.
And they will be there no matter what happens.
Now the question is, do you have what it takes to take control of the straight of hormones by way of example and allow, in other words,
Do you allow that to be in the hands of the Iranians, or do you not?
And are you willing to pay the price to be able to put yourself in the position, which means take a lot of pain and then enforce that for –
I don't know, forever and ever future, because it's not just take control today.
It means, okay, how is that going to go on?
And what does that mean in these other locations?
Does the United States, they're going to do the same thing with the Chinese in Asia?
They're going to do the same thing all around?
Probably.
Probably.
Okay, so what does that mean?
Okay, a change in the world order.
It sounds like a big mistake.
Oh, yeah, it was a big mistake.
And also, what it did is it shone a light on the vulnerability.
Before it didn't, it wasn't apparent.
Vulnerability of...
The United States in being able to enforce.
You know, when there's always the threat, we'll come in there, the Strait is open,
We're not dealing with this.
And there's always the threat that the United States will remain in control.
And that would be true in Asia and other places.
Now a light bulb goes off.
In other words, like the British and the Suez Canal, we didn't realize.
Now we realize.
That threats no longer work.
That that power no longer exists.
I guess we shall see.
Ray, thank you so much for committing this season of your life to being more of a public educator, because your books here that have been read by millions, millions and millions of people, and the videos that you produce that have been watched by tens and tens, hundreds of millions of people,
Have been so formative for so many of us understanding the world in simplified ways.
And what I love about the work that you do is you explain the world through principles versus tactics and strategies, which are a little bit more ephemeral than understanding the underlying principles and
I think it does two things.
It helps us understand the world in ways that allow us to see past the current short-term moment that we're in.
But it also helps us think generally from a more macro perspective about how all these things connect together.
And I think that's broadly applicable.
The idea of like principled thinking is broadly applicable to all areas of life, whether it's your relationships or your business or your health or whatever it might be.
And you've really written the definitive books on this subject matter.
I've got all of them here.
I mean, Principles is the first one that I ever read.
But then I watched all of your videos on your YouTube channel, which explain it in animated ways.
Those are absolutely stunning videos.
They're unbelievably stunning videos.
And it's funny because, you know, I've watched a lot of YouTube videos in my life, but there's some that I have just never forgotten.
And your book and your video about the book on your YouTube channel, which I'll link to below, are a video on YouTube that I've just never forgotten because it suddenly helped me understand the bigger picture.
In a way that I don't think I would have ever understood otherwise.
I didn't go to my history classes in school.
I'm never going to read history books necessarily.
So that video you made, but also the book itself, really helped me understand there's always a bigger picture.
And funnily enough, I go looking for the bigger picture and the cycles, should I say, in all the other facets of life.
And psychology.
Because when you're dealing with humans, you are dealing with cycles.
That's what I've come to realize.
And you can find them and spot them everywhere and then prepare for them accordingly.
So thank you for the wonderful work that you do in this regard.
I'll link all of these books below.
Highly recommend reading them.
And they're not for boffins or super smart people.
They're for everybody.
And they're written in such a way.
So I appreciate that.
Thank you for saying that.
I found the videos
Are very digestible.
One, how the economic machine works, I think it's in 30 minutes, and it's been watched by 140 million people, and people get it.
So I think it's my responsibility to try to communicate
Also in a clear simple digestible way
So i like to take a concept that's in a book and make it into a 30 which is to try to pass along what might be helpful to people
So thank you thank you for committing your the season of your life to that
I really appreciate it and so do many millions of my listeners
So thank you
When others hear noise, T. Rowe Price interprets market signals to find investment opportunities.
That's the power of active ETFs from T. Rowe Price.
Their portfolio managers approach data from multiple perspectives, analyzing trends and conducting deep research to give you their curiosity-backed active management expertise.
Learn more about their active ETFs at T. Rowe Price dot com slash explore ETFs.
Exchange traded funds ETFs are bought and sold at market prices, not NAV.
Investors generally incur the cost of the spread between the prices at which shares are bought and sold.
Buying and selling shares may result in brokerage commissions, which will reduce returns.
T. Rowe Price Investment Services, Inc.
