Bridgewater founder Dalio: The art of trading and the forces behind it
TechFlow Selected TechFlow Selected
Bridgewater founder Dalio: The art of trading and the forces behind it
Do not react post-hoc to news and market fluctuations without careful consideration.
Navigating Web3 tides with focused insightsAuthor: Ray Dalio
Translated by: Block unicorn
Preface
The first phase of U.S.-China trade talks was quickly reached and completed in a very reasonable manner (optimism about future negotiations is justified), and Donald Trump and his team are now on a Middle East tour in Saudi Arabia to secure investment deals (I believe they will succeed, and it appears other sensible trade agreements will follow). Soon after, he and his team will attempt to reach a good budget agreement with Congress (on this I am less optimistic). Meanwhile, Iran and Russia-Ukraine agreements are in the works, and I believe progress will be made on these fronts.
In my view, there are two types of situations: a) everyday issues that tend to capture attention, affect emotions, and cause short-term market fluctuations; and b) the big issues and forces that drive major shifts in the world order. While both require attention, the larger issues and forces that drive everything are most important, so we must not let short-term, attention-grabbing events distract us from the powerful forces and major issues that will determine how the story unfolds. This perspective is especially critical when making investment bets on the future.
Regarding the big issues and forces, I will reiterate the five major forces that drive nearly everything and describe their current states as I see them. They are:
1) The debt/money forces that drive markets and economies and determine the monetary order;
2) The domestic wealth and values gap forces that determine the political order;
3) The international order/disorder forces that determine the world order;
4) Natural disasters (droughts, floods, and pandemics); and
5) The force of human invention and innovation, especially new technologies.
On the Brink of Crisis
Each of these forces is in a distinct state, making the current situation fundamentally different from periods when these forces were in other configurations. Regardless of who the leaders are, the shape of these forces determines the environment they must navigate and the choices they must make. More specifically:
1) On the debt/money forces that drive markets and economies and determine the monetary order.
The U.S. government and several others now carry massive debts and deficits, and markets and economies will depend primarily on these conditions—even more than daily headlines or specific leaders’ decisions. In other words, this excessive indebtedness will require governments to either raise more funds through fiscal means (i.e., taxes and spending) or through greater debt monetization, which will have significant consequences in one way or another. This is because the laws of monetary reality dictate that when government debt is already high and rising faster than demand for debt assets (e.g., bonds), responses must include spending cuts, increased tax revenues, and/or looser monetary policy (which harms creditors). This holds true regardless of who is president. There will be intense battles over what should be done (e.g., between President Trump, congressional leaders, and Federal Reserve Chair Powell). These will generate extensive news coverage and cause many short-term market swings. Regardless, as I explain in my new book *How Countries Go Broke: The Big Cycle*, whether the budget deficit shrinks to around 3% of GDP or does not will have enormous consequences for the value of debt and money. At the same time, the U.S. remains the world’s only large capital market (accounting for nearly half of global markets) and the largest buyer of commodities. It has proven itself a solidly capitalist environment that respects investment instruments as stores of wealth, still possessing rule of law, an entrepreneurial and innovative culture, and relatively free speech—collectively forming "American exceptionalism." Maintaining capital inflows into the U.S. and creating mutually beneficial investment deals could greatly improve this situation. Everything hinges on how well this is managed.
2) On the domestic wealth and values gap forces that determine the political order.
These gaps have led to irreconcilable divisions, minimal willingness to compromise, the rise of populism, the emergence of populist leaders, and the classic ascent of more authoritarian leadership, along with weakening democracy and erosion of the rule of law as more populist and authoritarian leaders clash with opposition to achieve what they see as necessary changes. The relative power of the presidency versus the judicial and legislative branches—and American democracy as we know it—may be tested. Moreover, the problems of the bottom 60% remain unresolved, and inevitable political and media opposition will almost certainly intensify soon.
3) On the international order/disorder forces that determine the world order.
The absence of a single dominant global power—combined with more countries having determined populist leaders facing the aforementioned issues, inclined to fight for self-interest and victory rather than harmony—leads to more unilateral rather than multilateral decision-making and greater conflict. During this period, risks of trade, technology, geopolitical, and military conflicts are higher, causing nations to act more aggressively and defensively. This drives efforts to ensure secure domestic production and other essential supplies. Multilateralism is receding while bilateralism (bilateral deals) is rising, with the U.S. and China each responding in their own ways. Countries offering the best deals to others will achieve greater and better outcomes. How this is handled will be crucial to shaping the evolution of the world order.
4) On natural disasters (droughts, floods, and pandemics).
The situation is clearly worsening, causing massive economic damage and equally severe real-world losses. How nations and people adapt will be key.
5) On the force of human invention and innovation, especially new technologies.
This will greatly enhance human cognitive capacity across most domains and is likely to be used to produce both enormous improvements and enormous harms.
In short, the overall picture revealed by numerous objective indicators is that the existing monetary, domestic political, and international geopolitical orders are deteriorating, amid growing threats from natural disasters and simultaneous rapid technological advancement. At the same time, most of these factors are being recognized and addressed by a unique right-wing/capitalist U.S. president and his administration.
What is being done about these issues?
-
Striking deals, including: a) setting tariffs aimed at increasing tax revenue and improving business for domestic producers and U.S. exporters; b) attracting substantial foreign capital into the U.S.; c) promoting better global investments.
-
Reducing government regulation to boost productivity.
-
Cutting government waste and improving management of government assets.
-
Reducing the budget deficit and addressing government debt, though it's currently unclear how this will be achieved.
-
Using power to challenge established legal and regulatory systems to achieve the president’s and his hard-right supporters’ goals, while not alienating needed swing voters.
How should these situations and forces be handled? This is the biggest question.
Will these situations and forces be handled well or poorly? That is, will the handling be rational or chaotic? Does Donald Trump’s deal-making approach—marked by extreme positions and a negotiation style that makes both friends and enemies—suggest that he and his administration can competently manage our challenges? Was his announcement of imposing a full 145% tariff on China on “Liberation Day” merely an effective bluff that ultimately led to two days of productive talks and a very sensible short-term agreement, followed by serious negotiations? So far, events support the view that Donald Trump is addressing the aforementioned important but long-neglected issues in a relatively unstable yet productive manner. But frankly, it is too early to draw firm conclusions.
A Few Suggestions: On the Brink of Crisis
Remember, news should be evaluated in the context of the major forces that collectively determine the direction of big-cycle shifts—most importantly, the monetary order, domestic political order, global geopolitical order, climate change, and technological change (i.e., the five major forces).
Remember, we are on the edge of major changes in monetary, domestic political, and international orders, and everything depends on whether these are handled wisely and cooperatively.
Remember, in investing, what matters is: 1) developing a thoughtful investment plan that includes smart diversification and sticking to it; and 2) not reacting post-hoc to news and market volatility without careful consideration.
Finally, the views expressed here are solely my own and do not necessarily represent those of Bridgewater Associates.
Join TechFlow official community to stay tuned
Telegram:https://t.me/TechFlowDaily
X (Twitter):https://x.com/TechFlowPost
X (Twitter) EN:https://x.com/BlockFlow_News
@RayDalio
