Hola Libertinus!

This week, we’re taking a good, hard look at one of Wall Street’s favorite oracles, Ray Dalio—the billionaire hedge fund founder who, it turns out, has a soft spot for the CCP, an endless appetite for predicting America’s downfall, and a peculiar love affair with totalitarianism, dressed up in lofty-sounding “principles.”

When someone with this much influence starts pitching China as the world’s next superpower, it’s time to ask ourselves just how reliable our narrator really is—and more to the point, “What’s in it for Ray?”

So grab your drink of choice, settle in, and let’s unpack Dalio’s narrative of America’s demise, his “radical transparency” regime (read: a corporate social credit score), and why all of this matters to you—and what you can do about it.

🤿 DALIO DEEP DIVE

🇨🇳 Dalio & China

You’re probably familiar with Ray Dalio, the founder of uber-successful hedge fund Bridgewater Associates.

In 2021, Dalio leveraged his veritable army of analysts over at Bridgewater to produce his book Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail.

(Here is a link to a YouTube video Dalio published outlining the content of this book.)

Dalio's biggest assertion in this book is that the US is experiencing a relative decline in power, and China is rapidly rising to overtake the US.

This brings us to economist Joeri Schasfoort's YouTube channel Money & Macro.

Schasfoort produced a video critiquing Dalio's primary assertion about the rise of China, and we think he makes some good points.

In this video Schasfoort contends Dalio ignores problematic metrics in China, but uses the same metrics in the US to predict its decline.

Specifically, Schasfoort points out that while the US has a high private debt to GDP ratio and inequality, by those same metrics China is doing far worse.

In 2020, China's private debt to GDP ratio was at a whopping 217%, far exceeding that of the US.

And that's just the official number - there are reasons to believe that China's self reported GDP numbers may be higher than in reality.

Meanwhile, income inequality is fairly similar in both the US and China, and money supply as a percentage of GDP is actually far higher in China.

He also points out that while social polarization is high in the US, parsing out social polarization in China is difficult because it is a uni-party, highly controlled state with protests and other forms of dissent being illegal.

In other words, while Dalio make a sound argument that the US is in decline, if you parsed out the same metrics for China you would see that it is in decline as well.

So what does all of this mean for how power dynamics between the US and China will play out, and what does that mean for you?

Let's start by taking a page from a methodological framework created by the CIA's Richards Heuer called Analysis of Competing Hypothesis (ACH).

Basically, I am going to assume that we don't know whether the US or China will reign supreme, or if it will be something in between, and I will outline all three scenarios as they pertain to individual investors.

Scenario 1: Dalio is right. It turns out he has some data and insight he hasn't made public that factors heavily into his analysis, and the US is in a true state of decline and China is on the rise to become the world's new hegemon.

Well, the first thing you should do is start learning Mandarin (sarcasm, but only kinda).

In all seriousness though, I would expect Chinese stocks to rise as China continues its ascent to power.

Similarly, I would expect continued devaluation of the dollar as the US struggles to keep pace.

As always, gold can serve as a good hedge against this kind of systematic currency debasement.

I don't know enough about the dynamics of the Yuan and Chinese bonds to know exactly how those markets operate, but I think it is fair to say that at the very least individuals should be looking to offload the dollar and US bonds.

What is interesting on this piece is that as some of you may be aware, Dalio's All Seasons Portfolio, which is is aimed at individual investors who want to survive all economic conditions, is comprised of 15% intermediate term US treasuries, and 40% long term US treasuries.

I'm not quite sure how Dalio squares this with his world view.

Scenario 2: Dalio is wrong, and in hindsight China's rise will be a blip on the radar compared to continued US hegemony.

I'll call this the "Zeihan-Johnson Hypothesis" given this is broadly the perspective of geopolitical analyst Peter Zeihan and fund manager Brent Johnson.

In this view, the issues faced by the US are of far less consequence than those issues faced by China.

The main takeaway for individuals is long US stocks and the dollar.

China's demographics catch up to them, and they are forced into a non-stop cycle of economic stimulus to try to maintain their economic and military standing.

Even if inflation persists in the US, it will be far worse in other countries, so the dollar's status a global currency will be even further reinforced.

Similarly, economic growth in the US is ensured by immigration-fueled demographic expansion.

In this view, not only will China suffer, but most other countries outside of the US will too, so stay diversified but only within the confines of the US economy.

Scenario 3: We simply don't know. And the truth is somewhere in-between.

Maybe the future isn't the uni-polar world of the 1990's, but a bi or multi-polar world in which large powers vie for dominance for decades with no clear winner.

The solution here is diversification.

A globally diversified portfolio would likely perform well, albeit tilted away from countries like China and Russia which may become increasingly subject to US sanctions and unavailable to US investors.

We don't know which currencies will outperform, but inflation remains likely across the board as nations compete against each other, possibly even leading to a global consensus that high-inflation and high-stimulus policies are the way forward.

For this reason, a healthy allocation to gold is in order, and any bond allocations should be made cautiously.

On a final note for this scenario, Dalio has some wisdom to offer here with his "three burrows" idea outlined in his book.

Basically, you want to be spread across several jurisdictions, or "burrows".

These "burrows" are both financial assets and geographic locations.

Start looking to diversify internationally both with your assets and with your physical person.

If you're a high net worth individual, consider allocating just 5% of your net worth to having an escape plan, preferably to a country that hopefully won't be involved in World War 3.

But which of these 3 perspectives do I find most convincing?

Something between Scenarios 2 and 3. It seems unlikely to me that there will be a world dominated by China, in the same way the US dominated the world in the ‘90s, in my lifetime.

Similarly, it seems unlikely to me that China will cease to exist as a major power player in global politics.

I think that something resembling the current state of things is likely to remain in place for the next few decades.

China will be the biggest player in APAC region, but will be constrained by the coalition of other Asian powers opposed to it, aided at times by the US.

To wrap things up, I want to leave you with some more wisdom from Dalio.

Dalio says to "look for smart people to stress test your thinking."

Of course, if you are capable of surrounding yourself with the greatest minds in geopolitics and finance, like Dalio is, then do that.

Many of us, however, are incapable of doing so, but the next best thing is to read and listen to these people.

Stay informed of the past, present, and future by reading books and listening to high quality podcasts, and discuss what you've been learning with trusted friends and get their feedback and opinions.

Most importantly, learn to think critically so you can sort the disinformation from the truth. ~West

☭ Chairman Dalio’s Brave New World

Dalio has made a career out of prophesying the end of America.

To his credit, he’s been stunningly consistent. But let’s not mistake consistency for prescience, even if some of his prognostications eventually manifest.

In Rob Copeland's The Fund, we learn that back in 1987, he appeared on Oprah to deliver his vision of American decline, warning that Japan was about to swallow the U.S. whole.

His exact words:

"What we are seeing we have seen through hundreds of years. We have seen the ascendancy and descendancy of civilizations. It's due to the fact that we are overconsuming. We are trading our freedom for VCRs."

Well, Japan (and its tantalizing electronics) turned out to be less of a “boogeyman” than Dalio hoped, but he soon found a new contender in China.

And this is where it gets interesting... because instead of calling them racist (as he did the Japanese, to the applause of Oprah's audience), China became something of Ray's darling.

Before we go there, though, we need to take a page out of Ray's Principles to guide our thinking...

"When you hear someone's description of what is happening, ask yourself: what are their biases and goals?"

Continuing:

"This applies to everything: when you’re buying something, asking for advice, reading the newspaper, watching the news, etc. That is because most people (though not all people) are trying to sell you something that will help them get the things they want."

Excellent point. And it raises an obvious question: what exactly is Dalio selling?

And why does his vision of the future look suspiciously like a love letter to the Chinese Communist Party?

Strap in, because things are about to get weird.

For decades, Dalio has actively courted China’s political elite. He’s rubbed elbows with high-ranking CCP officials, including President Xi Jinping, and openly sings the praises of their political structure—the obedience, enforced loyalty, and central control.

In his own words, "I know the people, and I know the culture. And I think it’s good." For Dalio, China is his ultimate model of “stability.” And he isn’t just interested in doing business there; he admires the government right down to its Orwellian roots.

But his admiration isn't just intellectual. No, Dalio took these totalitarian ideas back to Bridgewater, turning his hedge fund into a loyalty experiment straight out of Stalin’s playbook.

Ever heard that we want our fiction to be believable and our nonfiction to be unbelievable? Well, Dalio doesn’t disappoint.

At Bridgewater, he set up ‘Principles Captains,’ ‘Overseers,’ and even his own ‘Politburo,’ designed to root out dissent with the ruthlessness of a Soviet purge. Cameras everywhere, every word recorded, everyone graded on their obedience to Dalio’s principles. Literally.

Each employee gets a "baseball card" with performance "dots" for everything from "believability" to "adherence to principles." Imagine your career reduced to a corporate social credit score. It’s 1984 meets Rotten Tomatoes, where you're one bad review from the Principles Police away from being escorted out the back door.

In Dalio's TED Talk, it all sounds lofty enough. An "idea meritocracy" that rewards "radical transparency." But those on the inside claimed it did the opposite: encouraging fear, groupthink, and conformity. Everyone fell in line with the more quantitatively principled.

Everyone is equal, but some are more equal than others.

Oh, and in case you're not familiar, a “Politburo” is literally the title of the high cabinet of a communist party. Fun fact: the first one included Vladimir Lenin, Leon Trotsky, and Joseph Stalin. So, you know, it's not exactly a subtle reference to the decision-making apparatus of the government of the Bolsheviks and modern-day China, North Korea, and Cuba. Good company!

Back to Bridgewater, where discipline was public and merciless. Dalio once interrogated his pregnant protégé and insulted her intelligence until she sobbed like an animal. This was recorded, of course, and broadcast for everyone to see.

His title for that episode would become one of his favorite principles, "Pain + Reflection = Progress."

Mao would be proud.

Here's where it gets even better...

Dalio doesn't want to keep this private police state to himself. In his TED Talk, he practically teased his authoritarian vision as the future of corporate America, encouraging the audience, “radical transparency is coming at you and it's going to affect your life.”

Translation?

You know what's in Room 101. Everyone knows what's in Room 101.

But let's set aside Dalio’s "pet panopticon" and consider his most profitable relationship: his deep, lucrative ties to China.

Dalio’s admiration for China is more than philosophical, after all.

Bridgewater has been building one of the biggest foreign investment portfolios in a country famous for keeping foreigners at arm’s length.

The firm has aggressively courted Chinese funds for decades and has amassed billions in assets from Chinese investors

Thus, Dalio’s financial stake aligns perfectly with his praises for Beijing, so why would he bite the hand that feeds him?

That said, I don't doubt his sincerity. I think he's selling a narrative to himself just as much as he's selling it to us.

So, what are we to make of Dalio?

He's stated, "I’m at a stage in my life where my goal is to pass what I’ve learned along to others." Maybe. It does seem like he'd like to cement his legacy as a public intellectual.

Autocrats are notoriously vain, after all.

But as someone with a cozy relationship with the World Economic Forum and a penchant for relentless surveillance, enforced loyalty, and a world view that celebrates China’s draconian control, one has to conclude Dalio is yet another utopian globalist who's vision of the future is boot stamping on a human face—forever. ~Zach

That’s all for this week’s dive into the mind of Ray Dalio—the prophet whose favorite bedtime story is America’s decline and whose ultimate dream seems to be a culture of total subjugation.

Just goes to show that, to paraphrase Dalio, everyone has an angle—especially when it aligns with their interests and reinforces their worldview.

So, as always…

Stay curious, stay skeptical, and, of course, don’t be tempted to trade your freedom for anyone’s “principles,” no matter how lofty they might sound.

Until next time…

Sic semper debitoribus,
~ West & Zack

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