Original from the podcast The Diary Of A CEO
Compiled / Odaily Planet Daily Golem (@web 3_golem)
Editor's Note: Ray Dalio, founder of Bridgewater Associates, recently gave an in-depth interview to the renowned business podcast The Diary Of A CEO, sharing his views on the AI bubble, the 80-year major cycle shift, and Bitcoin. In the interview, Dalio explained why we are in an AI bubble, outlined the three major signs that the bubble is about to burst, and expressed his belief that while capitalists will be the biggest beneficiaries of the AI transformation, people with exceptional human intelligence and the ability to collaborate with others will still excel in the future. Odaily Planet Daily has compiled the core content of Dalio's interview below. Enjoy~
Learning from History: How Did the AI Bubble Form?
The commonly referred to bubble is when prices rise sharply, company performances are excellent, then the bubble bursts, which impacts the economy and markets, followed by a great depression, such as the 1929 bubble or the 2000 dot-com bubble.
This happens because when a revolutionary new technology emerges, everyone bets it will surely succeed, rushes to invest, even borrows money to invest, but they overlook the importance of price. Ultimately, prices soar, creating a bubble.
Now we are equally excited about AI, and we should be, as it will bring revolutionary changes, which it indeed has. So, again, everyone wants to invest, but they still ignore the price. This is a certain mechanism hidden within different cycles.
In an economic bubble, people borrow heavily to invest. You see many people becoming wealthy, but wealth is not equivalent to real money because they cannot spend this wealth. When they must sell their wealth to get money, it depreciates. So, when they need cash for reasons like tax changes, rising interest rates, or debt repayment, the bubble starts to burst, and the market declines.
When the bubble bursts, the wealth accumulation process reverses. When they made a lot of money, they had highly valued collateral for loans; this compounding effect continues. But when the bubble bursts, this process also reverses.
Economic recessions typically also follow a bubble burst because when people start repaying debts and selling assets, consumption demand decreases, and spending naturally drops.
For example, during the Great Depression in the US, the late 1920s were a time of great prosperity. Households were electrified for the first time, refrigerators and lighting entered homes, cars, airplanes, and radios became popular. Everyone believed these technologies had a great future. But simultaneously, as people kept buying assets, stock prices kept rising, and people leveraged themselves to buy stocks, corporate profits ultimately couldn't support the corresponding stock prices, triggering a chain reaction that eventually led to the Great Depression.
My point is, in these massive trend shifts, people know very little. Anyone in the AI field cannot plan accurately. They simply don't know what future revenues will be. Ultimately, only two outcomes occur: either underinvestment, falling far behind competitors; or heavy investment, still lacking precise control. When this happens, problems arise.
The 3 Major Signs of a Bubble Bursting
In the initial stage, what punctures the bubble is often situations that force people to sell assets to raise cash, and this is generally rising interest rates. It could also be policies like wealth taxes, but broadly speaking, it's a tightening of monetary conditions. Because at this stage, there is often inflationary pressure, and central banks decide to tighten monetary policy. Thus, when interest rates rise, the returns investors can get from holding bonds can exceed the returns from equity investments.
Additionally, there is a significant increase in stock issuance. We have been discussing how demand pushes up stock prices and how wealth is created, but the market also has a supply side. Companies can issue stock; there is almost nothing easier for creating wealth than issuing stock. Nowadays, people can even announce they are starting a company and taking it public, then say to their audience they will issue shares. It is precisely this large supply of stock, along with increased fundraising needs from other companies, that will ultimately cause the bubble to burst.
Another classic way to gauge the extent of a bubble is to examine the ownership of these companies' shares, to see if the shares are held by steadfast investors or by fickle retail investors. But I must also emphasize that a bubble is not a black-and-white existence; it's a matter of degree.
Classic characteristics of fickle holdings are a massive influx of retail investors lacking expertise, especially through leverage. They either borrow money to buy stocks or purchase leveraged financial products. For example, there are now leveraged ETFs tracking the stock market. Investors participating in such products are essentially no different from rolling dice in gambling.
All of the above are major signs that a bubble will burst. When it bursts, panic sets in, leading to massive asset liquidation. Conversely, at that point, all assets become cheap, and everyone can afford them.
But in investing, people always like to get ahead, buying the bottom too early, and this behavior often further fuels bubbles. So I would like to add that the future is uncertain. Investors should not try to 'time the market.' Even experienced investors find it extremely difficult to precisely time a bubble burst. Therefore, the best investment approach in the face of a bubble is diversification.
Responding to a Bubble Burst Through Diversification
Ordinary people often think cash deposits are the safest asset, but in the long run, it's the worst investment because inflation erodes its value.
Besides the stock market, investors have many assets to choose from, such as gold, bonds, real estate, and Bitcoin. Their respective values fluctuate for various reasons. Typically, when gold rises, bonds often fall, and real estate depreciates; these changes follow certain patterns.
Therefore, the best practice is to build a diversified investment portfolio. This not only doesn't reduce returns but actually lowers risk. Diversification means holding a certain proportion of each asset type. Due to different volatilities, investors must know how to balance them. My suggestion is to start by investing in a real asset: gold.
Gold is very interesting because when all assets perform poorly, gold often performs well. It is a very effective diversification tool. Gold cannot be hacked by technology; you can hold it, own it. It is the only financial asset that is not someone else's liability.
So for most people, if they want to ensure they have some 'hard currency,' gold should make up 5% to 15% of their investment portfolio.
Views on Bitcoin
Some investors view Bitcoin as 'digital gold,' but I prefer investing in real gold bars, not Bitcoin.
Bitcoin is just a gold-like asset; it's also a form of currency that cannot be printed. But some technologies could harm it. For example, if quantum computing emerges and governments can monitor it, it could be taxed. Any digital currency is somewhat similar.
Moreover, when a government says 'I don't need Bitcoin,' they have the authority to deal with it as they wish. Also, central banks won't hold large amounts of such assets because central banks need to ensure the privacy of their transactions and keep them firmly under their control. Look at Russia's situation; their other assets were seized/frozen, but their gold, no one could touch.
Who Benefits Most from the AI Transformation?
In this AI transformation, only a very small number of people (less than one percent of the population) master cutting-edge technologies and can apply and accelerate their development. As for others, if your job involves thinking, you are at risk of being replaced.
We are entering a world where everything can be automated. Human evolution began in the agricultural age, where there was almost no real innovation. Later, humans invented machines that replaced human physical labor. People used to work in fields like cattle; later, they were replaced by tractors. Then we entered the industrial age. First, the invention of printing allowed people to learn knowledge, then various inventions emerged, the first industrial revolution arrived, where machines began replacing human physical labor in factories, etc.
So in my view, it's as if machines first replaced human physical functions, then replaced higher and higher levels, and then began replacing parts of human thinking that can be computerized. And this trend continues to develop, gradually replacing higher-order thinking and reasoning abilities. This development trajectory is part of the ongoing evolutionary process.
The ultimate beneficiaries are capitalists who own the ideas that replace workers. For example, when people shop in stores, merchants earn revenue. But if you look at the share allocated to workers, you'll find this share is declining, while the share allocated to merchants is rising. So we are going through a stage where, on one hand, the top tier creates astonishing wealth; on the other hand, the bottom tier faces enormous pressure.
This is the challenge we face. Although the economic situation is relatively good, the difficulty for college graduates finding jobs has increased significantly. For instance, new graduates need training when starting jobs, and now many jobs can be quickly performed by AI and computerization. As robotics advances, this will intensify. The disruptive change we see now is happening so fast precisely because massive funds are pouring into frontier AI models like Anthropic and OpenAI.
Simultaneously, the wealth gap is widening because capitalism, although I love capitalism, the reality is, it creates huge disparities in income and wealth. When a worker's mind and body are both replaced, as a human, what can they sell?
But don't be too pessimistic. What humans still possess are emotions and intuition. Some services AI cannot provide. So, if we explore what these 'services' are, for example, can robots provide a good massage SPA? What remains, people can explore further. In summary, I believe that in the foreseeable future, those with exceptional human intelligence and the ability to collaborate with others will still perform excellently.
Regarding the 80-Year Major Cycle
I previously said that world order shifts occur about every 80 years, but this number is not absolute. The cycle length has an average floating range. It's like human lifespan; each person's life expectancy or lifespan varies individually.
I wouldn't overemphasize the length of time; I would focus more on the current situation. In terms of symptoms or relevant indicators, where are we currently in this process? Where will the next important node appear?
The answer is somewhere near the current time zone we are in.
