Editor's Note: Ray Dalio, founder of Bridgewater Associates, recently gave an in-depth interview to the popular business podcast The Diary Of A CEO, sharing his views on the AI bubble, the 80-year grand cycle, and Bitcoin. In the interview, Dalio explains why we are currently in an AI bubble, outlines the three major signs that a bubble is about to burst, and believes 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 as follows, enjoy~
Learning from History: How the AI Bubble Formed?
A bubble, as people often call it, refers to a period of sharp price increases, exceptional company performance, then the bubble bursts, which impacts the economy and markets, often followed by a great depression, like the 1929 bubble or the 2000 dot-com bubble.
This happens when a revolutionary new technology emerges. During the dot-com bubble, we also had amazing new technology. Everyone bet it would succeed, rushing to invest, even borrowing money to do so, but they overlooked the importance of price. Eventually, prices skyrocketed, creating a bubble.
Now we are similarly very excited about AI, and we should be, because it will bring revolutionary change, and it is doing so. So again, everyone wants to invest in some of it, but they are still ignoring price. This is the same kind of mechanism hidden within different cycles.
In an economic bubble, people borrow heavily to invest. You see many people become wealthy, but wealth is not the same as real money because they cannot spend that wealth. And when they must sell that wealth to get money, it depreciates. So, when they need money for some reason, such as tax changes, rising interest rates, or debt repayment, etc., the bubble begins to burst, and the market falls.
The process of wealth accumulation reverses when the bubble bursts because when they made a lot of money, they had highly valued collateral to secure loans. This compounding effect continues, but when the bubble bursts, this process also reverses.
Economic recessions usually also occur after a bubble bursts because when people start repaying debts and selling assets, consumer demand decreases, and spending naturally also decreases.
For example, during the Great Depression in the US, the late 1920s were a time of prosperity. Electricity was introduced to homes for the first time, refrigerators and lighting entered households, and cars, airplanes, and radios became widespread for the first time. Everyone believed these technological products had a bright future. But at the same time, as people kept buying assets, stock prices continued to rise, and people even leveraged themselves to buy stocks, etc. Ultimately, corporate profits could not support the corresponding stock prices, triggering another chain reaction that ultimately led to the Great Depression.
My point is, in these massive trend shifts, people know very little. Anyone in the AI field cannot plan precisely. They simply don't know how much revenue there will be in the future. Ultimately, only two scenarios occur: either they under-invest and fall far behind competitors, or they invest heavily but still cannot achieve precise control. When this happens, problems arise.
3 Major Signs of a Bubble Being Pricked
In the early stages, the factor that pricks the bubble is often a situation that forces people to sell some assets to raise cash, and this is generally rising interest rates. It could also be policies like wealth taxes, but overall it's about monetary tightening. Because at this stage, inflationary pressure often exists, and central banks decide to tighten monetary policy. Thus, when interest rates rise, the return investors can get from holding bonds exceeds the return from equity investments.
Additionally, there is a significant increase in stock issuance. We've been discussing how demand drives up stock prices and how wealth is created, but there is also a supply side to the market. Companies can issue shares; there is almost nothing easier for creating wealth than issuing stock. Today, people can even announce they are starting a company and taking it public, then say to an audience they are issuing shares. It is this massive supply of shares, along with increased fundraising needs from other companies, that ultimately causes the bubble to burst.
Another very typical way to gauge the extent of a bubble is to look at the shareholders of these companies, to see if the holdings are in the hands of steadfast investors or fickle retail investors. But I also want to emphasize that a bubble is not a black-and-white existence; it's a matter of degree.
Typical characteristics of weak hands are a large influx of retail investors lacking expertise, especially through leverage—they either borrow money to buy stocks or purchase leveraged financial products. For instance, there are now leveraged ETFs that track the stock market. Investor participation in such products is essentially no different from rolling dice and gambling.
These are the main signs that a bubble is about to be pricked. When the bubble bursts, panic sets in the market, leading to massive liquidation of assets. Conversely, at that point, all assets become cheap, affordable for everyone.
But in investing, people always like to be first, buying the bottom too early, and this behavior often further fuels bubbles. So I also want to add that the future is uncertain, and investors should not "time the market." Even for experienced investors, precisely timing the burst of a bubble is extremely difficult. Therefore, the best investment approach in the face of a bubble is diversification.
Dealing with 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.
Beyond the stock market, there are many assets investors can 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 does not reduce returns but actually lowers risk. Diversification means holding a certain proportion of each asset. Due to different volatilities, investors must know how to balance them. My suggestion is to start by investing in real assets, and that is gold.
Gold is very interesting because it often performs well when all other assets perform poorly. It's a very effective diversification tool. Gold cannot be cracked 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 account for 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 over Bitcoin.
Bitcoin is just a gold-like asset; it also belongs to the category of money that cannot be printed. But some technologies could harm it. For example, if quantum computing emerges and governments can monitor it, then 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. Central banks also do not hold large amounts of such assets because central banks need to ensure the privacy of their transactions and maintain tight control over them. Look at Russia's situation; their other assets were confiscated/frozen, but that gold, others couldn't 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) possess and can apply and accelerate the development of cutting-edge technology. For everyone else, 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 with the agricultural age, where there was almost no real innovation. Later, humans invented machines, which replaced human physical labor. People used to work in fields like oxen; 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, and machines began replacing human physical labor in factories, etc.
Therefore, in my view, it's as if machines first replaced the functions of the human body, then replaced higher and higher levels, 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 trajectory is part of the ongoing evolutionary process.
The ultimate beneficiaries are the capitalists who own the ideas that replace workers. For example, when people shop in stores, the merchants receive income. 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 immense pressure.
This is the challenge we face. Although the economic situation is relatively good, the difficulty for college graduates to find jobs has increased significantly. For instance, fresh graduates need training when starting a job, and now many jobs can be quickly done through AI and computerization. With advancements in robotics, this situation will intensify. The speed of disruptive change we are seeing now is precisely because massive funds are flowing into AI frontier models like Anthropic and OpenAI.
Meanwhile, the wealth gap is widening because capitalism—although I love capitalism—the reality is, it creates huge disparities in income and wealth. After a worker's thinking and body are replaced, what else can he, as a human, sell?
However, it's not all pessimistic. Humans still possess emotions and intuition; some services cannot be provided by AI. So, if we explore what these "services" are—for example, can robots provide good massage SPA? What remains can be further explored. In short, I believe that in the foreseeable future, those with exceptional human intelligence and the ability to collaborate with others will still excel.
Regarding the 80-Year Grand Cycle
I've said before that world order transitions occur about every 80 years, but this number is not absolute. The cycle length has an average fluctuation range. It's like human lifespan; each person's life expectancy or lifespan varies.
I don't overemphasize the length of time; I focus more on the current state. In terms of symptoms or relevant indicators, where are we currently in this process? Where will the next important node appear?
The answer is near the current time zone we are in.
