Transcription
Mr. Delio, thank you so much for making time to speak to the National. Ray, thank you so much for taking time to speak to the National. What a pleasure it's great to um speak to you at a very important time, not only here in the UAE but globally—a period of incredible change. You've identified the five big forces um that affect the world's progress and economic cycles. How do you see the US in those cycles today, but also the greater world?
Okay. Um, just to give you a little bit of background about the five forces, um I've been a global macro investor for about 50 years. And some of the times that I've been surprised, I was surprised because things happened that were didn't happen in my lifetime but happened before. So I found that by studying history before it helped me. For example, I studied the 1930s and the Great Depression, and that allowed me to anticipate the 2008 financial crisis and do well when others had some trouble. So I saw recently three big forces that led me to the five big forces that I saw repeat over and over again in a cyclical kind of way. Okay.
What are those five big forces? The first force is the credit, debt, money economy force. In other words, you give credit, you're giving buying power, but buying power that that credit produces debt. Debt means you have to pay it back; then it becomes a cycle, and it becomes what the economic and market cycles are driven by. That's one force.
Second force is the force of internal order and disorder, particularly internal conflict, particularly when there are large wealth and values differences that there is—there become irreconcilable differences in which there's populism of the right and populism of the left, another extremism of the right and left, and they are irreconcilable forces that produce a conflict internally. That's basically a type of war of one side to win over the other.
The third force is the great power conflict of one country competing with another country—classically the rise of a great power to challenging an existing great power. And when you challenge an existing great power, you would challenge that power's rules, and that means you challenge the order. And so we're seeing that now as China and other countries are particularly rising to become competitive, and then what is the dominant power? The United States is no longer the single dominant power.
And then I discovered, fourth, acts of nature—droughts, floods, and pandemics—have killed more people than wars and toppled more rulers. So number four, certainly, and certainly now climate change—the costs of climate change, the impacts are very large. And that, through all history, the biggest force, most powerful force in creating the evolution is man's learning, particularly of technologies—the invention of new technologies and ways of operating, and certainly that's the case now with AI and other force—other technology developments that are going to change how we're operating. So I watch these five forces move in cycles, in great cycles. What's happening now is very similar to the 1930 to '45 period, and that's the nature of the dynamic. So anything that we're going to want to talk about or anything that's important will fall under at least one of those categories. And so I think when we're sitting here today and we're thinking about the future, we have to think about those things. And so, so if we start with the debt and credit and and money uh economy uh force—if we take the first force—the US and the debt to GDP that it is dealing with today, how can the next Administration? How can any Administration tackle that challenge?
Well, again I'll start with the dynamics and then we'll deal with how to tackle them. Um, one man's debts are another man's assets. And when debts rise quickly, that means you have to to sell that debt, so that somebody has to buy that debt, and they, when they want to buy that debt, they are buying it based on the return that they're going to get. And when there's a lot of debt relative to GDP, there's it's a difficult balancing act for central banks because they don't want to keep—they have to be careful to keep interest rates high enough that they're good for the creditor without being them so high that they're bad for the debtor. And that balancing act becomes progressively difficult. And what they do when they reach an imbalance is they print money. And so we've seen the the creating of large debts and the printing of a lot of money causing an inflationary pressure, and that's the way the machine works. Okay. So now neither of the parties are really thinking about that balance and how to deal with that. There's a different philosophy. They—the Trump Administration is more going to follow a policy very similar to the policy that existed in the right-of-center governments in the 30s. They're going to become protectionist; they're going to raise uh tariffs a lot, and that tariff will be uh taxes essentially; it'll give income, so there's an element of income that's going to come from that. And then that protectionism is to try to build up the American uh industry, not just for an economic reason but because there's a sense of self-sufficiency is needed in case we get into a war. And that and you're going to see that in chips; you're going to see that in electricity; you we need power; you're going to see a plan, an industrial plan, not capitalism as we ordinarily think of it. We think of capitalism as a free market. And so if you want to buy something luxurious and you want to—no, no, this is much more top-down and directed. And then there'll be more in military spending and the like. And so we're going to deal with this imbalance, and we're going—and that part of that is also the changing of the world order. We're no longer—the United States is taking care of the world order as it designed it, but it is instead taking care of itself—"America First"—in a world order in which then there's that conflict. So that's the nature of that that beast. Um, I—that's for for that reason I think that U—there's a supply-demand imbalance issue that not only will come from the new supply but also the lack of desire of holding bonds because there's a lot of debt which is held. And when you start to think, is that a good currency? Is that a good storehold of wealth? Um, increasingly there's the risk that that will be sold. And that's one of the reasons that you're seeing gold and you're seeing Bitcoin go up because we're talking about what is an alternative money. A money is both a medium of exchange but a storehold of wealth. And so now you're seeing more movement in that direction because it's precarious.
I want to pick up just a moment on the inflation uh element of what you said. Um, there has been criticism that perhaps the FED didn't move quickly enough to to tackle inflation. What's your take on it? Are you are you confident that the Fed's handled this particular period in the right way?
I don't think the FED handled it in the right way. There were two big stimulations, and um the amount of checks that went out to people from the federal government—again, remember, federal government can't print money; what they do is they—but they can uh distribute money. So what they do is they borrow money. So the FED lent money to the central government that sent out checks, and they sent out more than twice as much money as the negative impact from the uh COVID was. In other words, your incomes were set back, but they sent out twice in two big waves. And of course, if you send out more money with buying power, then you create more prices going up; you create the inflation that we've experienced. And so I'm—I think people are paying attention not just to the word "inflation," which is the rate of change, but looking at prices. And so if you look at the prices of everything, almost every place, depending where they are, they're up significantly—prices of most everything. And that's then was a political issue. So yes, I believe that they were—for for two reasons—they were too stimulative. They were stimulative uh the first go around because of COVID, and maybe they would say, "I didn't want to be stingy; I want to make sure we had more than enough." They were around um there was the second time around when the Democrats um and Biden got elected, and they're talking about the redistribution of wealth, Universal Basic Income, that was past the first go around, and there was another big wave of money. And that combination of that big wave and the printing of money produced the price changes we've seen.
Um, you mentioned gold and cryptocurrency um as assets as people are feeling it's getting precarious. We see the rise of both gold prices but also cryptocurrency. So you've also been quite skeptical of cryptocurrency. With Bitcoin at $100,000, what's your what's your take on crypto? Are you reassessing now?
My my view on cryptos remain pretty much the same, and I and I'll I'll I'll articulate it. First of all, I think that—and I own crypto; I own some Bitcoin—the question is the amount and how attractive it is relative to gold. Okay. Um, I think that there's kind of uh the old man's gold, then younger man's uh crypto. But the important thing, first of all, is to represent whether one or the other, and really ideally some of both should be in the portfolio. Don't be so fanatical that you're just having one and not the other, and do worry about the value of money and what is your alternative money that can be printed. Okay. So now when I look at um gold and it's—and it's evolved over—I mean, crypto and it's evolved over time, they there there have been a few things. First of all, there's um not the privacy element of crypto; everybody can understand um exactly what it is; you can tax it easily, so governments can easily tax it; it doesn't have the the same element of that privacy. There's a saying that gold is the only asset you can own that you can own that's not somebody else's liability—meaning you have to depend on somebody else; you can own it and so on. Um, gold is also has always been a reserve currency in all times; it's the third largest reserve currency—in other words, the largest is the dollar, second is the Euro, third is gold, and fourth is the yen. So it's—and it's always the the currency that's being gone to. Right now we're seeing a lot of central banks acquire gold, and that's not the same as crypto because crypto is different that way because still, who controls it? Is it controlled behind the scenes, or do you have possession of it? Um, and so for those reasons um I, you know, prefer uh gold to crypto, but I think the important thing is the recognition of the issue of of do you trust um the governments? And I think that to trust the governments that they won't print the money to make the debt service easier um is not the best move. So I'm um, you know, sort of anti-debt assets like bonds and so on, and I prefer the other, but I I would say that should just be um um a portion of the portfolio. I don't want to get carried away with that. I would say that if you look at it as a diversifier, I think particularly uh gold is something that if you look at how it behaves in relationship to FR uh to inflation and also um interest rates, it behaves in a way that's more understandable than Bitcoin. Bitcoin is more of a speculative element with this limited supply aspect to it. So but if you look at that, it's an effective diversifier of the portfolio. If you take most other assets—stocks, bonds, real estate and so on—they will generally be have good times and they will do well; the gold and that is a diversifier. So you actually reduce your risk by in by having some in the portfolio, somewhere between 10 and 15% of the portfolio.
Um, one of the other important forces that you that you've articulated is the element of the division between people, so it could be left and right and this tension, but another tension that's there is created due to wealth gaps. And we increasingly see the concern about wealth gaps. Is this result of unchecked capitalism, or is it a result of failed politics? Particularly when we look at not only in the US but many different liberal democracies.
Yes. Um, you're looking at um I think you have to look at them together—the wealth gaps and the values gaps—and I really want to touch on both. Um, it is the nature of capitalism that uh capitalism um those who are I don't know clever and work harder and compete uh get to make more money. And so naturally wealth gaps increase as a result of that system—that capitalistic system naturally produces that kind of outcome. Okay. And that can then become an issue when there's the rich and the poor that has living standards and they feel is unfair. And of course, so yes, the capital markets have had the capacity to create great wealth and create great inventiveness and also to produce large wealth gaps that people start to feel are unfair. When you put those together with values gaps—big values gaps—then that's a toxic combination, particularly if you have a debt problem. So let's think about, for example, values gaps in the United States. You know, there are uh it's reflected in the MAGA versus the woke values gaps, by way of example. One side wants to defund the police; the other side wants to bring in law and order. Okay. Um, there are issues about um raising children. I mean, one side um some people believe that at a 10-year-old child should be able to decide what sex they are and have a sex change, that and and that that could be carried through in school, saying, "We're going to have a policy consistent with that." Well, that's not some compromisable to somebody else who would say, "No way; I don't even want to be in that environment." So you're seeing both the wealth gaps and the values gaps then create, you know, an emotional—and compromise is not possible; you're not going to compromise the—for example, the sexuality issue and so on. So now you have a win-at-all-costs mentality, and and so we are seeing that happen not only in the United States—of course, it's happening in the United States—but if you look at France, and you look at England, and you look at Germany and Italy and Korea, both North and South Korea, and you're looking at Japan, it is the norm now, not the exception.
How do you tackle it? What would you do?
I think that if people understand history and understand the choices um that a—as though they had actually gone through it—that that would give them perspective. I think um before wars, whether they're internal wars or external wars, you have anger and you have courage, and we are going to fight to win. And then anyone who has been through these wars, whether they're internal or external, so as they go through said I, they they start off with, "I am brave; I'm going to win," and I'm going to—and they say, "I never want to go through that hell again." And so I I think if they had that kind of perspective, and then they think that it all comes down to how we are with each other—how we are with each other—in other words, okay, is it selfishness uh uh, you know, peace, harmony, that um, you know, the elements of of what makes a good place. You know, here we are in Abu Dhabi. Okay. Okay. What are the elements? The elements of making a good place and what are the elements of success? They're simple: Do you raise your children well so that they're well educated and they're civil with each other? Do you come out to an environment in which there's an environment of opportunity and you can be productive and work be well with each other? And then you're out of a a war—stay out of an international war—and so on. That creates a paradise. And then there are other benefits like, do you earn more than you spend? Just basic things—if you earn more than you spend and you stay out of the war and you're good with each other, you create that environment; you have a paradise. So I think that people keeping in mind how they are with each other and what kind of an environment they're going to be in to make those choices, I think that's of paramount importance.
It's interesting to hear you address this element in war and peace, but also a sense of complacency that people sometimes don't know how good they've got it till they lose it.
That's right. Isn't it amazing? You watch someplace and it's a paradise, and like that it's destroyed, and there's so many people dying and and and we're sitting aside from it and we're watching it like news. Okay, we're just want—and we're not relating. And then wait till it comes to your neighborhood.
Yeah, you spoke about the UAE, so I'm going to shift gears and talk a little bit more about the UAE. Um, you, of course, uh one of the great ways that you frame things is through the power index, and then you're looking at the top 20 countries and you know through GDP and and the size of economies. But if you're assessing the UAE, how would you assess it when it comes to power and where it sits in this changing world order?
Okay, I'll just explain the power index to people, and then I'll um answer your question. Um, it's very important that I measure everything objectively, so I'm like a doctor who will then take you know blood samples, blood pressures, all of this, and then look at the health of an economy and and and then look at it for subsequent predictive of where will you be in 10 years, just like a doctor. And that's the health index. And um and if you Google my name and you say "country health index," you can go see this for all countries, so it'll give all these different measures. Okay. Um, the um the UAE is a Renaissance state in history. Okay, it's one of those places in times of great conflict um when there's um that there are are the elements that have to do with commerce and how people are with each other that brings people from all different countries to create that special environment. It's a modern-day Switzerland. Okay, it's about the same size as Switzerland in terms of the numbers, and that element of neutrality—it's a more vibrant Switzerland. Okay. So if you look at it and you look at, for example, also Singapore—is one of those city-states in a sense that in that environment—but the bringing together those resources, the elements we just talked about about raising children, creating an environment where you have good education, civility, productivity, and all of that, and it's a crossroads for the world, and it's an alternative place to be in a world of chaos—that is what it is. Uh, the UAE is a hub, similar to Singapore, Switzerland, as you mentioned. And they want to attract the best that there is out there when it comes to finance. But on the other hand, the UAE has to introduce taxation. There's been corporate tax that was introduced at 9%, increasing to 15% for some multinationals starting next year. How do they maintain their competitiveness?
Well, I've been coming since Zayed was in power, and um what he—he always brought was a wisdom, and what his next generation brings is a wisdom of how to strike a balance. There's no extremism here; there's balance and so on and so—such developments I'm confident will be handled with balance. Okay, it's a place where um they want the most productive um civil people to come and to raise their families well in and so on in a world community that they recognize has its own issues, and that world community—and I'm confident that they will find the right balance.
Technology—a time of great change. Uh, last year everybody started to think about ChatGPT and generative AI and what it means. Um, how do you see the effects of AI today, given all the speed of change on the global economy, but also what would be your advice for people who are not sure what AI is going to mean for their—
Well, since the last 25 years or so um I've been making all of the investment decision-making through AI. AI's evolved since 1956; it has. So I used expert systems—in other words, decision rules—so that the computer would make the decision—and to flesh that out. And so I've been involved in different ways of AI for decision-making for a very, very long time. And I view this as the greatest progression of that. Um, I've written down almost all my principles and converted them into algorithms to make decision-making in the computer. So I I am very, very excited. It's been key to my success. So now that as I'm watching this, I think that this is the greatest invention in all history. I mean, this is now thinking at all dimensions. You know, when we had the Industrial Revolution, we moved from physical labor to machine labor, and we and it was um in many ways enhanced by the steam engine and so on so forth. This is more pervasive; this is all thinking. So it's going to be a tremendously advantageous tool. I think in the next three years to five years you're going to encounter a new reality, so that you must understand it; you must use it in terms of the decision-making. And my aspiration is to pass along—I'm 75 years old, so I'm in the phase of my life of passing things along—I want to pass along how to do that in the investing area so people can do it that way. It'll be done in different ways. Um, I—but you—one must get—must one must get involved. I think the issues—it's going to raise a lot of issues because um AI, first of all, will will replace a lot of people. Okay, and how those uh people are dealt with—it's one of those things where we see it today creating the unicorns. Okay, the—you come along with a great idea, and it's billions of dollars that your idea gets capitalized at, and that's fantastic. Okay. And but you have to realize, like in the United States, that's a group in total of about three million people in a country of 333 million people. And so you have in the world then there are others who are going to be displaced by that. Okay, there. So now you have to individually think, how do you deal with that? It comes down to the things we talked about—educate your children well and understand those things—but it's going to be a societal issue. And then in addition to that, it's a vehicle for war, and we are at war; we have internal wars going on, and we have external wars going on. And so the idea of how that's going to be managed or used—it could be used as a weapon, or it could be used to raise living standards; it will be used as both. So I think that all of this comes down to one thing, and that is how we are with each other.
It's wonderful. Thank you for your time. I appreciate you making time to speak to the National. Thank you for your time.