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tv   Primetime Surveillance  Bloomberg  October 17, 2015 8:30am-9:31am EDT

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♪ ♪ announcer: ray dalio is
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you activated the url so described last 10 years. me, it has surpassed my expectations and we were simply trying to solve a problem for ourselves and our friends. we observed our own problems and came up with a special way to share these videos on the web and on the potential for everyone else as well. the first youtube video was you going to the zoo. >> that video and many others we
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were testing the system. we starteder that, receiving a few other uploads from around the world. he was one of the three of is the start of the site and there is steve chen. unfortunately, he decided to leave the company before he -- we launch the service or had a chance to raise funding. >> grow up in pennsylvania and went to indiana design, what kind of kid were you? >> i wasn't the most academic child but i was curious about things. me, youd art and for don't need to be an engineer to have a startup, you have to be
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someone with ideas. chad: i read about a small startup beaming money through palm pilots. at the time, the company was called confinity. and they had a palm pilot product called paypal. i had just recently graduated from college and was trying to decide what i wanted to do. i was sitting at home and simply wrote them an e-mail. because on their website, they said they were looking for a web designer. i had a design background. luckily enough for me, they responded. about a week later, i was here in silicon valley working for
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them. emily: and the rest is history. chad: the rest is history, but i needed to find a place to live. that was the first challenge for me. when i moved out here in the summer of 1999, you could not even find a place to live. i had to sleep on someone's floor. emily: because there were so many people coming here for silicon valley? chad: during the dotcom boom. emily: as i understand it, you designed the very first paypal logo that they still use to this day. is that correct? chad: i think they have changed it over the years, but yes, i was responsible for logo design, website design, the app. emily: do you see your design in the paypal logo today? i mean, it is an iteration of what you did, right? chad: yes, of course. emily: what determined how everyone in the paypal mafia ended up going their separate ways and how did you and steve end up together? chad: after i left paypal, i would meet up with steve and a few other engineers. we would meet for coffee on university avenue. and everyone had at that time a digital camera that had a video mode. this was right before cameras took off in cell phones. people had video files on their desktop that they could not share, including ourselves. how could we make it as easy as sending an e-mail? that was really what inspired us. emily: this is 2005, before smartphones, really, before high-speed internet was the norm. how difficult was it to get this off the ground? chad: i think because we knew nothing about video, we were not scared about getting into it.
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i think the same thing with paypal and payments. i think if we realized how much fraud and how many other hoops we would have to jump through in the finance industry, we probably would never have started the project. same with video, dealing with bandwidth and hosting and streaming issues. so because of that, we were able to hit kind of the video market just at the right time. when people were getting broadband, when people were getting the devices in their hands. and we were, i guess, in the right place at the right time. emily: you sold to google the next year, right? so it was only, like, 18 months. chad: yes. emily: for $1.65 billion. chad: it was a rocket ship. and it continued to be, kind of, this journey where we were holding on for our lives. even after we became more of a part of google. if anything, things just accelerated from there. obviously, we had more resources. but at the time we sold, we only had 67 people in the company. we had probably two or three engineers, i.t. guys that would
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run around the country, maintaining our three data centers. at the time, you did not have the luxury of just plugging into amazon web services or something. you actually had to go out and build your own machines. and beyond that, we were threatening, basically, both sides of the industry. both the internet industry, the googles, the yahoo!s, and microsofts that it wanted to control, continue to retain their control. but you had the traditional media world, the studios and labels and others, wanting to retain control of distribution. they were attacking us, accusing us of not doing the right things around copyrights, when, in reality, we were building more tools than any of our competitors, and more policies from day one than anyone else to deal with all these problems and action -- actually eventually create solutions for them where they could monetize them. the music industry earns
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billions of dollars off of youtube on an annual basis now. but with all these people looking at us, and us just struggling to keep things up and running, we had no other choice, really, at the end of the day, to be acquired by someone. for us, we were lucky enough to be acquired by google, who, in my mind, kind of took a chance on us. and that, really, youtube would probably not be here today or what it is today without their support. so i am really thankful we ended up there. emily: you felt you had to sell? chad: oh, yeah. i have no doubt that if we had tried to go alone, we would have eventually been crushed by lawsuits or just not being able to scale. we would have loved to remain independent. and we wanted to see what we could do to go ipo and remain independent. but other forces did not allow us to do so. emily: what was it like transitioning over to google? chad: one of the things larry, sergey, and especially eric told
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us when they first met us, they said continue to run this yourself, continue your culture. we just care about growth. and really just let us know if anyone gets in your way. emily: there was always a question about how youtube was going to make money. what was so hard about it? ♪
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♪ emily: now, until more recently, there was always a question about how youtube was going to make money. what was so hard about it? what was so hard about building it into a business? chad: i think people were, internally or even externally, looking for this big answer. "there has to be something other than just another video on top of a video." at the end of the day, i think it is just all about targeting, about providing choice to the viewer. there are going to be more than enough ways to monetize the site just looking at traditional means of advertising. but people are always looking
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for this bigger answer. i think they continue to this day. emily: you stepped down as ceo in 2010. why did you leave? chad: i just wanted new challenges. i mean, i just felt youtube was in great hands. we had really seen things through as a business. there were all these doubts when they first acquired us. but i felt by the time i left, a lot of those doubts were answered and it had really turned into a true business for google. emily: how much do you think youtube is handicapped by not having its founders there? chad: i think that, again, youtube has done the right thing, i think they will continue to do the right thing. i think what youtube is dealing with today is more competition. just because video is ubiquitous now. at the end of the day, i think it is just about youtube diversifying its business model. emily: what do you mean by that? chad: there are different ways people are paying and consuming video. right now, youtube has been sort of one-dimensional, for the most part, which is advertising. emily: what other business model should youtube be implementing?
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chad: you have different forms of v.o.d. i think it is giving these tools directly to the creators, letting them determine how they want to monetize their content. if they want to charge their subscribers and how much. if they're going to charge their subscribers, what type of content? there are other models to monetize it to move after that point to advertising. so i think it is just about options for the creators and providing tools. helping people create better content. they have tried to do that with the studios, but i think there are more tools that can help the regular creator create content. emily: you think youtube should be charging consumers to watch certain videos. chad: i think that is an option that they have. emily: and should be paying creators more. because youtube has always been criticized for not paying creators enough. chad: i do think youtube should be more transparent with their terms and not make it a negotiation.
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i think everyone -- it should be a level playing ground. part of the reason i started youtube was to democratize video. to do that, traditional studios, labels, and networks shouldn't get better deals than the regular creator. emily: so what is a fair percentage? chad: who knows? it is up to them. emily: more than 50%? chad: potentially, yeah. emily: netflix, hbo, yahoo!, buzzfeed, and facebook are doing native video. twitter is getting into video. what is the future of youtube in this world where content, original content is king, but there are so many places to find it? chad: it is a good thing because it means more advertisers are going to move their money into online video. i think if all of these big players, twitter and facebook and others, started doing online video, it just means more money for everyone. emily: susan wojcicki is the ceo of youtube now. how often do you talk to her? do you ever pick up the phone and say, "hey, susan, i think you guys should be charging for v.o.d."? chad: we trade e-mails from time to time.
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again, she has done a great job at google and i think she will do a great job at youtube. we have had a chance to meet from time to time. i had not been back to the youtube offices in a while. went back to grab lunch. surprised that they are continuing to expand their offices. so it is always a treat to see that. but, no, just to speak with her in person, i think she is focused on the right things. and i have told her the same things i told you. i think you have to go back to your core. it is about providing tools to your creators. it is about supporting that community. some of the reasons why i left, i felt like i did not want to stick around to be the token founder. just going to trot me around and talk about how we started youtube. it was actually about creating tools and opportunities for people to create better content. emily: you recently sparred with mark cuban online, who claimed youtube could not get anything right. and so you you tweeted, "registering domain, $20.
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selling domain, $1.65 billion. knowing mark cuban is still bitter, priceless." chad: yes. emily: how do you respond to critics that say youtube had more potential? chad: well, i'm just giving mark a hard time. because he just likes to talk a lot. a little tweet i thought he could take. but, you know, there are a lot of people that have opinions. but for the most part, i feel like people should focus on their own businesses. and focus on them creating opportunities for themselves instead of complaining about someone else. at the end of the day, sometimes it does comes down to jealousy. it comes down to missing that opportunity that he had with broadcast.com. he had a lot of the right ideas, but he was just ahead of his time. in terms of the opportunities that youtube is going to provide or has provided, i think they will only continue to grow.
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the audience is larger than ever, which means the opportunity for google is bigger than ever. emily: do you have a favorite cat video? chad: well, there are too many. too many to pick one. emily: i do have a favorite cat video. it is called "surprise kitty." it's pretty awesome. chad: where he puts his paws up? emily: you know it! chad: i know them all. emily: it is estimated that you made more than $300 million in the deal. has money and success changed you? chad: i do not think so. i don't know. i still get up every day and go to work. i just feel like there are still a lot of opportunities to solve problems and create solutions for people. emily: you were at kim and kanye's engagement. chad: oh, yeah. emily: they were not happy with you afterwards. chad: i don't know why. emily: what happened? ♪ ♪ emily: so let's talk about
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mixbit, what you're doing now. chad: yeah.
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emily: where is mixbit today? chad: we're still a work in progress. we are looking for our small insight that will make what we are focused on, collaborative video, work. it's an app where you can invite individuals into a project and everyone can contribute video clips or photos and pick a theme. then, we automate the editing process. so we will automatically push all of that content together and create something visually interesting that you could share with others that you otherwise would not have the time or knowledge to do yourself. this is coming off the heels of me and steve working together on an incubator, all these other projects and offices running at the same time. that kind of slowed things down. my advice for any startups out there is focus on one thing and do it well. emily: so no incubator. chad: yeah, the team did not necessarily know who to listen to, me or steve, when we were coming back in with opinions on things. kind of where we are now with mixbit, moving forward, we have a great chance to figure it out. emily: how hard is it to succeed as a video-related startup?
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chad: there are just more people using video, more people with devices, more ways that people are interacting with video than ever. it still remains to be seen how it all plays out, but i think they captured people's imagination. that is the biggest challenge, is rising above the noise. finding a solution that people kind of have this emotional connection with and actually want to use. so it is always a journey to find that. and if you do not put pressure on yourself -- people ask about replicating the success of youtube, that is not what i'm out to do. it is just enjoying the process and hopefully stumbling across that small insight. emily: why not retire? you certainly could. chad: i certainly could. a lot of people can retire. but again, life is not about sitting around. it is about hopefully about making a difference. so that's what continues to drive me. emily: what do you think of
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facebook and twitter's efforts in video? chad: with facebook, they have a feed. people are coming there to consume stuff. i do not know if it is very directed yet. they have not really nailed search. i do not know if people go there to search for anything in particular other than look at their feed. so i think they will have to build a more dedicated hub towards video or push people into searching, making that more of a habit. but auto playing videos in the feed, i don't really -- they talk about the numbers, but i do not really think it counts as much yet. emily: you were at kim and kanye's engagement. chad: yes. emily: they were not happy with you afterwards. chad: i don't know why. emily: what happened? chad: well, my friend was in town, and he said let's go to this thing kanye was having in the city. we did not really know what it was. on the way up, we were searching and we said oh, it's kim's birthday. must be a birthday party. it turned out it wasn't. i took some video and did not post it until the next day after i saw quite a few other people
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had posted photos and videos on instagram. so i did not think it was a big deal. i asked my friend, and he did not seem to mind. but after it got out there and got a little attention, kim and kanye wrote me an e-mail. so the rest is history. emily: they sued you. chad: yes. emily: so what happened, what was the result of that? chad: they are still suing me. we will have to wait and see what happens when this actually airs. it has been an ongoing process. emily: you believe you are in the right. chad: yes. of course. emily: did you sign something when you walked in that said you would not share? chad: i do not know if i'm supposed to talk about it with the legal proceedings going on. but i did sign something eventually at the end of the night. emily: ok. but not at the beginning. chad: interesting. emily: interesting. chad: we'll see what they have to say about that. emily: you are an investor in sports franchises, bought into the golden state warriors, a soccer team. chad: well, it was just an interest in a great group of people to work with. originally when joe lacob took over the team with peter guber, i knew those guys and knew that
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they were going to build a great organization. and just being a sports fan and also just understanding the world of media. sports are going to retain their value over time because advertisers value live audiences. and you cannot replicate a live event. so those are some of the reasons why i got involved. plus, it doesn't hurt when they're doing so well now. emily: give me a "pinch me" moment. like, a moment where, you know, over the last decade where you are like, "oh, my god. that was amazing." chad: we had a chance to do a few debates on youtube. presidential debates. there were some surreal moments where you are backstage, meeting all of the democratic nominees or other republican nominees before a debate. just standing in line, shaking their hands as they got on stage. definitely a surreal moment. emily: what is next for chad hurley? chad: continue to focus on mixbit.
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we have a great team, and i just think there is a tremendous opportunity in the world of video, if you are talking about live, or what we are providing is automated collaboration. emily: what is the myth of chad hurley and what is the reality? chad: the myth and reality? [laughs] the myth is that every startup has a grand plan. that we knew what paypal was going to become from day one. or we knew that youtube was going to be huge. but the reality is that no one knows. not even me. all you have to do is take a chance and put yourself out there. and hopefully what you create resonates with others. emily: chad hurley, thank you so much for joining us on "studio 1.0." it's been great to have you. chad: thank you. ♪
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announcer: ray dalio is acclaimed in the world of finance. he founded the world's biggest hedge fund, bridgewater associates, investing nearly $170 billion. the self-made money manager predicted the lasting impact of the financial crisis. and his alpha fund has outperformed for decades. we sat down with dalio for conversation on his investment strategy. announcer: his view on monetary policy. ray: i don't believe they can raise rates faster than is discounted in the curve. for the large part. announcer: analyzing the global economy. ray: i think china is going to be just fine. just to be clear.
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but it is going to be weaker. announcer: and what his future holds. ray: i can't stop. i love the game. announcer: on this special edition of bloomberg "surveillance." ♪ tom: good evening, everyone. tom keene and michael mckee. we are here for one of our most anticipated events in the history of bloomberg "surveillance." and bloomberg on the economy. let's set up where we are first. should we do that first? this is 114 acres north of new york city. it is at the benchmark resort and hotel. we have steve back there with our audience, we say thank you. we need to get started. michael: we have to say that, if you sold in may and went away, it is time to come back. we going to start with ray tonight.
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tom: why don't we get started on the economic machine. michael: that is what you have based your entire career on. is your study of the economy, not just investing, but how the economy works. tell us about your concept of the machine. how you got to that and how you developed it. ray: the same thing happens over and over again. anything that has happened economically, happens over and over again. let me just describe the machine. it is a very simple machine, i think. it is the same for an individual. a country is no more than the collection of its individuals or the companies. so there are three main factors. productivity. which produces income. you can spend at the end of the day what you earn. and what you earn is a function of your productivity. for a country, it is the same as for individuals. you work hard, you are well educated. you can be more productive if you work harder or you can be more productive if you are more creative. so that is that.
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over a short amount of time, you can spend the amount of money which is different from what you earn. that's because we have debt. tom: that is called children. continue. ray: ok, thank you. so we have debt cycles and there are two major debt cycle. there is a short-term debt cycle we are used to. the business cycle. recession, that eases. what they do is they increase the spread between the short-term interest rate, essentially, and the return of other assets. as a result, money goes into a system, money and credit goes into a system. and what it does is it ends up with prices. when we are getting the first asset prices, then we make items that are cheaper because interest rates go down. so we have that business cycle that we are used to. when that cycle gets past a certain midpoint, usually in the cycle, there is a monetary policy as you get to the later part of the cycle.
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and you start to have inflation, it becomes too tight, and you have the cycle goes down and that is the business cycle. when we look at every country and see where it is, we are in the middle part of that cycle and we are having the conversation we are having about the federal reserve. and there is a long-term debt cycle, because these debt cycles add up. and a long-term, just imagine you start off with no debt. low debt to gdp ratios. low debt to income ratios. you start out with no debt. let's say you are earning $100,000 per year and you have no debt. you can borrow $10,000 a year because you have no debt. you could spend $110,000. you're spending somebody else's income. they are earning more so they can spend more and become self reinforcing, until you get to the point where debts rise too much relative to the income,
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like a balance sheet. you can leverage to a certain point. and the central bank, all central banks, are in the business of helping that cycle go along so that lower interest rates. as they lower those and hit zero, we then come to a dilemma. we have the end of monetary policy as we traditionally have it. and as a result, you cannot keep that cycle going. then, when you have big spreads and liquidity in the system, there is debt and money. the difference between debt and money is money, you have to pay back. excuse me, debt you have to pay back. you go into a store, buy a suit, you pay with a credit card, money settles the transaction. what the central bank does is it cannot create credit in the same way, because there's too much debt. so what they do is they put money in the system. they do that by buying financial assets.
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when they buy bonds, the seller of that bond takes the cash and they buy something else. as a result, it causes the spread to narrow. it causes asset prices to rise. that appreciation in the asset prices that we experience then creates a normal term structure of interest rates. so there are three equilibriums that we have longer-term. the first state equilibrium is debt cannot rise faster than income. second equilibrium is the operating rate in the economy cannot be too loose or too tight. third equilibrium is that we have a term structure of a capital market structure. in other words, that cash is going to have a lower return than bonds, which is going to have a lower return than equity. there is an equilibrium that keeps working its way through that system. monitoring fiscal policy. tom: we did that out of world war ii.
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-- third equilibrium is that we have a term structure of a capital market structure. where are we in that continuum? where are we right now within that equilibrium? ray: the united states is in the midpoint of its short-term debt cycle. utilization, gdp gap. as a result, we are talking about whether the fed should tighten or not. that is what central banks do. we are near the end of a long-term debt cycle. because that cycle of being able to raise -- you have interest rates going to zero. you have spreads that have come
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down. those spreads that have come down means that asset prices have gone up. now, the expected return of asset prices are all very low. cash, we know bonds are 2.25%. you know what you will get the next 10 years. 2.25% on your bonds. premiums look like 3% or 4% on that. all the assets are now aligned in normal risk premiums. that kind of thing. that's why, if interest rates rise faster than is discounted in the markets, those markets are discounted. tom: as i pointed out, for those of you on television and radio, they are an exceptionally competent group of bloomberg terminal users and ray dalio in the alternative investment funds. within the framework of your machine, do you presume a jump
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condition as central banks come out of this, or can they manage it with smooth vectors and smooth flight paths? ray: i don't believe that they can raise rates faster than is discounted in the curve. for the large part. because that interest rate curve, in other words the rate at which it is discounted to rise, which is built into the curve, is built into all asset prices. if you raise them much more than is discounted in the curve, i think that is going to cause asset prices to go down, because all things being equal, all assets sell on their present value of discounted cash flow, and we look at that. all of them are subject to the same discount rate. they all have that built into their structure. if you raise rates faster than is discounted in the curve, all things being equal, that produces a downward pressure on rates.
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that is a dangerous situation, because the capacity of the central banks to ease has not been less in our lifetime. so we have a very limited capacity of central banks to be effective in easing monetary policy. so the federal reserve has a responsibility, both as the u.s. central bank and the world central bank. so we have a situation where, if we go around the world, you should have an easier monetary policy in europe. europe, if we look at it in the same framework, is in -- southern europe -- a depression. rather than gdp gap, we have a depression at the cyclical low points. with a lot of political extremism beginning to emerge because of the pressure of that. they need an easier monetary policy. japan needs an easier monetary policy. china needs an easier monetary policy. ♪ >> do you think qe works
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anymore? ray: it is going to work a lot less than it worked last time. ♪
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♪ tom: i have a good amount of your work, which you most recently published with bridgewater. and the most fascinating thing i see within your economic machine is currency plays into it. would you predict a stronger dollar a la pre-plaza accord or the rubin dollar of the 1990's? how does the currency dynamic fit into what you see with a lack of productivity and growing debt? ray: i think the picture we are in is very similar to the picture that was painted from
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1982 to 1987 in that. we have a lot of countries, particularly commodity producers, who have a lot of dollar-denominated debt. as we had that environment, as they are in a debt problem, it is a self reinforcing situation, because their debts are denominated in dollars. the revenues go down. they are short of dollars. a debt is a short position and you have to cover it. that bids up the price of the dollar. what we need now -- we have these commodity countries. very similar, emerging countries, very similar. dollar-denominated debt. it is a self reinforcing cycle, and then, it went until 1985. then we have the plaza accord, as you are referring to. and we have the need to ease monetary policy. what we were able to do in that
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period, which was a very good period, we were able to ease our monetary policy as the economy grew. it is tough to do that where we are right now. >> it is tough to do that where we are right now. michael: let me just say, this special primetime edition of bloomberg "surveillance" on radio and television worldwide with ray dalio. he is the founder of bridgewater associates. everyone knows who you are. what do we do? what does a central bank do when you're at the end of that long-term credit cycle? ray: i think the thing that you do is you realize that the risks are asymmetrical. you can tighten monetary policy. it will work. there is enough debt around, there is enough sensitivity around the dollar. you wait more to see, because the risks are asymmetrical. the risks for the world are asymmetrical. that's the main thing. the risks on the downside are
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totally different than the risks on the upside. michael: do you think qe works anymore? ray: it is going to work a lot less than it worked last time, just like each time, it worked a lot less than last time. i am saying we cannot have a big rate rise. the term structure of assets, because of the amount of debt, what it has with the dollar with disinflationary, deflationary pressures down. we will have a downturn. the downturn should be particularly worrisome because we do not have the assets rights. qe, you're asking if it will work. qe is the purchase of those assets to get those premiums up. when you keep pushing, buy more bonds, if there is not an attractive investment relative to bonds, the spread is what will drive that. if there is not much spread in something else, you get less effective monetary policy. we call that pushing on a string.
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>> are we there? ray: no, not yet, but we are closer to being there. in some countries, like in europe, they are closer to being there. what happens is, what are you going to buy in the way of the bonds? michael: you cannot buy a german two-year. ray: so we are very close to there. that is why you need more currency depreciation. in other words, the effectiveness, in japan, is there. the effectiveness of monetary policy then comes through the currency. so the person who was receiving that cash for selling their bonds has to do something. that is the difference between using that cash and that other asset. there is a pressure to move it out of the country. if you look at us, we have very high rates in the world, in comparison to those in europe and japan. it comes through the currency. if you cannot have interest rate moves, you have to have currency moves. that is the environment we are
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in. tom: this is absolutely critical. we have a presidential debate, we don't need to get into republican and democrat. this nation, to many people, is flat on its back. they want productivity. the smartest thing in your work is this discussion, this mystery of going from non-efficiency or inefficiency to efficiency. what is ray dalio's prescription for the next president to assist the nation in productivity? ray: it is interesting. we have done a study going back 60 years. we took the various factors and correlated them with the next 10 year's growth rate. and we did this across 20 countries. and the study is on economicprinciples.org, so you can read the study if you are inclined. economy is like a human body, it basically works that way. it is the same thing as an individual. when you ask yourself is that individual going to be productive and whether it is
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going to grow, you ask what is the education? and the most important single factor is what is the cost of an educated person? so if somebody is more educated, that is a good thing. but you have to adjust it by the number of hours worked and what that cost is. because let's say in europe. it is very interesting. southern european countries -- france, italy, and spain -- after adjusting to the average hours worked in a week, they cost twice as much as an american. in other words, the income. so you can have an education. that is good. but if you are expensive, it is not good enough. see you have to look at does the income pay? i am saying if you have a situation where you have an educated population, the single most important factor is what does it cost to have an educated person? the second factor, biggest factor, is indebtedness.
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those who are at the later parts of the debt cycles and closer to interest rates, they have less capacity to increase their boundaries and expand. it goes toward other things. we have surveys of work attitudes. different cultures have different work attitudes. some places live to work, and some places work to live. there is a cultural -- i'm not saying one is better than the other -- but you can take surveys about that. tom: what is your prescription in the upper of politics, whether it is mr. corbin or mr. cameron in the house of commons today. france. australia? we didn't even know this was coming. the prime minister is out. what is the ray dalio prescription out of your study of our economic machine to a better america? ray: and/or a better world.
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there are these various factors. there is not one factor. this is various factors. but they are clear and they are in the study. those factors, at the end of the day, are the same factors. are you going to be well educated, are you going to be economically well educated, are you going to be inefficient? there is a 50% correlation between corruption and economic growth over the ten-year timeframe. so as we go into that, productivity is going to be the single biggest factor. how do you make people productive? self-sufficiency. you know that the single biggest factor for a number of countries is do people feel the consequences of their earning or their not working? in countries where there is self-sufficiency, they feel those consequences rather than a greater social net.
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they will have higher levels of productivity. at the end of the day, it is thing, when you look at your neighbors and say, if they can get an income and they are not going to be penalized much, they will be less motivated. what i am trying to direct the attention to is what those specific factors are, so that it is like a health index. so i would like to draw people to -- we did this productivity study. you can see what those correlations are because, for all nations, same formula. and because it is like a health report. if you can look at what is your cholesterol level, do you smoke, do you exercise? michael: you do not want to know. tom does not want to find out. ray: you can know your ten-year prognosis. and if you can look at that unemotionally with that benchmark, you can see what productivity is. it is a series of things and i
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do not want to oversimplify it. but if we look at that formula, it's like a health report. that is what i would like to have happen. i don't have a balanced portfolio, i am scared. i learned to be scared over the years. ♪
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♪ ♪ michael: let's bring it back to investing. how do you apply that, when you are looking at investments you want to make? and what does it tell us about where america is and american companies are going? ray: basically, i am mostly interested in who is going to buy, who is going to sell and why. the way i look at the price is it is the aggregate of purchases divided by the quantity of goods sold. that may be a bond or equities.
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\that may be a bond or equities. i look down there factor by factor. when i am trading, anything that is going to give me an edge, whether it is insider buying or whatever it is, what we do is we take those rules, and we have written those rules down. it came really 1982 or 1983. every time, i put on a trade, i would write down the reason i put on the trade and look at those rules. what i discovered by doing that is those rules could be programmed into a computer. when they were programmed into a computer -- tom: the computer is called a bloomberg terminal by any chance? michael: shameless plug. ray: i use a bloomberg terminal. tom: thank you. ray: i give you the endorsement. so, they are all different ways. we trade 140 different markets, all liquid. whatever the rules are.
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tom: do you have an informational advantage now that you had in 1986? we will get to risk parity. it is not a big deal. but seriously, you have been doing this for 10 years, 20 years, 30 years. is it tougher today, given the flow of information, or is there so much information across the bloomberg terminal that you're advantaged? ray: the technology continues to empower me. but i think there is no getting around the deep thought. the technology, if you put a lot of data in and you are not spending a lot of time with a deep thought, thinking about how you are going to be wrong and you have the fundamental cause-effect linkages, that is a dangerous tool. that has always been the case. by the way, artificial intelligence is not a new thing. 1953 is when it started. there were neuro nets and all different ways of doing it. there's no escaping the fact
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that when you think about relationships, they have to be deep, connected, cause-effect relationships. but the same things happen over and over again through history. tom: i do not want you to choke up. gluten-free. get some water and let me present you for the audience. we welcome all of you to new york city and all of you worldwide on bloomberg television and bloomberg radio. we are with ray dalio of bridgewater. no need for introduction. former caddie. yes, he is in the news, we will get to that. most importantly, economicprincipals.org is where so many of these concepts and structures are. where are we going next? michael: if you are having a bad month, there are openings for caddies here. this is where i want to get to
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risk parity. and not about the current situation. but how you develop the theory. it comes out of this idea that everything happens over and over again. you wanted, as i understand it, a way to invest that would enable you to sail through all the various ups and downs. tom: what happened in 1996 that got you to this introduction? what was the moment where you decided to take a bet on the risk parity? ray: in the 1990's, i earned enough money that i was putting together trusts for my family. i realize that making money and the market is zero sum and the allocation is the important thing. i realized how markets work. the problem with most markets is you can't achieve balance. if you have a stock-bond mix, and you want to diversify, and you buy stocks, 50/50 of your money, 50% in stocks, 50% in
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bonds, the problem with that is you are dominated by equities because it has twice the volatility. i need more volatility in order to create a balance because i want to bet equally on two things. the thing about it is, in the

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