 Joining me now on the phone is Ray Dalio, Chairman and Chief Investment Officer at Bridgewater Associates, the world's largest hedge fund with $160 billion in assets under management. He's also the author of the new book, Principles. Ray, it's great to have you with me. Thank you for joining us. My pleasure. Now, it's interesting. I thought this was going to be a book about investing, but it's actually a compilation of principles, as you call them, on work and life. The investing part is actually coming in a separate book. What kind of audience are you targeting for this book? Well, anybody who's trying to be successful, whether it's any organization, it's about how to have great audacious goals and to fail and to learn from mistakes and to have relationships. It's basically a compendium of things I learned along the way and rode over the last 40 years to solve the problems I encountered. So it's a much broader base than the investment world. And you talk about how Bridgewater almost shut down earlier on in your career. You lost so much money. In fact, you had to borrow money from your father. What did you learn from this experience? Yeah, it was one of the worst and best experiences I had. It was one of the most painful experiences I had. And it changed everything because it changed my mindset from thinking I'm right to thinking how do I know I'm right. It led me to appreciate a path that allowed me to raise my probabilities of being right. It allowed me to create an idea meritocracy in which I could bring independent thinkers, long independent thinkers who could disagree with each other and value that disagreement to make decisions that would be much better than I ever could make alone. It taught me to write down my principles. This is basically, like I say, a compendium of principles written over a long period of time. And by writing down those principles and then communicating them among ourselves and refining those principles so that whenever we encountered a specific type of thing, we knew how to approach it and agree that that changed everything. That type of principle writing and then converting those principles to algorithms, which we started to do 20 years ago, and allow the computers to help us make decisions simultaneously, was all really largely a product of that. It significantly raised our probabilities of being right. And Bridgewater is an idea meritocracy. That's essentially where the best ideas went out, right? Exactly. The thing I learned is that probably one of the greatest tragedies of mankind is individuals being attached to their opinions that they keep stuck in their heads, and they don't put out and stress test those opinions, and then take in the ideas of others. It's the greatest tragedy of mankind because it's so easy to fix if you could have that quality, thoughtful disagreement. The three things that we do right, in order to have an idea meritocracy, and I would recommend it to everybody, is three things you need to do. The first is you need to put your honest thoughts on the table. Everybody needs to do that, so they're out there, and they can be examined. The second thing you need to do is to have ways of having thoughtful disagreements so that people can find out what the best answers are, not just the ones that happen to be in their heads. And the third thing they need to do is when they have those disagreements that remain even after that, is to have protocols for getting past those disagreements that are idea meritocratic. And that's really been the secret to our success because you know in the markets, in order to be able to beat the market, you have to have an independent point of view that is different from the consensus, because the consensus is built into the price. Now Ray, the Wall Street Journal reported that Bridgewater is raising money for a new China fund. What is the latest on this and what is so appealing about China to you? Many are worried about rising debt levels, slowing economic growth. What's your take? I've been going to China since 1984, long before they had any money. And I've been enjoying that and over those periods of time, I've built these wonderful relationships. And I've seen them from in 1989, there was a group in China of seven people who when they didn't have a financial system, were working out of a Digi Hotel room and that was for them to build the financial system. And I've had a pleasure of all through that time to develop wonderful relationships that with time helped to build, help them think through their, you know, their institutions. And so the relationship has been fantastic. So naturally, what we want to do is to continue to grow with them as they're growing in their financial markets. And the way they've opened up their financial markets and created capital market innovation over the last three years really, I mean, it's an incredibly fast pace, means that they have liquid markets which have depth and, you know, accessibility. So of course we're going to want to be part of that. China's debt levels. Is that a worry for you as you explore deeper into China? China has a much lower level of debt, but they definitely have a debt issue. But the debt is denominated in their own currency. And what I found is that their economic policymakers are very, very smart and sensible people. The world has been talking about the debt problem for a long time and we were one of the first to bring up the fact that there is a debt problem. But when a debt is denominated in one's own currency, it's manageable. The usual ways. In other words, you might extend the maturity of the debt. You might alter whose balance sheet it's on. You might have the interest rates changed. You go through certain processes that we've been through to be able to manage that debt. And they've done an excellent job. I'm most importantly interested in the capabilities of the people who did it. We went through our particular debt problems. Every country does it. I'm genuinely excited about the quality of the leadership in terms of practicality. They can get stuff done and their reforms are a move toward sensible, much more market-driven economics, but with guidance. So I see the innovation. I'm very excited about China. But anyway, it's like your question would be a little bit like asking me, would you want to leave the United States? Because the United States has a debt problem. I was here in the United States. I love the markets. We did well in 2008. In our business, the key question is whether you make the decisions correctly. There's not such thing as a bull market or a bear market. 2008, because we anticipated the crisis, we did well. In any country, it's the same set of rules. So China is no different than us in that investing. In any other country that has liquidity in the right kind of markets, whether they go up or down, we'll be there. There's no good reason not to be in China. And there's a special appeal because I know it well and I've been there for a long time. And I also wanted to ask you, maybe we've had unprecedented central bank stimulus that has helped push stocks to record highs. Yet we've recently been given signals from the Fed, the European Central Bank, and the Bank of England that that stimulus is set to pull back a bit. What would waning central bank stimulus mean for stocks, in your view? I did a 30-minute video on how the economic machine works in the same situations. It works the same way over and over again. And so where we are in that provides a context is we're by and large in the middle part of our economic cycles in which the printing of money is coming to an end. And it's an end of part of the cycle. As a result of that, we are not going to have the interest rates go down further. We are not going to have the risk premiums shrink further. We are going to be in a situation where we're not going to have a material tightening, but we're going to have a situation in which the 2008 to now period is ended. And the key in this period is to be very, very cautious about tightening. And so I think you're going to see central banks very, very, very cautious or hardly at all doing tightening. And so you'll lose the pushing up, but you probably won't get the moves that would be the knocking down of those kinds of markets. From this point forward, it's going to mean what is the actual change in profitability, for the most part. So it's not going to be interest rates. It's not going to be risk premiums changing much. It's going to be what the actual movement to the bottom line is. So that's why tax reform is an issue. The tax rate that corporations pay is going to be an issue if you take the stimulation. What will it mean when you have deregulation? Deregulation is on the margin of stimulant. So you're going to have certain amounts of stimulants in there, not much stimulants. So it's not going to make a big difference, I don't believe, from this part forward. And I think what's going to make a bigger difference is the situation in terms of the two-tiered economy. In other words, this large percentage of the economy. There are really two economies. There are more than that, but think of it as two economies. And averages are totally misleading. The top 1-tenth of 1% of the population that worth is equal to the bottom 90% combined. And that's becoming an issue. And so how that issue is dealt with is going to be an important driver. And how conflict is dealt with. It's not just the conflict between those groups. It's conflicts in ideology, conflicts internationally. I think that this issue of politics and conflicts will be an important one. I'm pleased that we're having more of a capitalist approach to this than a socialist approach to dealing with this issue. I think that that's a relief. And I'm relatively pleased also that what I was seeing up until recently, a lot of conflict, little signs of working in a bipartisan way to get past some of those conflicts in order to deal with some of those issues together. So that's it in a nutshell. Now, Ray, in the book, you talk about how you love and have benefited from artificial intelligence, but you also talk about the importance of the people behind those computers. What's your take on artificial intelligence in terms of what it means for Wall Street jobs and the broader global economy? I've learned over the last 20 years to take that decision-making can be put into algorithms. In other words, the process was come up with a principle of what you would do in a certain set of circumstances, write those criteria down, and then convert those principles into algorithms. And then I learned that the computer operating in parallel with me was extremely powerful. That's how we make all of our investment decisions. And that's also how we're making a lot of the people decisions. And I know the fact that you're going to see this happen pervasively. In other words, algorithmic decision-making are going to produce better decision-making and replace a lot of people. And you're seeing this happen in many of the ways we execute orders and our transactions and so on, much, much better decision-making in many ways. I also think that a big question is, how do you come up with those algorithms? In other words, there is machine learning. And the question is whether one has understanding behind those algorithms. Because I learned in the markets before that for a long time, I watched many firms go broke because they were doing this machine learning and algorithmic decision-making because they didn't have the understanding, a deep understanding of the cause-effect relationships. They bet that the things that happened in the past would happen in the future. So I think that we're going to see a lot more of that. I'm very excited about that. It has implications in terms of employment and so on. But it is also dangerous. Because if you have two rules for danger, two red flags, do you understand the criteria that are in those algorithms so that you can say, ah, that's logical and I buy into it? Or are you blindly following what the algorithms that have been determined by machine learning come? If you're doing the first. And if the future is different than it has been in the past, because the past is what those algorithms were based on. If the future can be different from the past and you don't understand the deep logic, you are probably going to blow up or have a problem with that. And so I think that that's going to be an issue of our society going forward. All right, Ray, in the final couple of seconds here, any advice for young people on how to get a job at Bridgewater? Obviously, they should study your principles. But any advice for young people? The first and most important thing for anybody who wants to get a job at Bridgewater is to find out whether you've got a great fit, the emotional ways of this idea meritocratic process, this idea of thoughtful disagreement, to look into what it really is like. I would recommend they take a look at the TED Talk. 16-minute TED Talk, and in that TED Talk, I basically lay out the picture of what the place is like. In that 16-minute TED Talk, if that place sounds right for them, then let us know and we'll work through it. All right, Ray, thank you so much for joining us. I really appreciate it. Thanks, Scott.