 Good day, fellow investors, and welcome to the stock market news with a long-term fundamental twist. The stock market had a pretty volatile month and it's down 7.28% for October, which is one of the worst months in history. And this shows what can happen to stocks if this continues for another 5 months the stock market will be down 40-40% and that's a big deal. In this big deal environment with this big decline and higher volatility in the stock market, the person to go to is Ray Dalio, he's hedge fund manager, his Bridgewater hedge fund has 300 billion of assets under management, yes 300 billion and you need to have at least a billion or 5 billion in wealth to come into consideration to have your money in that fund. So if we go to him, he is really sharing his knowledge about investing and all the principles in his books and on the last book I have made a summary in this video here above in the card. So we are not going to touch so much on the book and the summary and the knowledge, we are going to touch on what Ray Dalio shared in this 50 minute long interview that I have found that he did for an Indian news provider. So the difference between India and America in India they have just let Ray Dalio talk and say his things and that's where we gathered a lot of information. I'm going to summarize the interview for you so you don't have to take 50 minutes and I'm going to add a little bit of charts and everything to add to the description of what Ray Dalio is saying and how we should be positioned in this part of the economic and market cycle. This is the content. Where are we now in the cycle? Will there be much pain coming? China? Is it in trouble? Investors and macroeconomics should be focused just on the micro or also look at the macro asset allocation now investing in emerging markets now 2019-2020 danger for the US economy. What to do now compared to 2008? And then Ray Dalio's best investment idea now at the end of 2018. So let's immediately start with where we are now. The focus with Dalio is to differentiate between the long term cycle and the short term cycle. We are now in the short term cycle 9 year in the expansion so the US economy has been expanding for 9 years which is close to the longest expansion period in history. So that is bound to come to an end sooner rather than later. Further, asset prices are very sensitive to interest rates. When interest rates are very low, any change in interest rates increase the sensitivity of asset prices. And in the last year, two years, we have seen a huge jump in interest rates and treasury yields. So the 5 year treasury government bond that yielded between 1 and 2% from 2014 to 2017 now suddenly yields 3%. So that is an increase of almost 100% from the average of the three starting years. 100% increase in interest rates makes those much more attractive to investors and therefore it increases the gravity on asset prices. This is something to keep in mind. Also central banks are tightening as we see higher interest rates also from the Fed which spreads out to higher mortgage rates, higher interest rates on car loans and we have seen also higher treasury yields. So also central banks are tightening which again signals that we are close to the end of the short term economic cycle which usually leads into a recession. So Ray Dalio is already pointing out be careful 2019-2020 there might be a recession. Now in the long term part of the cycle something also extremely important because it shows what can happen next. Will it be a mild recession or something bigger? Now on the long term that cycle interest rates are close to zero in reserve currencies euro, yen, US dollar. So this is a position where there is not much more to expand. If we have a downturn there is not an equal monetary power as it has been the case in 2008. Look at the interest rate in 2008 it was at 5% and then it was lowered to zero. That was very very stimulating. Now most participants have very low interest rates so by lowering interest rates you are not helping that much as it was the case in the past 45 years of declining interest rates. So Ray Dalio says that we are in a period like 1947 where interest rates have been for a long time at zero to stimulate the economy and populism is rising because there is an increasing wealth gap between the rich and the poor. You know that the rich got richer in the last nine years the poor stayed the same if you add inflation what we have had of inflation the poorer got poorer. And all those discrepancies are already showing up for example in Italy where there is a populist party at the helm of the country now. And this is where Dalio sees the risks in the long term part of the cycle and compares it to 1947. He doesn't think that we will end up in a military war like it was for World War II but the risks are increasing and a lot of things can happen also in developed countries. Further on the long term death cycle this is the federal debt of the United States of America look at how it's spiked up sooner or later there must be deleveraging there will it be the beautiful deleveraging however that also involves pain a little bit more pain for those who have the rich and a little bit less pain for those who don't have the poor if it is a fair beautiful deleveraging. On the question whether there will be much more pain Ray Dalio is very diplomatic because he says that if governments monetary policies see a head which usually never happens but if they intervene ahead of what might be going on they can even step be ahead of the cycle and prevent a lot of pain into we had the Great Depression in the 1940s because nobody did nothing less a fair economy the economy will help itself and then from 1929 to 1943 there was a lot of pain until there was intervention intervention in 2008 intervention intervention was slow but it gained traction 2010 1112 and so 2008 was just a financial test not an actual crisis so that's also something to keep in mind but the powers that are in place to help the economy or prevent the next recession are weaker than 2008 also he says that we have to focus on whether a country or something has that in its own denominated currency or in a foreign denominated currency if you're in a foreign denominated currency the risk is much more and the opportunity to balance that is much lower because you are not controlling the foreign currency if you have a domestic currency everything is much easier and the leveraging can also be much easier and he also says that China is of course with a lot of that but most of that that is in domestic currency which enables China to balance that out and to manage that and they are doing that very very proactively in their up and down cycles the interviewers give a good question to Dalio asking about whether an investor should focus only on the micro so as said investors many value investors say just focus on the micro forget about the micro because it's not predictable and Ray Dalio says that he doesn't agree and he doesn't see the common sense into it because the macro affects the micro and therefore you cannot just buy a business and let it there because a lot of the Dow industrials that have been in place 40 years ago are not among the top now so a lot of changes and you have to test the cyclicality of your business so going back to value investors and just focus on the business you're buying yes but focus on the business you're buying and see how the macro impacts that business that is key that is also the reason why we have so much discussion about economics and what's going on in the world on this channel because we need to know what is going on in the world to see how our businesses our micro focus will be affected so I completely agree with Dalio yes focus on the micro find the great businesses but also see how those great businesses will be affected by the macro and Ray Dalio questions us very carefully about not timing the market it's not about timing the market it's about balancing the risk reward in relation to the micro and the macro so everybody agrees you cannot time the market also Ray Dalio says so on that side you don't have to look at the macro picture but if the risks are increasing and you're looking at the business which is getting more expensive in the late part of the economic cycle then you look at the macro and then you say okay this is a higher risk investment this is a lower risk investment from that perspective you are creating the micro picture by looking at what's going on in the economy and when we are in the late part of the economic cycle you know that the risks are increasing that's the message similarly long-term cycle this will revert there will be the leveraging and I want to be prepared for whenever it happens in the next 10 20 years so that's why we look at the macro and a lot of businesses have taken advantage of this of this debt bubble that has been going on for the last let's say 35 years since interest rates have been going only down 1982 is the crucial focal year to focus here so a lot of businesses have risen with the tide be careful not to be invested in invested in those that will be swimming naked when the tide turns and this bubble birds or gets into a beautiful deleveraging on a question where to invest now the interviewer asks and interviewers asked him a year ago and he said belong equities because there is still room in the cycle and also have some gold now he's saying that being long equities is not that smart because there is not that much room in the cycle and that's very important does he's practically saying don't be overweight equities and he's saying hold gold hold five to ten percent of your portfolio in gold so those are the two things of we'll see later what is his strategy when it comes to investing but we know one thing don't be overweight equities and secondly hold gold on bonds he's saying that bonds are promises to deliver currency some in somewhere in the future and then he says that the dollar is very risky because of the debt we have been mentioning which due to the fiscal policies there will be need for more and more and more debt to repay the previous debt and the other fiscal obligations Medicare and whatever and the fiscal budget deficits so the dollar is risky supply demand around that that which means the dollar is risky Europe has its own problems so again the euro is risky the yen is risky China also has its own debt bubble in its own currency so he's saying that gold again is a diversification play that gold is the fixed currency to hedge against whatever happens in these other highly risky currencies from a long term debt perspective so keep that in mind on a question about emerging markets and contagion radio radio has a very very specific answer he says that investors biggest mistake is that when a stock price goes down investors think that that is bad rather than thinking that this asset is getting cheaper so this is opposite thinking and he is saying that we should think when something goes down like emerging markets did go down lately and in 2015 that that is a good sign because those stocks are now cheaper so we can increase our exposure in 2017 when emerging markets were expensive it was the time to decrease the exposure by in 2016 and then a grand decrease in 2014 careful portfolio rebalancing is all what Ray Dalio is about for the US for the 2019 2020 he says that the interest rates are getting higher the Fed is tightening which means that that will pull the economy down like gravity does plus in the long-term cycle that might there might be also trouble from the need to borrow more and more dollars which if investors around the world don't like that anymore and see the riskiness of the dollar can lead to big problems in relation to the risk of the currency the dollar itself so therefore he's warning us about the increased risks of the US economy 2019 2020 and now what to do his message is pretty clear what's the best investment now for 2019 2020 is diversification and an all-weather portfolio so that you have a carefully balanced portfolio among assets that are or will do well in relation to each other so he's saying if currencies go down gold will be the asset to rebalance that so have 5 to 10 percent of your portfolio in gold what am I currently busy with I'm looking at all the gold miners at the Venek ETF all the juniors and all the major miners so there is a lot of work I will look at probably 100 miners and then really in detail and make an in detail analysis of the miners that I find best to suit my portfolio and I will look at 100 of them just to get an exposure to about 8% to 10% of my portfolio and then carefully rebalance that in relation to what happens to emerging markets developed markets etc so if you want to see more about how I think about gold miners which is a different investment than just gold to the portfolio but if you prefer more leverage thus more hedging you might want to watch tomorrow's video where I'll discuss the top 10 positions of the Venek ETF gold mining ETF and we'll dig into the miners you'll see what is there what are the possible upsides and downsides the risks and rewards so more about that tomorrow but to finish with daily use message be diversified across all weather portfolio he's saying that let's say good quality low risk bonds do very well in environment where there is a recession so good quality low risk which means that those bonds have already low yields but those yields might go lower and then the value of those bonds goes higher so that's another message that Ray Dalio has been sharing with its in bits of pieces here and there I have already made five videos on Dalio check them out and also by looking at what he's saying with a bit of time by listening here and there we will be able to create an all-weather portfolio for those who are interested in such an all-weather portfolio thank you for watching please subscribe as it means a lot to me I'll look you forward to a comments I really love reading them enjoying them interacting with you and I'll see you tomorrow in the video about the top 10 gold miners in the world