 Good day, fellow investors! Sven Kalin reporting from Davis. As you know, this weekend was the big meeting in Davis in Switzerland. Everybody was freezing cold, but everybody says what they want and life goes on. However, there is one guy that the poor guy freezes to death. They put him on minus 20 outside and gives an interview for Bloomberg. That's the only reason why I like Davis, because Ray Dalio says what he thinks. It is probably due to subzero temperature. Nevertheless, today I want to really discuss what he told in the Bloomberg interview, elaborate a little bit in depth on his thoughts and see how that affects us as investors. So the first thing, perhaps also the most important thing that Dalio is saying, is that people tend to forget that the economy works in cycles. And at the current moment, it's a perfect situation. Global growth, the economy is growing, low inflation, and according to Dalio, it signals when everything is perfect, it signals that the economy is in the late part of the economic cycle. And he forecasts that it will continue to grow because of the positive catalyst for another year and a half, two years. Dalio mentions how economic capacity utilization has been having lower lows and lower highs, but he mentions how it is at its limits, especially because of the unemployment rate. Whether it's correct or not, it doesn't really matter. The change, the relativity matters. The unemployment rate is hitting is below the natural unemployment rate, which means that you can't really hire more people to grow. When that happens, of course, the actual GDP is at the level of the potential GDP. Thus, there cannot be more growth. More growth can be stimulated with taxes. So lower taxes, more cash, more spending, higher stock prices, everybody happy. And then it also can be stimulated to monetary easing, what the Bank of Japan and the ECB have been doing and are still doing, even if the whole world is in the late part of the economic cycle. Further, what will stimulate the stock market is that due to monetary easing, there is so much cash around and people that are sitting in cash, institution, pension funds, investors, everybody, there is a lot of cash in the world, they feel they are missing out on the growth on the trend. And they will still, even with lower taxes, they will enter the market, enter investing, push the economy higher for another year and a half, two years until you really cannot push it higher, which will then be signaling that we are close to a recession, which doesn't have to be bad, especially if it is a short term recession that weeds out the bad businesses. As for the market, it's important to know that the stock market usually anticipates what will happen. So be careful when you are looking for signals to tell you when to sell and get out of this trend. The next thing that Delio was mentioning is that we could see interest rates as they go higher really negatively affect asset prices. And just 1% increase in the interest rate would lead to the largest bear market in bonds since the 1980s. We are already in a bear market in bonds. If you look at the 10 year treasury yield, it has doubled in the last year, year and a half. So the bond market, we can call it a bear market, which means that stocks go higher, bonds go lower. That's something natural. So we could expect later bonds go higher and stocks go lower when the interest rate trend turns, which will happen after two years. So not yet because Delio estimates that the Fed will have to increase interest rates much faster than it is planning or it is signaling now. Because of all the money, all the stimulation and limited capacity that the economy is hitting, there will be overheating economy and there will be forced to increase interest rates much, much faster. Something very important that he mentions is the yield curve. And this is important not only because it signals something, but because lenders are more reluctant to lend for the long term. If you have a short term yield that is equal or higher than the long term yield or interest rate, then you are not going to lend for the long term, which really detracts a lot of liquidity from the system. You prefer to lend to the government short term, and which means that there are less investments, less long term plans and it contracts the economy. Back to the chart, as you can see, every time in the last 40 years when the yield curve flattened, we have seen a recession very soon. Back to the bond market, we have seen a year and a half ago, since then the 10-year treasury doubled in yield, which means that the value of those assets really lowered. And if you had the 10-year treasury, you can sell it for much, much lower now. Raylio concludes everything that he is saying with the inequality issue. He is seeing how the poor, the 50% population that is the poorest, they lack capital, they haven't accumulated capital, their wages haven't grown and their debt has increased. So that's something that he sees as a huge political risk, the inequality between the rich and the poor, between social groups. And that's something that we also have to keep in mind. I don't think it will hit the economy that way, because the governments will just print more money, ease the debt burdens on the poorer, give them a little bit more and everybody will be happy and the world will be able to continue like it is. Just an example, I had a colleague three years ago, he was working three days in a week and his wife was working two days in a week. He was offered to work five days in a week, children were big at school, everything was okay, you could work more. He said no and I was surprised, why didn't you take a job, good salary, all right? I understood later his salary, household salary with his wife would pass 45,000 euro. And then they wouldn't get the subsidy for their apartment, which they had a really, really low rent. So they would have to move. So it didn't really pay for this colleague to work more because of the subsidies the government is giving them. This really looks like pandemic in Kansas, like in the Roman Empire they were doing, keep the plebs happy with social transfers, give them money, give them subsidies so that everybody is happy and that the world can go on as it is so that the richer become richer and poor stay equal or just go a little bit richer. In the States in the last 30 years we have seen that the poorest 50% of the population hasn't increased their wealth at all in 40 years, which according to Delio might lead to inequality. Thank you for watching, looking forward to your comments. As always I really enjoy reading them so please comment, share what are your thoughts, ask question if something is unclear. I'm here to help, we are here to share knowledge and I'm learning a lot from your comments. Thank you for watching, I'll see you in the next video.