Ray Dalio, Bridgewater Associates’ chairman and founder, spoke with Bloomberg’s Tom Keene and Michael McKee on the eve of the U.S. Fed policy decision on Bloomberg Television and Radio.
Dalio said he's worried about the next economic slowdown because monetary policy will be less effective than in the past: "I don't care whether they raise 25 basis points. I don't care whether it moves along the curve… What scares me, or what worries me, is what the next downturn in the economy looks like with asset prices where they are, and the lesser ability of central banks to ease monetary policy."
[drizzle]When asked about the Fed raising rates, Dalio said: "It's a restrictive policy. I don't care whether they raise 25 basis points. I don't care whether it moves along the curve. But, just I don't see the reason for it, frankly."
On China, he said: "I think China's going to be just fine. Just to be clear. But it's going to be weaker. It, but their weak growth is still probably going to more than twice our normal growth."
ANNOUNCER: This is a special global edition of "Bloomberg Surveillance" in prime time. Now, from the Doral Arrowwood Conference Center in Rye Brook, New York, here are Tom Keene and Michael McKee.
TOM KEENE: Good evening, everyone. Tom Keene and Michael McKee. We are here on a beautiful, beautiful day north of New York City for one of our most anticipated events in the history "Bloomberg Surveillance" and "Bloomberg on the Economy." I would -- let's set up where we are first. Should we do that before we introduce Ray?
MICHAEL McKEE: Sure.
KEENE: I think we should. We're at Doral Arrowwood. This is 114 acres, north of New York City. I, I -- we got the "Surveillance" call streaming at the Westchester Airport. Worked out great. Coming up today…
McKEE: It was a short ride.
KEENE: Short ride, but we did it. Nine-hole golf course, which was great for the "Surveillance" par 60 that we played. And it worked out as well. And we will be here tonight courtesy…
McKEE: Brand new conference center. We've done this for five years in a row, and this is the first time we've been able to use this wonderful new facility.
KEENE: Is it bigger than Delaware or Rhode Island? (Bonnie Queen)(ph) got lost about 4:45.
McKEE: Yeh, I think it's, it's about the size of Delaware, but without the freeway, without the I-95
KEENE: It is in the course a benchmark hotels and resorts. We say, Steve up in the back there with our audience here tonight, we say thank you to Doral Arrowwood. We need to get started. And when we planned this with Mr. Dalio months and months and months ago, we said we need a (set)(ph) meeting with a little drama. We need, we need emerging markets imploding, we need (gut)(ph) feeder about productivity in this nation. It would help to have a Presidential debate overlaid on the top of it. That would well get how the economic machine works. See, four of the five candidates tonight will be…
McKEE: Addressing that.
KEENE: …talking about that. But we're going to get a briefing before that. Why don't you start it with…
McKEE: Well, if you…
KEENE: We'll get started with Ray Dalio.
McKEE: Yes, we have to say that if you, if you sold in May and went away, it's time to come back. And we're going to start with Ray tonight. Thank you for joining us. Interestingly enough, you began your career on a golf course in finance.
RAY DALIO: It was a caddy. I -- six dollars a bag, I used to take double bags and it was, you know, the 60s and the 60s was the time when it was the biggest bubble. Really, even more than 2007, and I remember betting $50 on a company by the name of Northeast Airlines.
DALIO: It was the only company that was trading for less than five dollars a share, and I figured I could buy more shares. And that was a good deal, so I bought it. And it was -- the company was about to go bankrupt, but somebody acquired it and it tripled in price, and I was hooked.
KEENE: What did you learn from your first loss? You're a kid, you're a genius, you (dated)(ph) right on Northeast Airlines, and then something bad happened. What did you -- what happened when you lost your first $282?
DALIO: So it was -- I remember it was then dollar-cost averaging and --'cause the economy was well-managed. And it was 1966, and that was the first time the Fed inverted the yield curve since 1929, and I didn't understand tight money, and we began a bear market. Nineteen sixty-seven, sixty-eight was the peak. We had the -- we had a recession, and from then it was 18 years that we negative real returns in the stock market. So I learned -- I learned about selling short, I learned about, you know, markets go down as well as up and how to make money. I learned what it was a lot about pain, you know.
KEENE: With President Carter so ill now and, as we have two Presidents in their 90s, he was (repped)(ph) with the Carter malaise. You lived through that, you learned through that. (Shearston)(ph), you were at Dominick & Dominick, and commodity trading. Was there a malaise there, and do we risk that malaise again in 2016.
DALIO: Well, it was very different of course because, you know, that was the time. So you could take these decades -- all right, 50s was post World War II boom, plenty of capacity, not much debt. Sixties, growth, tight money because we didn’t have deficits, inverted yield curve, and then we couldn't pay our debts. So the United States defaulted…
DALIO: …on it's debt in 1971 because it said it would pay in gold, right? In other words, the money was like gold. You would like a check in your checking account, and you would turn it in for what was perceived of value, gold, and we defaulted…
DALIO: …in 1971 so that was the beginning of inflation. So the 70s were inflation…
KEENE: It was something.
DALIO: …and then 1979 Paul Volcker's appointed. And so when you're talking malaise, you're talking essentially a wild runaway inflation, out of control. Paul Volcker was appointed by Jimmy Carter…
DALIO: …in 1979. And then the exact reverse happened. And the pattern is almost every decade is almost more likely to be the opposite than (inaudible).
KEENE: All right stay, I want to stay right there with Paul Volcker, and we'll come back to that. Rate moderation is important. My malaise right now is your mike's not working, so Steve's going to come up and fix it, and we're going to reset for Bloomberg Television and Bloomberg Radio worldwide at Doral Arrowwood with Ray Dalio. We're going to speak here -- it's not going