5 MINUTES AGO! Ray Dalio Shared A Terrifying Message...

Summary

The speaker candidly discusses the inevitability of economic hardships, drawing parallels to historical patterns like the Great Depression. They emphasize the importance of understanding economic cycles and mechanisms to navigate them effectively. The advice includes stress-testing personal finances, securing savings, and being informed about historical economic responses. The speaker also touches on the significance of education, the potential for political instability during economic downturns, and strategies for personal and portfolio resilience, such as diversification and considering assets like gold as a hedge against inflation.

Takeaways

• 🌪️ The speaker emphasizes the inevitability of economic hardship, suggesting that individuals and companies should prepare for a 'brutal' reality where many will face job losses and financial struggles.
• 📈 Historical patterns of economic cycles are highlighted, with the speaker noting that understanding these patterns is crucial for navigating future economic downturns.
• 💸 The role of central banks in economic crises is discussed, particularly their actions during times of zero interest rates, such as printing money and buying financial assets to stimulate the economy.
• 🏦 The speaker explains the mechanics of government and central bank interactions, detailing how governments issue bonds and central banks purchase them to inject liquidity into the economy.
• 💼 For individuals, the importance of managing personal finances wisely is stressed, including having a plan for worst-case scenarios and understanding one's income, expenses, and savings.
• 🌍 The speaker discusses the potential for increased political conflict and the rise of strong leaders during times of economic turmoil, drawing parallels to historical events like the rise of Hitler and the lead-up to World War II.
• 🏛️ The value of education is underscored, with the speaker advocating for a well-rounded education that includes not just facts but also civic responsibility and social skills.
• 🧘 The benefits of meditation and maintaining a clear mind are mentioned as tools for making better decisions, especially in times of stress and uncertainty.
• 📊 The speaker outlines five major factors affecting the world: debt and monetary creation, internal conflict, the rise of new world powers, natural disasters, and human adaptability and innovation.
• 💼 Investment strategies for the current economic climate are suggested, including diversification, focusing on assets that can hedge against inflation, and being cautious of political and social conflicts that could impact financial markets.

Q & A

What is the hard truth about economic downturns as mentioned in the transcript?

The hard truth is that during economic downturns, companies will go under, people will lose their jobs, and some will struggle to find their next meal. It's a level of brutality that most have not experienced, and it's a recurring pattern throughout history.

What happened in 1932 and 2008 in response to hitting zero interest rates?

In both 1932 and 2008, when interest rates hit zero, central banks started printing money and buying financial assets, specifically government bonds, to stimulate the economy.

Why do central banks buy government bonds?

Central banks buy government bonds to inject liquidity into the economy. When someone buys a government bond, they are essentially lending money to the government, which promises to pay back with interest. The central bank's purchase of these bonds is a way to increase the money supply and stimulate economic activity.

How does the speaker suggest individuals prepare for economic downturns?

The speaker suggests individuals should look at their income, expenses, and savings, and perform a stress test to ensure they can sustain a certain lifestyle even if their income falls or disappears. They should also consider getting unemployment insurance or other safety nets.

What historical example is given to illustrate how to manage a crisis effectively?

The example given is Franklin D. Roosevelt's response to the Great Depression. He took measures to keep the economic situation orderly and reorganized the system to work better, addressing the wealth gap and implementing changes that could help the country recover.

What is the importance of education according to the speaker?

Education is considered the most important thing. It provides individuals with the necessary knowledge and skills to be good citizens and to operate effectively in jobs. The speaker emphasizes the need for education that goes beyond basic literacy and numeracy to include behavior and civility.

What does the speaker suggest for people to do during times of crisis based on historical perspective?

The speaker suggests that people should have a plan for worst-case scenarios, understand how to deal with problems, and find their path. They also mention the importance of meditation for reducing stress and making smarter decisions.

What are the three big things happening in the speaker's lifetime that didn't happen before?

The three big things are: 1) The amount of debt creation and monetization and its impact on the system, 2) The level of internal political, social, and economic conflict, and 3) The rise of a great power (China) challenging the existing world order.

How does the speaker view the role of cash and bonds in the current economic environment?

The speaker views cash as 'trash' and believes that bonds and debt are not going to be good investments. They suggest positioning oneself for inflation and avoiding or properly positioning in financial assets.

What advice does the speaker give regarding portfolio diversification?

The speaker advises investors to look at a four-quadrant box representing rising and falling inflation and real growth relative to discounted values. They suggest reducing risk and raising returns by having more in the upper right quadrant (rising inflation) and diversifying investments to include inflation hedge assets.

Outlines

00:00

🌪️ Economic Realities and Historical Patterns

The speaker begins by emphasizing the harsh truth that no external force will save individuals or companies from the inevitable economic downturns. Drawing from historical precedents, they explain that economic cycles are characterized by periods of boom and bust, often triggered by excessive debt. The speaker highlights the 1930s and the 2008 financial crisis as examples where central banks responded to zero interest rates by printing money and purchasing financial assets. They stress the importance of understanding these cycles not just as historical events but as mechanistic processes that can be managed with knowledge. The speaker also touches on the role of central banks in stimulating the economy and the limitations they face when interest rates hit zero.

05:00

💼 Personal Finance Strategies in Times of Crisis

In this paragraph, the speaker shifts focus to personal finance, advising individuals to assess their income, expenses, and savings, and to conduct stress tests to ensure financial security during potential income loss. They discuss the importance of having a plan, such as obtaining unemployment insurance, and the significance of education in preparing for and navigating economic downturns. The speaker also reflects on historical examples of how different countries managed crises, citing the political changes that occurred in the 1930s, including the rise of Hitler and the lead-up to World War II. They emphasize the value of education, not just in terms of basic skills but also in fostering good citizenship and the ability to contribute to society.

10:02

🌟 Adapting to Unprecedented Times

The speaker discusses the unique challenges of the current era, noting that several significant events are occurring that have no direct precedents in their lifetime. They mention the decreation and monetization of money, internal conflicts, and the rise of China as a global power. These factors, along with natural disasters and pandemics, have contributed to a complex global situation. The speaker also reflects on their own learnings from history, such as the 1971 Nixon shock and its parallels to the 1933 banking crisis. They emphasize the importance of understanding these historical events to navigate the present and prepare for the future.

15:03

📉 Navigating Financial Markets and Political Shifts

This paragraph delves into the financial market dynamics and the impact of political ideologies on the economy. The speaker anticipates a period of stagflation, where the balance between debt and credit becomes challenging. They discuss the end of a long bull market and the shock to investors, leading to a shift in financial strategies. The speaker also expresses concern over the potential for increased political extremism and the risk to the system when ideologies take precedence over the stability of democratic processes. They advise investors to diversify their portfolios and to be prepared for a period of economic and political turbulence.

20:03

🌐 Global Currency Dynamics and Investment Strategies

The speaker addresses the role of currency in a global context, noting the challenges faced by fiat currencies and the importance of considering currency as both a medium of exchange and a store of wealth. They discuss the implications of financial claims outpacing real assets and the need for investors to position their portfolios to protect against inflation and other economic shifts. The speaker also touches on the potential for increased government controls on capital markets and foreign exchange, advising investors to be aware of these risks. They advocate for a balanced portfolio that includes hedges against inflation and for considering non-traditional assets like gold as a form of insurance against economic instability.

25:04

💎 The Role of Gold in Portfolio Diversification

In the final paragraph, the speaker focuses on gold as a key component of portfolio diversification. They highlight gold's role as a store of wealth and its historical importance during times of crisis. The speaker compares gold to an insurance policy, providing stability when other assets may decline in value. They discuss the benefits of including gold as an overlay in a portfolio, suggesting it should constitute about 15% of the portfolio without displacing other assets. The speaker concludes by reiterating the importance of a well-balanced portfolio that can adapt to changing economic conditions.

Keywords

💡Zero Interest Rates

Zero interest rates refer to a scenario where central banks set the interest rate target at 0%. This is typically done to stimulate the economy during a recession. In the video, it's mentioned in the context of historical events such as 1932 and 2008, where central banks resorted to this measure after a debt crisis. The speaker illustrates that when traditional monetary policy tools like lowering interest rates are exhausted, central banks turn to unconventional methods like quantitative easing.

💡Quantitative Easing

Quantitative easing is a monetary policy where a central bank purchases government bonds or other securities from the market to inject money into the economy. The video discusses this concept as a response to zero interest rates, where traditional rate cuts are ineffective. The speaker explains that central banks 'print' money to buy these bonds, thereby increasing liquidity in the financial system.

💡Debt Crisis

A debt crisis occurs when the debt burden becomes unsustainable, often leading to defaults and economic downturns. The video script mentions the debt crisis of 1929 to 1932, which was a result of excessive borrowing during the boom years. The speaker uses this historical example to draw parallels with more recent economic challenges, emphasizing the cyclical nature of debt accumulation and its consequences.

💡Stagflation

Stagflation is an economic condition characterized by stagnant economic growth, high inflation, and high unemployment. The term is used in the video to describe a potential future economic environment, where the trade-offs between inflation and economic growth become more difficult. The speaker suggests that we might be moving into a stagflationary period due to supply and demand imbalances for debt and credit.

💡Wealth Gap

The wealth gap refers to the disparity in the distribution of wealth among different segments of the population. In the video, the speaker discusses the wealth gap in the context of the Great Depression era, suggesting that significant wealth disparities can exacerbate economic crises and lead to social unrest. The video implies that addressing the wealth gap is crucial for maintaining economic stability and social order.

💡Central Bank

A central bank is a national institution that manages a country's monetary policy, including setting interest rates and controlling the money supply. The video script discusses the role of the central bank, particularly in the context of economic crises. The speaker explains that central banks have the unique ability to create money and credit, which they use to stimulate the economy or manage financial crises.

💡Government Bonds

Government bonds are debt securities issued by a government to raise capital. In the video, the speaker explains that central banks buy government bonds as part of their quantitative easing policy. This action is meant to increase liquidity in the financial system and stimulate economic activity. The video uses the purchase of government bonds as an example of how central banks can intervene in financial markets.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. The video discusses the potential for inflation in the context of monetary policy and the creation of money. The speaker suggests that the current economic environment may lead to inflationary pressures, which can erode the value of financial assets and affect investment strategies.

💡Populism

Populism is a political approach that strives to appeal to ordinary people who feel that their concerns are disregarded by the elite. The video mentions the rise of populism in the context of economic and political instability. The speaker expresses concern that the current economic challenges may lead to increased political extremism and a rejection of moderate views, which could have significant implications for democracy and social cohesion.

💡Financial Assets

Financial assets are non-physical assets, such as stocks, bonds, and derivatives, that have monetary value and can be traded. The video discusses financial assets in the context of economic cycles and the potential for negative real returns. The speaker warns that the current overvaluation of financial assets relative to real assets could lead to a decline in their value, emphasizing the importance of a well-diversified investment portfolio.

💡Portfolio Diversification

Portfolio diversification is the process of spreading investments across various financial instruments, industries, and other categories to optimize returns and minimize risk. The video script emphasizes the importance of diversification, particularly in an environment of economic uncertainty. The speaker suggests that investors should consider a mix of assets that can perform well under different economic conditions, such as inflation or deflation.

Highlights

No one is coming to save anybody; individuals must take responsibility for their own financial security.

Historical patterns of economic cycles repeat, with companies going under and people losing jobs during downturns.

Understanding the mechanistic causes of economic events is crucial for dealing with them effectively.

Debt crises, like those in 1929-1932 and 2008, are caused by excessive debt accumulation during boom years.

When interest rates hit zero, central banks print money and buy financial assets to stimulate the economy.

Governments issue bonds to raise money for projects, and central banks buy these bonds to inject liquidity into the economy.

Central banks have the unique ability to create money and credit, unlike governments, companies, or individuals.

The average person should stress-test their financial plan to ensure they can weather economic downturns.

Education is fundamental for individuals to succeed and is more important than ever in times of crisis.

Historical examples, like Roosevelt's response to the 1930s crisis, show how to manage economic downturns effectively.

Internal conflict and the rise of extremist leaders can accompany economic crises, as seen before World War II.

Meditation can help individuals make better decisions and reduce stress during challenging times.

Surprises in financial markets can often be understood by studying historical precedents.

The rise of China and other global powers is challenging the existing world order, affecting economic and political landscapes.

Natural disasters and pandemics can have a more significant impact on the economy than human actions.

Adapting to stagflation and the supply-demand balance for debt and credit is crucial for investors.

The ideological allocation of resources is becoming more prevalent, potentially leading to economic inefficiencies.

Investors should diversify their portfolios to protect against inflation and the devaluation of financial assets.

The role of currency as a store of wealth and medium of exchange is shifting in a world of fiat currencies.

Gold can serve as an effective hedge against inflation and economic uncertainty.

Transcripts

I'm going to be super blunt to anybody

watching right now and Ry if you think

that I'm wrong I trust that you will

jump in no one is coming to save anybody

and that's the hard truth and if I look

at history and even if I listen which I

have listened to literally every word

said on the subject publicly anyway that

this is just going to suck like there is

going to be a level of brutality that

most of us have not experienced in our

lives companies are going to go under

people are going to lose their jobs

there are going to be people that are

going to struggle to find their next

meal this same things happen over and

over again through time for basically

the same reasons a lot of these things

happen once in a lifetime you know and

if you don't go back and see how they

worked over time then you're in trouble

so there's a pattern I could describe

the pattern that there's a pattern that

happens over and over again and we're in

a particular spot in the pattern and

then to understand it not just because

it happened before but to understand

mechanistically how it happens and then

one has a sense of how to deal with it

just like in

1929 to

1932 there was a debt crisis that came

as a result of an excessive amount of

debt in the boom years and then when you

have that in 1932 we hit zero interest

rates and when they hit zero interest

rates in 32 like in

2008 Central Bank Prince money and buys

Financial assets what happens in these

Cycles is that normally uh central banks

can stimulate the economy by lowering

interest rates but when you hit zero

interest rates that doesn't work so the

last time it hit zero interest rates was

1932 and what they did in 1932 was the

same thing they did in 2008 and that is

that the central banks Prince a lot of

money and buys government bonds and so

we're doing that now and just to be

clear the reason that they're doing that

is so somebody has bought a Government

Bond the government is basically saying

hey you dear person lend me the money

I'm going to build something roads

whatever but I'm going to pay you back

in a year two years 10 years whatever

plus interest I would assume that makes

it worthwhile and the reason that the

government is going in and buying those

is to get back liquidity to the people

that have loaned them that money yes

because think of it this way the s Cal

government and also companies and

individuals don't have the capacity to

create money so the central government

has the right to determine they can tax

people they can get money from people

and they can spend money on whatever

they want to spend money on but they

don't have the right to print money and

create money in credit like the Central

Bank does central bank is the Federal

Reserve similarly the federal res

Reserve does not have the right to spend

money and determine how it's spent

that's for congress every individual

every company and every government has a

certain amount of money that comes in in

the form of income a certain amount of

expenses and then a certain amount of

savings so you do individually and it

works the same way for everyone so that

if their income Falls to be less than

their expenditures they're in trouble

unless they have a good savings and then

they go to the savings so all around the

world there are lots of entities that

are in trouble in that way so the

government the two parts of the

government the US government they have

to give money and so they print money we

call it print there's not even paper

much it's digitally create money and

then that comes in the form of loans

okay so basically they're digitally

creating money which they're allocating

to the government and then the

government is deciding how to disperse

those funds yeah the Federal Reserve

will buy government bonds so it's a

transaction of buying it and they will

also buy private bonds they might pick a

company many companies and they'll say I

will buy your bonds which is the

equivalent I will lend to you that's

happened through history so what we're

going through is the same process as

happened in the 1930 to 1945 period what

can the average person take away from

that they don't have bonds they they

don't think like that they may not even

understand what their 401K is or they

may not even have a 401k so how do they

navigate this is it just head down do

your best to weather the storm or is

there actually something that they can

learn from the historical perspective

and move on now to make this easier for

them yeah it's the same for every

individual same for every company if you

understand this then you understand well

there are three things the first is look

at your income your expenses and your

savings and then do a stress test so

that you get yourself secure if you were

to lose your income or if the income

were to fall Beyond a certain level and

you play that out maybe that's means you

go get unemployment insurance or

whatever how long can you live in in an

acceptable lifestyle and do you have a

savings that is adequate for that okay

so what you do is you calculate if I

lived in a simpler lifestyle and I had

this amount of earnings how many months

how many months or years Could I Live

acceptably what countries or what

periods of time has going through this

kind of Crisis been managed well so that

we come out the other side of the as

little sort of pain and suffering as

possible well an example would be the

differences in the way Roosevelt did it

so again 1929 to 32 interest rates hit

zero they print money we had a large

wealth Gap and then they sat down and

they figured out how do we keep it

orderly and how do we change the

circumstances whether it's taxes or how

do you reorganize it so that the system

works well there is a risk also at the

same time because the world is going

through that there's a risk of conflict

so in Germany Hitler came in power in

1933 and he came in power in 1933

because there was a lot of internal

fighting as to try to bring produce

order because everybody the left and the

right you know the Communists and the

fascists and they're all fighting about

wealth cuz everybody's fighting about

wealth when you have a downturn and then

they were democracies four democracies

existed then that chose not to be

democracies because they became so

disorderly that they wanted some strong

leader to take charge and run the

country and then of course we had a

bunch of those types of leaders and then

they had a war that's how World War II

happened so when you look at that that's

kind of the political landscape but back

to the average man in terms of his

finances I would say the important thing

is those three elements to have a plan

and maybe to have a plan with uh both

your family what's the importance of

Education in you know when we start

thinking about protecting um successive

Generations how much of that comes down

to education education is the most

important thing um I was raised with a

very modest economic background my dad

was a jazz musician my mom was a

stay-at-home mom but I was lucky to have

parents who cared for me and I went to a

public school I got a good education and

I came out to a world of equal

opportunity and I believe that those are

fundamental Necessities that you have to

know how to have an education of facts

like you have to know how to read write

and arithmetic but you also have to know

how to behave well with others to be a

good citizen operate in a civil way to

be able then to go into jobs and that

that education can be anything that

works I think the big thing is you know

three big things on what I think work

should be make your work and your

passion the same thing and make it

economic if it works that you love your

work you'll probably be better at your

work so you want those things and then

there's the economics of it so it could

be anything from learning trades

whatever it may be education certainly

does not have to be College college is

overemphasized so as this next 3 to 5

year part of the cycle hits us what is

one thing that people can do that you

know from the historical perspective

will most insulate them from the

probably emotional and maybe Financial

damage whatever you think is more

important well the things that I thought

about some of the things I mentioned

earlier the plan for uh the worst case

scenario and make it terrific is one of

the things the understanding how to

triangulate well to deal with whatever

problems that you're going to face and

how to work that through to find the

PATH and find your nature but also uh

one thing that's helped me a lot is

meditation it's healthy CU it reduces

stress and it also makes you smarter to

make the decisions well because if you

have the

equinity that centeredness that com

centeredness and you have your plan and

you triangulate well with others so that

you can get all the best advice and

don't have to approach it in your own

head you know you're a long way there

one of the things I learned really 1971

and then repeatedly is that surprises

that happened in my lifetime happened to

me many cases were for things that

didn't happen in my lifetime but

happened in Prior lifetimes such as in

1971 I was clerking on the floor of the

New York Stock Exchange August 15th

Nixon sever the relationship between

gold and the dollar so essentially

defaulting and I walked on this Stock

Exchange I said financial crisis and I

would expect it to be down a lot it was

up a lot I studied history and found

that the exact same thing happened in

March 5th 1933 with Roosevelt doing the

same thing basically on the radio and

then I understood things better so what

happened for me over the last number of

years is there are three big things that

are happening in my lifetime that didn't

happen and I actually found with three

research five so the first is the amount

of decreation and

monetization of that and how it's

carrying through the system the second

is the amount of internal political

social economic conflict that is now

going on the third is uh the rising of a

great power to challenge the existing

World Order and the existing world power

of China and the geopolitical in which

you know when I was born 1949

four years after the New World War to

began in 45 and the United States of

course was a much more dominant country

then had 80% of the world's gold 50% of

the world's economy the Monopoly on

military power because of nuclear and

all of that and it's declined on a

relative basis and that led me to do

research which I needed to do the last

500 years of research to follow I wanted

to study the rise and decline of

currencies Reserve currencies and their

empire irus and I went back and in doing

that I also discovered that their acts

of nature actually had bigger effects

than the first three of those even with

the wars because of droughts floods and

um pandemics and then number five was

the greatest of course is man's capacity

to adapt and invent because in one way

or another if you look at that per

capita income Rises living standards

rise over periods of time but these big

cycles and these big events are dominant

so those are I think almost everything

can fall into those five categories you

know so that's how I look at it I think

that um we're in a period in which

there's a supply and demand for debt and

credit because one man's debts are

another man's assets and um that is

making us move into a stagflation kind

of environment in other words the

tradeoffs between the two will become

more difficult but I think that number

two influence the political is the most

important I think we have been used to

being in an environment in which

economics ruled you know you'd have a

global economy and um those who could

produce items more efficiently or

cheaper would get the business and they

would raise their living standards and

other places you know it was a global

competition largely run by economic

considerations and resources would shift

that way I think we're now in that

doesn't exist as much that way and

there's been a transition to an

ideological allocation of resources and

so on such as you know the um

acquisition by Elon Musk of Twitter it's

not a financial transaction as much as

it is for the purpose it'll have

controls and when we have the conflict

such as with Disney and D santis in

Florida and those political ideologies

it's the belief that um economics has

got to fall within that agenda that'll

have very big implications I think and

then of course this external looking at

it Year bye this is the third year of

the expansion with a very aggressive

monetary policy so we're in the part of

the typical expansion where there's a

lot of inflation pressures because it

happened in a giant big way and

everybody's long the world it's the end

of a paradig time because everybody

believes that they want everything to go

up and of course that creates a dynamic

where policy is long everything goes up

and of course that happens by creating

money and credit and which creates debt

and that dynamic means that you must

have a decline in real wealth measured

by that because that's the financial

wealth has become enormous relative to

the real wealth everybody who's holding

bonds or assets particularly the debt

assets believes or financial Assets in

general which are just journal entries

they're claims but they believe that

they can take that buying power and sell

it and buy goods and services and they

can't and by its necessity there must be

negative real returns negative returns

relative to buying power so if we take

it chronologically I think there's the

short-term cycle which is usually the

business cycle takes you know 7 years on

average and the give or take depending

on where you start the cycle give or

take a few years I think we're moving

along here quicker so we're now going to

be in a very tight environment and that

changes everything so when we look at

the returns of equities and we look at

the well-being of companies you see that

the cost of Interest relative to the

expected returns of equities creates a

squeeze on equities changes the

economics a lot of borrowing has been

done at much lower interest rates and so

on the return on equity for a company

versus the return uh the cost of debt is

changing and all of those are changing

and like all bubbles or Paradigm shifts

the

mentality that did exist we don't have

to worry about inflation cash is a safe

place and so on gets a shock there's a

punch in the face there's been a 40-year

bull mark market and there's a punch in

the face to the all investors and when

that happens things that were never

supposed to happen because everybody

believes in the tech companies which is

the same as the nifty50 or the do

companies they get hammered right 75%

decline in heywood's funds and so that

causes the adaptation so we're in the

beginning of that adaptation that is

most similar I think to the 1970s period

and um it becomes Financial so I think

as we come to elections and that'll have

economics and markets has a big impact I

think that you'll see greater political

extremism coming out of that moderates

are leaving and even those are running

are populists populists are people who

will fight to win and will not accept

losing and we fight for their

constituency so you'll see more populism

the left and more popularism the right I

look at

2024 and I'm worried about the neither

side accepting losing and I think that

there's a big risk that the system is in

Jeopardy because history has shown when

the causes that people are behind are

greater importance to them than the

system the system is in Jeopardy um

those types of things change the world

landscape I'm emphasizing the United

States and certainly Europe is in that

type of a position

so I think that when I look at it it'll

be very important to not only diversify

well but to be able to be long and short

different Assets in order to perform

well in that environment my main things

are First Cash is

trash and that there's in bonds and debt

it's not going to be good and the claims

of financial assets so either avoid

those or position position yourselves so

that when those things operate and

position yourself for inflation so there

are lots of Investments pertaining to

inflation and the big commodity Cycles

are reactive there's a giant just like

the 40-year bull market and bonds

Associates with a commodity cycle where

everybody adapts to that companies don't

hedge inventories are drawn down there's

less investment in those things when

that switches

switches to that kind of an environment

and the big overarching thing is that

the amount of Financial claims that

exist there's charts that I repeatedly

show when I deal with the changing World

Order what is the amount of Financial

claims assets relative to real assets

and you could see that through history

when those Financial claims it's like a

a bank has too many IUS on its real

money and that thing then you you always

get into these environments where it's

undesirable to own the debt and you have

negative real returns and so to position

one's portfolio in a tilt that way but

of course the way that we do it is to

separate Alpha and beta right so two

parts core cuz we're all talking

tactical how do you create a truly

well-balanced core portfolio and we know

that the typical well portfolio is not

well balanced with its greatest

vulnerability being in that upper right

quadrant in our box which is the

inflation box and we know that we're in

that environment so from a starting

point of view I would encourage all

investors to look at those four quadrant

box that box that we have Rising

inflation falling inflation Rising real

growth relative to discounted falling

real growth relative to discounted and

see what the biases are in those

portfolios I believe that now you can

simultaneously reduce risk and raise

returns reduce risk of that portfolio by

having more in that upper right quadrant

Rising inflation and you will reduce

your risk because if you look at your

portfolio typical investors's portfolio

that is the environment that is missing

so you start with that how do you get

more neutral how do you get better

balance and you cover yourself from that

exposure and then you make tactical

moves around it and the Tactical moves

again should not be in those debts it

should be very well Diversified I think

that the social and political conflicts

are going to be a big investment thing

coming forward and so that'll mean that

way I look at it is I want to look at

places that have good income statements

and balance so I say places I mean

countries as well as individuals that

make up those countries the individual

people and the individual company

so do they have a good income statement

Financial stability do they have a good

balance sheet so that they can weather

those things and also it's a sign of

their productivity are they productive

and then number two are they civil with

each other I really do believe that

internal conflict and bad finances are

going to be defining characteristics of

where to invest or even where to be and

then if I carry that forward to the the

third am I going to have in risk of

being in a international War an

important International War because that

International war will raise lots of

threats so I want when I'm picking those

locations I want to be the inflation

headge assets well Diversified look to

parts of the world that are not as

plagued with this so emerging Asia is

very interesting India is interesting

look at neutral countries during that

period of time watch out for government

controls on Capital markets because

that's the logical Next Step history has

shown that watch out for foreign

exchange controls could be watch out for

those things so those are the themes

that I think are most important and will

be most important in investing there are

two purposes of a currency which is a

medium of Exchange in a storeold of

wealth and we're living in a world where

we have three major currencies are Fiat

currencies with the same kind of

problems so you can't look at one

currency in relationship to another I

think people make a lot of mistakes of

thinking you know it's an ugly contest

the questions that we're going to be in

is storeold of wealth okay what is your

stor hold of wealth and a money is a

stor hold of wealth that also is widely

accepted in other countries so that you

can move it around it's not just limited

to currencies don't think that Medium of

exchange is the only important thing so

think about the storeold wealth that's

when we deal with the quadron you know

the four pieces to try to find a

balanced stor holder wealth and then you

have to think can I move that and sell

that anywhere am I going to have the

free Capital markets to do that or are

they going to be a problem and I think

we are entering a period where all

currencies the traditional medium of

exchange type of currencies are going to

a lot of currencies will compete what

will be the medium in which I could take

something and go someplace else and cost

effectively convert that into buying

okay the medium of exchange I think

we're in a storeold of wealth issue in

other words focus in on that and then

okay your transaction cost of converting

that storeold of wealth a balanced

portfolio into buying power and then you

transact because even in the worst

inflation the worst environments the

currencies most of the time still could

be mediums of exchange even though

they're devalue so I encourage people to

think about bad Fiat currencies

generally and what the liquidity is and

think about even what capital Wars look

like gold as a overlay on a portfolio on

top of a portfolio works like an

insurance policy gold is a debt asset it

just sits there but it's always through

characteristics that are limited in supp

one of the most important things it's

the third highest Reserve currency held

by central banks and in periods of time

of war or such periods of time of

credibility it is the medium like they

say it's the only asset that you can

have that's not somebody else's

liability that means you have to be

dependent on them giving you it them

giving you money or they're giving you

something and it is international it can

be moved and it's TR to in that regard

but its behavior isn't very

environmentally specific so as a hedge

asset it's really like a great insurance

policy because when the other assets go

down and so something like that or the

equivalent plays a role in a portfolio

not as the core asset but as the effect

of diversification of asset and that's

if you do it as an overlay it's about

15% of the portfolio not taking away

asset asss from other parts of the

portfolio but I come back to my Basics

which is the four quadrants you know the

Timeless and Universal the one thing

that you could be sure of is that cash

will not be the best asset class and

when you diversify to portfolio so

you've got a well balanced portfolio of

other things it will outperform cash

because it's the nature of the system

people you know the Central Bank puts

money on deposit people with better

ideas come along take elements of risk

and it works it works better than the

traditional portfolio in the down moves

by a lot like when the market goes down

60% or so the worst cases are like 20%

maybe a little bit over than that and it

never stays there because central banks

can't let capitalism which is dependent

on those other assets performing a

higher return than cash can't let that

continue so they come in there and they

produce money in credit and it produces

the pop