A waiter arrives. Dalio pauses to order a medium rare burger with mushrooms, fried onions and fries. I choose a Mexican burger and try to replace the potatoes with lettuce. It is impossible. “Beer?” I ask. Dalio brushes the idea aside; his wiry frame and sparkling grey-blue eyes exude an aura of disciplined health.
So what does Bridgewater expect in 2018? Is Dalio predicting another big 2008-style crash?
The answer is complex. Right now, Dalio thinks that conditions in the global economy look pretty sunny, and this is likely to keep supporting equity prices for a while, particularly if investors take their cash hoards and invest them in the markets this year. But he fears that as economic growth keeps accelerating, central banks will find it tough to raise rates without sparking a recession in a couple of years time; the really big economic challenges lie ahead.
What’s more, Dalio does not actually think that his relatively upbeat vision of “the economy” is what investors should focus on now. Before the last credit crisis, when Dalio was making his prescient calls, he used models of financial flows, debt and growth to predict where markets were heading. Indeed, he was so proud of these models that he later produced a chirpy cartoon with stick figures that likened the economy and financial system to a machine.
But Dalio recently decided it is meaningless to talk about “the economy”, or trade on this overall “machine”. This stems from an issue that billionaires usually prefer to avoid talking about: rising income inequality. More specifically, Dalio thinks inequality is rising so fast that it has created multiple “economies”: although the elite live in an expanding economy, “for the bottom 60 per cent, 80 per cent, there is a depressed economy that is not growing well”. This means we need to think how we talk about “economics”, he says. America needs a “national commission to rethink our economic metrics”.
But this vision has also changed how he models the future: he thinks this inequality is creating so much strife that it will be political conflict — not economics — that drives markets in 2018 and beyond. “[These days] there’s not the same volatility of inflation, growth and interest rates. So political issues are more important than macro [economic] issues,” Dalio says. “The world was driven by central bank policies [before]. That’s not the case now,” he adds, noting that what investors should watch is not (just) Fed statements, but “the next election in France or in the UK, or how hospitable will Jeremy Corbyn be to capital?”
I tell him I wholeheartedly agree, but point out that this creates a practical challenge. Dalio loves to use computer models to predict financial flows and make trades, and pours enormous resources into harnessing the cutting edge of digital technologies, including AI. But how can anyone predict populism or revolution with an equation?
“You can convert whatever you are thinking into an algorithm,” Dalio insists. “We’ve created a conflict gauge looking at words [in the media] and things. We’ve done examinations of all political conflicts in the past and their impact on markets [for models].”
This number-crunching produces some alarming conclusions. Last year, Dalio’s geeks calculated that the proportion of the vote captured by populist candidates had risen from about 7 per cent in 2010 to 35 per cent in 2017. This swing has apparently only ever happened once before, in the 1930s, just before the second world war.
So do the algorithms predict another war? Dalio ducks the question, but admits that he cannot see anything to reverse this trajectory. That is partly because he thinks digital technology is inexorably exacerbating inequality, by eliminating jobs. “We’re headed for a world where you’re either going to be able to write algorithms and speak that language or be replaced by algorithms,” he observes. Another problem is the ever-rising level of global debt. “I am not predicting anything like the type of debt crunch we had in 2008,” he says. “But there is a tightening financial squeeze which is going to hurt the bottom 60 per cent more and more, particularly when we have the next recession.”
So how will he protect himself from pitchforks? I raise the example of Silicon Valley billionaires, such as Peter Thiel, who have built bolt-holes in remote places around the world to survive any looming Armageddon. “No, I don’t have some place to hide.”
Not even a bolthole in Jackson Hole? Dalio shakes his head even though he has snowboarded there. In any case, it seems that his deepest passion — when not at work — is exploring the ocean. He recently tried ice diving in the Antarctic, and was thrilled to see leopard seals. I suggest this is because it is an escape from his obsessively measured life; nobody can judge a penguin on an iceflow with an iPad. He laughs. “Meditation has the same effect.” He has done transcendental meditation twice a day since 1969, and encourages Bridgewater employees to embrace it.
golden sticks in ketchup; they are hot and delicious. Then we both grab the burgers with our hands. The patties are so freshly homemade that the meat crumbles out of the bun, tumbling on to the plates in an ungainly mess. I lick my fingers as if I were six years old.
So what would he do if he were president? Does he want to see redistribution of wealth from the rich to the poor? Should billionaires pay more tax? He dodges the question, and says instead he wants to see more “social impact investing” and “bring in private sector investors who are philanthropists to partner with public initiatives”. It is standard elite chatter.
So how is Trump performing? He sighs and admits that he does not want to say anything negative. However, his views have oscillated. Before the 2016 election, Dalio predicted that equity prices would plunge 10 per cent if Trump prevailed. “I didn’t expect him to win,” he admits. But when Trump took office Dalio suggested that his programme of tax cuts and deregulation would be beneficial for the economy. “He’s a lot less reckless than I originally thought he would be,” Dalio says. But he does not like the balance of tax cuts, enshrined in the recent bill, fearing like most economists that this will increase income inequality and social fractures.
Dalio has pushed his vast burger aside, half eaten. He refuses a dessert, opting instead for coffee. What lies next for you, I ask? It is a sensitive issue. Almost a decade ago Dalio tried to create a succession plan. However, this has unravelled several times. “We went through a difficult succession evolution. I thought it would take three years or so, but I was wrong, it took us eight,” he admits. “But learning comes from making painful mistakes and then reflecting.” Eventually, Dalio took outside advice: Jim Collins, author of the fabled management book Good to Great is a favoured mentor. He has stepped down as chief executive, but remains chairman and chief investment officer.
Some rivals think the turmoil might continue. Jim Grant, the veteran analyst, was deeply critical of Bridgewater in a recent research note, suggesting its performance is deteriorating, partly because shifts in the interest-rate environment make the fabled “risk parity” structure less effective. Dalio vehemently rejects this. “Jim Grant doesn’t have a clue. I like him as a thinker but this [report] was bad — he had to retract almost everything.” However, the fact Dalio is on a book tour has reminded some investors of the long history of corporate leaders who grace magazine covers and publish books at the peak of their success but later crumble.
What about a move to politics or public service? He shakes his head. “It’s not my thing.” He does not even like using his wealth to shape politics: unlike other hedge fund titans, such as Robert Mercer, the co-chief executive of Renaissance, who was the biggest single donor to the Trump campaign. Dalio does not endorse political candidates. “The only candidate I [ever] supported was John McCain . . . because he was bipartisan and I thought he had a good character.”
The bill arrives: a mere $52. The angry Americans suffering in the modern global economy and who are prime candidates for rhetoric against the 1 per cent cannot pillory him for that. As we walk out of the restaurant, I regret one thing: not having asked him to bring one of his iPads to put him through his own radical transparency test.
Gillian Tett is the FT’s US managing editor
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Illustration by James Ferguson