Ray Dalio Just Bet ALL IN On A Terrifying Global Collapse - YouTube

Economists are almost always wrong,  but Ray Dalio is not an economist.  

He's a fund manager with billions of dollars  and thousands of clients on the line.  

Dalio has made billions from the  dot-com bubble and the 2008 recession,  

but now he's building up the mother of  all shorts. He can't afford to lose money,  

so you must take Dalio seriously. Dalio recently  disclosed a $10 billion short position in Europe,  

and he's likely been building an even  bigger short position on the US market.  

We're currently in one of the worst types  of crises, stagflation. Stagflation is when  

the economy is weak and has high inflation at the  same time. The inflation rate has crossed over 8%,  

and the GDP has declined in the latest quarter.  This is extremely concerning, because stagflation  

typically occurs right before a recession. Ray  Dalio has studied the economy over the past few  

centuries and has recognized a pattern. The cycle  typically starts with an increase in government  

debt, which boosts the economy in the short  term. This might sound logical in the short term,  

but lending is a two-sided transaction with  creditors and debtors. The creditor is the  

one lending out the money, and the debtor is the  one receiving the debt. When there's too much debt  

in the system, it's not possible for both sides  of the transaction to survive. This is because  

one man's debt is another man's assets. Whenever  the creditor lends out money, they're loaning out  

assets. If the debtor is taking out too much debt,  this means that the creditor is low on assets and  

will rightfully want to earn more income. The only  problem is that when debt levels are too high,  

debtors don't have the money to pay back the  creditor. This will cause the debtor to sell  

assets to pay off the debt. An example of this  is Chinese property developer Evergrande, which  

had to sell off properties in order to pay off its  debt. When this happens, the economy will reach a  

poor position. The central bank will see this weak  economy and print money to save the economy from  

crashing. While printing money might work in the  short term, it creates long-term problems. Money  

is simply paper that is supposed to represent  value. When that paper's value is disrespected,  

then its value will inevitably decline. So  as a result of the central bank lowering  

interest rates, prices will begin to rise. So  first, debt levels become overextended. Then,  

debtors default under debt, putting the economy in  a weak position. This causes the central bank to  

print money to boost economic activity. Throughout  this time, we still have the same underlying  

problem of a weak economy. The only difference  is that printing money adds a new problem,  

inflation. That's where we are right now,  stagflation. Because printing money doesn't boost  

the economy over the long term, we simultaneously  have a weak economy and high inflation. The next  

step in the pattern is for the central bank  to slow the economy by raising interest rates.  

Dalio has noticed that in the past, doing so  almost always leads to a recession or depression.  

There's no way to stop it from happening. If  the government continues printing more money,  

it exacerbates the problem of inflation. The  only way to stop inflation is to destroy demand,  

which is done by pulling money out of the economy.  So in other words, stagflation is the middle  

course between the peak of a debt cycle and a  serious economic slowdown. According to Dalio,  

we are currently in stagflation, so the next  step in the pattern is a recession or depression.

- Are we close to having stagflation?

- [Dalio] Yeah, we are in stagflation.

- We are. Stagflation is simply  where you have inflation,  

and yet, at the same time,  you have high unemployment?

- Yeah, you have economic  weakness. In other words,  

you have a stagnant economy.  Stagnant essentially means-

- Meaning growth is reduced.

- Slow growth.

- Right.

- Low growth, and with high inflation. And that  happens through this monetary situation that I'm  

describing in which the central bank tries to  deal with a middle course. In other words, what  

does the central bank want? Not too high inflation  and not too low growth. And so when there's a lot  

of debt because one man's debts are another man's  assets, it just becomes a very difficult balancing  

act. And that is when you have stagflation  when you produce it. So just like in the 1960s,  

late 60s, we spent a lot of money on "guns  and butter," we called it, right? Vietnam War  

and social programs and so on. We wrote too many  checks relative to the money we had in the bank,  

which was gold at the time. 1971, the devaluation.  Then they print a lot of money into that  

stagflation. So stagflation is trying to... Is  the middle course when there's two different-

- So, the Fed...

- The interviewer cut off Dalio at the end, but  Dalio was going to say that stagflation precedes  

recessions. The last time we had stagflation was  in the 1960s. Due to the Vietnam War and social  

programs, the government took out debt to purchase  food and weapons. However, the US government  

didn't have the money to pay off this debt, so  they printed money. This led the US to have a weak  

economy and high inflation at the same time, also  known as stagflation. The 1970s was unprecedented  

at the time, and set the stage for the US to run  out of money in 1971. Dalio explained on Twitter,  

"At the time, the United States was spending "a  lot more money than it was earning "by writing a  

lot more of these paper money checks "than it had  gold in the bank to exchange for them. "As people  

turned these checks into the bank for gold money,  "the amount of gold in the US started to dwindle.  

"It soon became obvious that the US couldn't keep  "its promises for all the existing paper money,  

"so people holding dollars rushed to  exchange them "before the gold ran  

out." Dalio indirectly pointed out the two  different types of money, commodity money and  

fiat money. Commodity money is money that obtains  its value through its substance. Take gold as an  

instance of this. Over the past few centuries,  people have been using gold for transactions.  

This is because gold has significant value as  a scarce metal with unique chemical properties.  

In contrast to this, fiat money is money that  is backed and issued by the government. The US  

dollar is an example of fiat money, because its  value is purely determined by the US government.  

1971 was a time in which there was a mass  conversion from fiat money to commodity money.  

Stagflation puts economies at risk  of destroying their fiat money,  

especially if the government decides to continue  printing money. Zimbabwe's hyperinflation in  

2008 is a perfect example of this. The Zimbabwe  dollar experienced a daily inflation rate of 98%  

because the government made the mistake  of printing more and more dollars.  

Fiat money only has value because people believe  in it. If people stop believing in the US dollar,  

the value of the dollar will tank. And when  the dollar tanks, more people become skeptical,  

causing the dollar's value to drop even more.  This is a positive feedback loop that the Fed  

is incredibly concerned about. So how serious of  a recession are we talking about here? The answer  

can be summed up into a car analogy. Think about  what makes a good and bad car driver. A good car  

driver would gently press on the gas and brake,  causing the car to steadily move forward at a  

relatively constant pace. There's going to be  external events outside of the driver's control,  

like traffic lights and pedestrians. However, as  long as the good driver prepares ahead of time and  

slowly eases on the brake, the ride will be smooth  for the passengers. This is how most of you drive,  

or at least I hope so. A bad driver would slam  on the gas and brake, leading to drastic changes  

in speed. Such a ride would be horrible for the  passengers, with the car lurching backward and  

forwards frequently. The Federal Reserve has been  a terrible driver. They slammed the gas in 2021,  

causing the car to lurch forwards. Now, they  are in the process of slamming the brakes,  

which will consequently cause the car to  lurch backwards. The Fed printed money at  

an annual rate of $1.5 trillion in 2021. This  led corporate pre-tax profits to surge by 25%,  

which is the largest increase since 1976. Post-tax  corporate profits increased even more at 37%,  

the biggest increase since 1948. Now, the  Fed is cutting the money supply at an annual  

rate of $1.1 trillion. Not surprisingly, we're  about to experience a crisis of that magnitude,  

but to the downside. In the case of the 1970s,  the US entered two recessions, with one starting  

in 1974 and the other starting in 1979. The only  reason why the US survived this crisis was because  

of Fed Chair Paul Volcker. In 1979, Volcker raised  interest rates to stop inflation. This caused the  

economy to experience sporadic movements, with the  GDP mainly decreasing when Volcker was in office.  

But more importantly, foreign countries  experienced even more pain than the US.  

Foreign countries' debtors were put into  10-year-long depressions. Dalio explained how  

"inflation was reduced "by people and companies  being painfully squeezed "and reducing spending.  

"That's always the case, and will be the  case this time." As mentioned earlier,  

the capital markets overextended in  2021 as a result of money printing.  

Dalio knows this because of his bubble gauge that  he uses to see if stocks are overvalued. As you  

can see in this graph, Dalio has his own bubble  gauge that categorizes bubbles into percentiles.  

The 1920s represented a period in which the  bubble gauge hit the 99th percentile of bubbles.  

The 1990s also did the same, staying within the  99th percentile for several years before crashing.  

The 2020s was in the 85th percentile of all  bubbles before the recent crash lowered it  

to the 40th percentile. So according to Dalio's  gauge, stocks are actually relatively undervalued.  

The bubbly companies have actually dropped  below the mean, according to Dalio's gauge.  

With that being said, Dalio still sees further  downside in the bubble stocks. The 1920s and  

1990s were quite similar to the 2020s, so Dalio  is using history as a basis for his prediction.  

All three periods saw a massive jump in the  valuation of growth stocks due to easy monetary  

policy. This allowed him to examine the patterns  of the past to make a prediction. Dalio mapped out  

the two-year treasury bond yield in the NASDAQ in  all three periods. In comparison to the 1920s and  

1990s, the current bubble still has more downside.  Another gauge that Dalio uses is the leverage  

gauge. His leverage gauge assesses the amount of  options, positions, and margin debt in the market.  

The leverage gauge currently puts us in the 50th  percentile of the data set, so it is roughly in  

line with the average. Some investors might  assume that this means that there is little  

to no downside, but Dalio doesn't think that. He  has noticed that bubbles typically overcorrect,  

which brings us back to the car analogy. Similar  to the economy swinging back and forward,  

bubbles typically swing further than the  fundamentals suggest. The leverage in the  

market is currently about average, which might  seem fine, but bubbles typically overcorrect to  

the 20th, if not 10th, percentile. Dalio is set  to make billions on the incoming overcorrection.  

He reportedly has a $10 billion short position on  a variety of European stocks. The stocks that he  

is shorting are similar to those in the EURO STOXX  50 index, which is a European index that tracks  

the top 50 largest stocks. Because the SEC doesn't  require investors to disclose short positions,  

we don't know if Dalio has a short position on  the US market. That being said, I wouldn't be  

surprised if he did, especially given his European  short position. Not only that, but in addition to  

a recession, Dalio believes that there is a 40%  chance of a civil war breaking out in the US. This  

video is simply just the first part of two videos.  The next part will discuss why Dalio sees a civil  

war breaking out, how this will tie into World War  III, and much more. If that sounds interesting to  

you, hit that subscribe button so you are notified  when my next video is released. Let me know what  

you think about Dalio's short thesis. Are you  protecting your portfolio like Dalio? If you  

enjoyed this video, please hit that like button  and subscribe, and I'll see you in the next one.