Has Ray Dalio Suggested Investors Exit Amidst the Changing World Order in US Elections
Bridgewater founder Ray Dalio, at a crucial moment facing the U.S. presidential election, shares his views from “Principles for Dealing with the Changing World Order,” hoping to guide investors in facing future uncertainties with sound principles. He also states that this election will test whether the U.S. can undergo an orderly transition of power, and if not, whether foreign forces will attempt to take advantage of the U.S. during its weakened state.
The U.S. is at a Critical Juncture in the Cycle
In his book “Principles for Dealing with the Changing World Order,” Dalio helps readers understand the patterns of history to better prepare for the future. He delineates the rise and fall of empires into six stages, noting that past empires like the British Commonwealth, the current U.S., and China are all experiencing similar cycles. He believes the U.S. is currently at a critical moment in the fifth stage and on the edge of the sixth, a period of exceptionally high risk. While not asserting that the U.S. will definitely fall into these conflicts, he considers the probability of such events occurring to be lower than not. However, Dalio emphasizes the importance of continued vigilance and preparedness.
Source: Principles for Dealing with the Changing World Order
What Happens at the End of the Fifth Stage?
In the late fifth stage, protests become more frequent and increasingly violent. As there is not always a clear line between benign protests and the start of a revolution, authorities often balance between allowing protests and not granting freedom to oppose the system. Leaders must manage this carefully, as transitioning to revolution presents a classic dilemma where both allowing the freedom to protest and suppressing it pose risks, potentially strengthening the revolution enough to overthrow the system.
When widespread dissatisfaction emerges and authorities allow it to grow, it can boil over when attempts are made to cover it up, leading to explosive situations. Conflicts in the late fifth stage typically climax in violent clashes, marking the transition to what historians identify as a formal civil war period, which Dalio refers to as the sixth stage of the great cycle.
The Flaw of Democratic Nations
Dalio points out a flaw in the democratic process of “one person, one vote,” where leaders are chosen through popularity contests without in-depth consideration of their capabilities, unlike most organizations seeking suitable candidates. Democracy requires consensus and compromise, necessitating cooperation among people with diverse views within the system. This ensures representation for parties with significant constituencies but, like any large committee comprised of differing (and possibly antagonistic) views, leads to inefficiency in decision-making.
The greatest risk for democratic nations is that they may produce such dispersed and adversarial decision-making that it becomes ineffective, leading to poor outcomes and potentially paving the way for populist authoritarian leaders, representing a majority desiring strong democracy.
Civil wars are inevitable; thus, instead of assuming “it won’t happen here” (a common belief in most countries after a long absence of civil wars), vigilance is advised.
Who is the Most Suitable Leader?
Dalio believes different stages require different types of leaders for the best outcomes. The best leaders in the first stage are “consolidators of power,” with ideal examples being Tang Taizong of China and Napoleon of France.
The fifth stage is a turning point, where one path may lead to civil war/revolution, and the other, ideally, to a coexistence of peace and prosperity. Clearly, the path of peace and prosperity is the ideal but more challenging route. This path requires a
“strong peacemaker” who will go to great lengths to unify the nation, including engaging with the opposition, involving them in decision-making, and reshaping order in a manner considered fair and functional by the majority. Such examples are rare in history. In previous interviews, he has candidly stated that neither the Republican nor Democratic candidates are what the country needs.
(Bridgewater Founder Warns U.S. is on the Eve of Civil War, Ray Dalio: The Most Important Election of My Lifetime)
Should One Exit the Market Now?
Dalio concludes with another principle:
When in doubt, get out. If you wish to avoid getting caught in a civil war or war, it’s wise to take your leave. This usually occurs in the later stages of the fifth phase. History verifies that when situations worsen, the exits often close. This applies to investments and currency as well, as countries impose capital controls and other measures during these times.
He also states that this is merely his personal view, not representing Bridgewater’s stance. He hopes everyone lives in interesting times and possesses sound principles to navigate them.
