That 4. 25 trillion Balance Sheet. The nasdaq at risk of being down for the second consecutive month. The devastating Hurricane Season continues, maria hitting puerto rico. The entire island losing power completely. The power may not be fully restored for up to six months at a minimum. Meanwhile, President Trump announcing new sanctions against north korea, essentially saying nations and entities have a choice. You can do business with america or do business with north korea but not both. The president also said that china has told its banks to stop doing business with north korea. Ray dalio is the founder and cochairman of Bridgewater Associates which, over the last 40 years, has become the Worlds Largest and best performing hedge fund. Bridgewater manages about 160 billion in global assets. He is also the author of a new book which lays out the reasons why he and his firm have been as successful as they have with the hope he can help others achieve their potential. Ray, it is great to have you on the program. Its a thrill to be here. Maria thank you so much for joining us, and we know this program is somewhat special to you, because you appeared with louis 35 years ago on wall street week. Lets take a look at that. Heres a clip. You were recently quoted in an article as saying, that you gave your view on the economy, and you said i can say this with absolute certainty because i know how markets work. Ive heard that from other people before, and eventually they were buried because its a very inflexible statement. Why do you say this . No, as a trader i know youre a trader, and youre flexible there, but why in your forecast . I can say with absolute certainty if you look at the liquidity base in the corporations and the world as a whole, that theres such a reduced level of liquidity that you cant return to an era of stagflation. In other words, enough liquidity and injection, a large enough injection of liquidity to avoid an economic tumble is also enough to cause much higher levels of inflation. Its a matter of dollars and cents. Maria you said that experience was a lifechanger. Tell me. It was probably one of the most important experiences in my life. I was exactly wrong. [laughter] you know, you look at that, and i was so arrogant. Up until that point, you know, i had calculated that mexico and other countries couldnt pay their debts, and we would have a debt crisis. And that was controversial. And in august 1982, the mexico defaulted on its debts. More money, they defaulted on their debts. At that moment i thought they were headed for a collapse. That was the exact bottom in the stock market, one of the greatest bull markets of any time. And right after that i had to let go. People who i lovedded this is eight years after i started bridgewater. Maria wow. I was so broke that i had to borrow 4,000 from my dad in order to pay for my family bills. And yet so it was one of the most painful experiences of my life. And as a result of that, it also was one of the most beneficial experiences of my life because it changed my attitude from being confident and thinking im right to asking myself how do i know im right. And it made me want to have an idea meritocracy. It changed the way i made Decision Making so that i raised my probabilities of being right by having independent thinkers who would operate. So its explained in the book maria right. From that point forward, we understood how to be successful because it gave me the i hue pillty that humility that i need to balance with my audacity. It was the best moment of my life but also one of the most painful. Maria that is incredible. And what you just said was, you know, you went broke. You had to borrow money from family. How did you battle back . Take us back to that moment in time. Youre down and out, you need to borrow money. You recognize things have change around you, its not what you thought. How do you come back from that . Well, pause, i paused, and i was at the point of having to make a decision. Would i go have a job on wall street . Would i go get that, or would i continue on with going after my goals . So i had to have very deep reflections. What would i do differently in order to move forward. And so there were three things that i did differently. First, i wanted to get the best people who disagreed with me and have quality, thoughtful disagreement to see if i was missing anything. Because i was fearing being wrong. The fearing being wrong led me to find ways of improving my chances of being right by properly triangulating with others. The second thing is that i understood diversification. In other words, i wanted to make big returns. But i couldnt have those big risks. So i had to figure out how to do that. And i understood how to balance risks better without reducing my returns. Thats how we do it as explained in the book. And then the third thing is that i learned that many things that surprised me just surprised me because they hadnt happened in my lifetime before, but they happened before. So it made me study those, what happened in the past. And it led me to write down rules, principles. So one of the most powerful things that i did as a result of that was every time i would make a decision, i would write down the criteria for making the decision. And i could take those criteria, and i could take them back in history, and i could run them a hundred years in Different Countries and see how they would have worked. That was powerful. Writing down those principles and then getting in sync with others of whether they were good principles and refining them over time. Not only did it then let us build our algorithms around that maria right. In other words, when you put those principles in words, you can also convert them to algorithms which then had been invaluable in our Decision Making. It also let us have an idea meritocracy because we could agree on the making decisions. Is the Federal Reserve playing with fire . Ray dalio thinks so. The Federal Reserve has got to be extremely why dalio is warning janet yellen and the Federal Reserve to proceed with caution. All of that and more when wall all of that and more when wall you each drive a ford pickup right . all yes. Im going to show you a next generation pickup. Awesome. Lets do this. The bed is made of highstrength steel, which is less susceptible to punctures than aluminum. Stronger the better. And best of all, this new truck is actually all laughing oh my. The current chevy silverado. Current chevy owners and lessees get a total value of tenthousand, six hundred dollars. Or, 0 financing for 72 months on this silverado all star. Find new roads at your local chevy dealer. From your first sunrise to the sunset of life, we are with you through lifes journey. Social security securing today and tomorrow. Visit socialsecurity. Gov this video produced at u. S. Taxpayer expense. Welcome back to wall street week. Now more of maria bartiromos exclusive interview with bridge Water Associates founder ray dalio. Maria next week were expected to get details on the tax plan, were expecting to see some progress in terms of health care. Do you believe new policies now and these are based on principles new policies will move the needle on Economic Growth, and does that create a better backdrop for investing . I think if youre looking at the magnitudes of those changes, theyre unlikely to be gamechangers, okay . I think the real question is more what is the environment as a businessfriendly, hospitable, friendly environment to increase productivity, and i really do believe that theres a lot of potential to have the sort of changes in coding maria because of the much Better Business environment. Because we have a probusiness environment. Do we have an environment in which its okay to make new things and be innovative. But it has to include the population as a whole. Thats why, as i say, youre sort of in a situation where youll either be able to write code, or youre going to be up employed, those who write code to make algorithms. And so the potential of thinking about how do you educate people to speak that new language and then to have them employed, working next to people like myself who doesnt know how to write code maria right. Or yourself and think about how you can convert your thinking into algorithms so that this can be pervasive around the country, this could be a great potential. There are things, many things, that could be done. So i would be excited about those things, but i think that the actual changes ill give you an example. What the feds tightening for the Balance Sheet is maria right. Is about 2. 5 of gdp, okay . Thats taking a lot of money, essentially, out of the economy, okay . If we have an increase in the deficit which is fiscally stimulative, it also means that that increase, i would think, might add about another 2. 5 that has to be sold in bonds. So part of what youre having in stimulus in fiscal is being taken away by monetary. So now imagine that 5 of gdp, Something Like that, could be taken away in the form of selling more bonds. That has an implication of itself. So Monetary Policy is going to be an important consideration, i think, at this time. Maria i think you make a really good point, because we are right now at a moment in time where the economic story is gaining traction. We saw a pretty good gdp the other day, were looking at businesses trying to create more jobs. Is the Federal Reserve going to stop that recovery just when it starts to get traction . I think that the Federal Reserve has got to be extremely cautious. The risks are asymmetric. In other words, the risk of a downturn is much worse than the risk of not being able to fight inflation. And thats for a lot of reasons. First of all, theres a limitation as to how much Interest Rates can be cut. Theres a limitation of the marginal effectiveness of new quantitative easing, okay . And if you have a downturn now, youre going to have a social economic split. We have asset prices that are much more sensitive. The durations of those assets have lengthened. And if i take the price the price is all built into the curve, the Interest Rate curve. So if you take the curve, the shortterm rates, the bond yields and so on, and you take expected returns of equities and you drive that curve, thats, that curve is very sensitive throughout the curve, all assets, on what that yield is. If you raise, raise Interest Rates faster than is discounted in that curve, all asset prices suffer as a result of that. So we have asymmetric risks. We dont have much of a risk of inflation. The Federal Reserve has demonstrated for the last year and a half that everything that it has said about the rate of tightening it didnt pursue. If you look at how they said they would raise rates, they didnt raise those rates because the economy as a whole didnt operate in a way that warranted that. Maria right. When you look at inflation and you hear their conversations on inflation, they cant explain why the inflation rate hasnt risen that they have theoretically said should rise. Maria well, there is a conundrum in this country right now. Were seeing job growth, Economic Growth a little more than the last eight years, but wages arent moving. Well, i think its largely because you can see it when you look at the nittygritty level. And what were defining it as a relationship between labor and inflation. Whereas the work force, its a new work force. Maria thats right. If you think, if youre thinking about this part of the work force are essentially the robotics or the maria speaking of coding. That are now competing with other people. Maria thats right. And so its changing the nature of those jobs. So if, if youre the Federal Reserve and youre not sure you understand that and you dont yet have inflation much expectations and, besides, dont get too precise about that inflation number and you have the other downside, i think that you have to wait as you start to see the whites of inflation or at least understand why it is that youre going to be doing that. Maria yeah. So im concerned about the feds rate of tightening. I dont think that they will actually be able to tighten at that rate that theyre telling you. Ray dalio is one of the most Secretive Hedge Fund billionaires in the world, but now hes ready to dish out his secret sauce next on wall about every 3 minutes, someone in america is diagnosed with a blood cancer. When you or someone you love hear the words, you have cancer, its one of the darkest days of your life. Light the night, the leukemia lymphoma societys awardwinning community event, brings light to the darkness of cancer. Families, friends and coworkers form teams to raise funds for cancer treatments and cures. The light and warmth we generate brings hope in place of despair, community instead of loneliness, and lifesaving research and support for Cancer Patients and their families. Light the night is a remembrance, a celebration and a rallying cry to help fund critical advances in the fight against cancer. Our goal is a World Without blood cancers, and were lighting the path to cures. Help defeat the darkness of cancer join light the night today. Music you fill up my senses like a sleepy blue ocean you fill up my senses come fill me again wall street week is back with more of maria bartiromos exclusive interview with Bridgewater Associates founder ray dalio. Maria is it the macro story thats still driving Decision Making around the world for you . A lot of conversation recently about emerging market, that theyve been on a run, and that may continue. Europe, not sure. I want to get your thoughts on some of these markets and whether or not there are opportunities to go long. Okay, sure. Well, the United States in terms of pricing and everything is much ahead of the rest of the world. In terms of, also, the cycle. So that if you look at europe and the relative pricing of assets and where they are in their cycle, okay, i think theres greater value in europe, generally speaking. Were moving fast maria even after the euro had the year that it had. Thats right. In terms of, lets say, the companies. But you also have to play the currency different from the you have to think currency hedge, so when i refer to them, i refer currency hedge, but you can do it either way. Maria got it. So if we take that, so europe is more attractive. Ill go to china and asia, okay . Maria great. China is and has been facing four major issues. It has, needs to have a debt restructuring, its in the process of having a debt restructuring, it needs to have an economic restructuring, its in the process of doing that. It has to have a Capital Markets development and restructuring. Its in the process of doing that maria these take a long time. And balance of payments. Every country has been through those, okay . The circumstances in china United States had three times the defaulted on its debts, three debt crises that i remember. A balance of payment crises and so on on. But when i look at that, if a countrys debt is denominated in its own currency and they have capable leadership, you know how to restructure those Balance Sheets. You can always put it on the Balance Sheet. Thats how we succeeded. The Central Banks bought, essentially, 14 trillion worth of assets that they took onto the Balance Sheet. So china can manage all of those things, and its going to have and its developing these new economies. So im very optimistic about china, though it will be going through, now after the 19th peoples congress, itll be going through what im calling a squeezing of the bubble. And that will have a bit of an effect. Maria let me ask you this, because you talk about asia. What do you do with a threat like north korea . I mean, here you are allocating capital to these growth stories in the world, and then youve got the unknown, something you cant control, in north korea. How do you approach that . North korea or iraq war or World Trade Center or kennedy assassination, cuban missile crisis, you can name these things all along. These are the things that you, you know, you dont know about. You cant play those things, i think, well. The earthquake, the crash, okay . What might happen. Many all of those in all of those things, theres beta and theres alpha. Beta is what your strategic allocation mix is. Do i have balance in that. In other words, no systematic risks. In terms of risk on or risk off. The same is true for alphas. Can i have my alphas so that i have a balance of those alphas so that i dont have those risks . That ability to not be exposed, in other words or do you want to make your portfolio all dependent on riskon, riskoff . Maria you cant do that. I mean, the traditional you cant do that. The traditional form of Asset Allocation which is Something Like a 60 40 portfolio, and on a day to day basis you can see risk on, risk off. Okay, is that it . Do you want to go through a 2008 again . I dont know. You know, these are things. So balance, you can have balanced beta and balanced alpha, and thats, i think, what you have to do. Maria you just said china looks good, it is not bubble hot. Is the u. S. . No, the u. S. Isnt bubble hot. Unlike 2007 when we looked at 2008, we could see at the time when we did the calculations of individuals, companies and so on, we could see that they were not going to have the cash flows to service their debts. Thats not the case now. In terms of changes in Balance Sheets of blanks, at corporations of banks, at corporations and so on. There is a financial arbitrage going on now. What it means is companies are liking at the return of equity are looking at the return of ec questionty in relationship to the Interest Rates that they have and then with the similar duration, theyre saying i can produce that return on equity, and i can fund it by this. And so were having buybacks, more buybacks, debtfinanced buybacks. But if i look at the problem in terms of paying that debt, its not a problem. For a number of reasons. Not only is it funded better, but also the maturities of the debts have been lengthened, and the average Interest Rate is lower. So if you do the cash flows and you say what is the Debt Service Payment that can be made, i dont see those problems ahead as systematic problems. That doesnt mean there are not bits and pieces here, but its not anything like that. Maria ray, an incredible amount of insight from you. Thank you for your leadership, thank you for the book. Good to see you. Good to see you. Maria thank you so much for joining us, the author of principles, check it out. Ray dalio, Bridgewater Associates founder. More wall street week right more wall street week right sfx loud poorly played electric guitar that sounds awful seriously, awful but a lot better than last week rock guitar music we werent born to follow maria now a look at some of the big market events coming up in the week ahead that could impact your money, and we want to look at the economic stories of the week. Housing data, new home sales, caseshiller home price index are all due out in the week ahead. Also on the docket, consumer confidence. That typically is a market mover. Second quarter gdp numbers and personal income all in the week ahead. Turning to earnings, nike is going to be reporting its quarterly numbers on tuesday, then later on in the week pier one will report as well as blackberry and rite aid, all among the earnings stories. On the political front, President Trump is expected to give a speech in indiana next to champion tax reform. Then on wednesday the republicans are expected to release the framework for tax reform. They are talking about a 1. 5 trillion tax cut. Well get all the details next week. I suspect were going to see a move down to 20 in the corporate rate. Mornings with maria will be live from washington on wednesday, so join me from 69 a. M. Eastern right here on on the fox business network. Coming up next week, youll want to be here. Well talk with kathy ireland. Shes going to tell us how she created this Small Business and went from model to mogul. So join us. And ill see you sunday morning on the fox news channel, sunday morning futures. Weve got a big program as we look ahead to the tax cut plan. Thatll do it for us right here on wall street week. Thanks so much for joining us. Property man begins right now. Im bob massi. For 35 years, ive been practicing law and living in las vegas, ground zero for the american realestate crisis. But it wasnt just vegas that was hit hard. 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