Video summary
Ray Dalio warns that a global collapse has already begun, driven by long-term economic forces rather than isolated political events like the Greenland dispute. The primary catalyst is the breakdown of the monetary order and declining confidence in paper currencies and debt as stores of wealth. This shift was triggered recently when Japan's yen carry trade, which had fueled the global economy for decades using cheap Japanese government bonds, began to unravel. As interest rates climbed on Japan's massive 7.6 trillion-dollar bond market, yields hit multi-decade highs because investors were panic-selling assets due to fears that debt is mispriced or unstable. This sell-off forced prices down and yields up in a counterintuitive move designed to entice buyers back into the market, but it signaled a broader loss of trust in these safe-haven instruments. The impact of this Japanese instability was immediately visible in global markets, particularly Bitcoin, which dropped below key psychological levels around $89,000 perfectly synchronously with news from Japan rather than unrelated political headlines like those regarding Greenland or Trump's posture toward Europe. The extended crypto market drawdown wiped out approximately 150 billion dollars in valuation as investors fled risk-on assets. This event highlights how interconnected global financial markets are; entities often borrow cheap Japanese yen to invest in high-yield US stocks, such as Nvidia, expecting a profit margin between the low borrowing cost and high stock returns. However, when Japan's debt costs rise or market yields turn negative, these leveraged positions become dangerous, forcing investors into panic selling to avoid being liquidated by their brokers who automatically sell assets if collateral requirements are not met. For ordinary individuals, often described as "pizza flippers" in the transcript, this macroeconomic shift translates directly into reduced purchasing power and a tightening of credit availability. The mechanism works similarly to children no longer having access to free money from parents; when debt becomes expensive or unavailable, people stop spending on non-essentials like pepperoni pizza and retreat to necessities only. This withdrawal of liquidity causes stock prices to tumble further because the market is essentially a casino where assets are worth whatever price someone else is willing to pay in that moment of fear. When investors panic sell due to uncertainty about whether an asset will recover or remain underwater, it triggers cascading liquidations at AI-speed execution levels, potentially wiping out entire net worths for those trapped with margin debt who cannot exit before their accounts go negative. In response to this instability and the breakdown of trust in traditional currencies, Dalio advises a mental framework focused on diversification across different economic forces rather than trying to predict specific future events like wars or political shifts. He suggests that gold remains a reliable store of value during uncertainty because it cannot be inflated away, while Bitcoin offers similar protection with added benefits of decentralization and ease of movement compared to physical bullion. Dalio notes historical examples where governments have seized assets, making decentralized digital money attractive in times when state stability is questionable, such as the rapid adoption of crypto by protesters facing suppression in Iran. His own portfolio strategy involves holding short-term US government debt while gradually migrating into commodities like gold and silver mining stocks, which he views as having intrinsic industrial value tied to high-tech manufacturing rather than just speculative price movements. Ultimately, Dalio emphasizes that protecting oneself from economic instability requires a pragmatic approach accessible even to those with limited capital, countering the notion that one needs vast wealth to participate in markets. He encourages individuals to save money frugally over long periods, citing the story of a millionaire janitor who retired through small, consistent contributions and compounding interest rather than "getting rich quick." The most guaranteed return available is paying off high-interest debt like credit cards at 23%, which effectively yields that same percentage back into one's pocket. While he acknowledges the emotional difficulty of saving when facing family responsibilities or economic pain, he insists that finding a way to sock away money and invest in productive assets like commodities is essential for survival against inflation and market volatility, urging everyone to formulate their own risk management strategies rather than blindly following others' advice.
Read the full video transcript
Ray Dalio is calling it. The monetary
order is breaking down and we're now on
the brink of war both internal and
external. This is due to economic forces
the world over that repeat throughout
history. It includes a decline in
confidence in paper currencies and debt
as a category and they no longer view it
as a good store of wealth. The first
chip kind of fell yesterday when the
stock market lost over 1.3 trillion
dollars in value. Some people are
claiming that this is about Trump and
Greenland. It is not. That comes later.
That is a problem. It's a big problem
and it's going to rear its ugly head and
it is going to be I'm sure similarly
catastrophic. This just isn't the effect
of that. This is about long-term
economic forces that are finally
spilling over in Japan. The Japanese yen
carry trade, which we have talked about
before, has been fueling the global
economy for decades. I was saying debt
fuels this stuff. Well, you've got to
have somewhere that's giving you debt at
great rates and that somewhere has been
Japan. And as rates climb, it's forcing
people to sell off other assets that
they bought on previously cheap Japanese
debt. Japan's approximately 7.6
trillion-dollar government bond market
experienced sharp yield rises with
long-dated yields hitting multi-decade
highs. Now, this can be
counterintuitive.
As the bond yields go up, the price is
coming down and as the bond price goes
up, the yields are coming down. What
happens is if people know that oh, you
can really trust this, you're going to
get paid back over time, then the yield
of that is going to be low. They don't
have to to
anybody to pick up that debt because
it's like, "Hey, this is a super super
safe place."
As people become concerned that the debt
is mispriced or that there's
instability, then the price is going to
go up because they have to find or the
yields are going to go up because they
have to find a way to get people to come
in and buy this. But to make the yield
high, the price has to be low. So, what
you're seeing is the um
the prices of Japanese bonds are
dropping like crazy so that the yield
can go up to entice people to come in.
So, basically, people are panic selling
their bonds and they're getting out of
the Japanese
debt game.
Now, part of how I know this is true is
because of the price action in Bitcoin.
The important thing to understand is
Bitcoin trades 24/7 365 without delay.
So, you can see far more accurately what
it's based on because the US stock
market was shut for the holiday weekend.
And the Bitcoin price dropped right
around the sell-off of the Japanese yen.
So, Bitcoin fell below key psychological
levels of the 89,000-ish
range during the sell-off.
Now,
if this had been a Greenland problem,
you would have seen Bitcoin and the
markets react to the news on Greenland,
but they didn't. They end up reacting to
the news on Japan.
Now, the extended crypto market drawdown
wiped out about 150 billion in valuation
with Bitcoin leading the decline. So, um
keep that in mind. Bitcoin's drop didn't
drop with the news about Greenland. It
was just perfectly synchronous with the
news coming out of Japan.
So, uh again, this is not me saying that
Trump's attitude posture towards
Greenland, towards Europe isn't going to
have problems. It is. This just isn't
that one. For the dude who's making
pizzas in the back of the pizza shop and
has 10k in the bank, he heard all of
that and he was like, "Hey, Tom."
>> Damn, first of all, if the homeboy
making pizzas has 10k in the account,
this is my man. If he owns a pizza shop,
I feel like he owns I feel like he needs
a little bit more operating capital.
>> hear the word own. I I saw him in
[laughter] the back like clocking $7 an
hour. Okay.
>> so when he hears all this, he was like,
"Yeah, this is cool, Tom, but like I
need to worry about these pepperonis."
What does this actually mean
practically? Like if you can sum it up
in two, three sentences, I appreciate
the expanse and thank you for the The
econ bros are like, "Yes, we got it.
We'll go do it." But for, you know, the
pizza flippers, what's Give it to us
kind of in a in the Lego uh explain it
to me like I'm five way. If you can
borrow money
from mom and dad,
uh and you can go buy pizza toys,
whatever you want. So a lot of people
are going to come in and buy that
pepperoni pizza from you.
When the kids can't borrow money from
mom and dad anymore and now they got to
work like a whole lot of chores for a
lot less pay,
all of the sudden, they're not splashing
out on pizza. It's It's only Nintendo
and Fortnite. And pizza got to go.
So, now
everybody is going to feel that pinch of
there's just less dollars. People feel
Not only do Not only are people less
rich, meaning they have less access to
money, even if it's debt,
uh but they feel less rich. Got it. And
so now they start acting in a way where
it's like, "Ah, I don't want to spend
this money."
All right, I'm I'm a ground this again.
So, a couple of There was a couple
workers in the chat that was like,
"Dude, that's me." So, thank you for
asking. I was like, "All right." So, we
grounded that. When there's not enough a
lot of free money splashing around,
people withdraw. So, that's why the
stock market pulled in. Well, people
actually So, the nature of the debt
changes.
People realize, "Uh-oh, I've got to pay
back my Japanese debt now because I
can't make the delta anymore. Yeah. So
now I'm at risk. So I've got to sell,
but I've got to sell now.
Whenever you have to sell now, odds are
you're going to sell at a discount.
When you start selling at a discount, it
sends like
economic pheromones into the world and
people realize, "Uh-oh, people are
selling at a discount. Something bad is
happening. I'm going to sell now so I
can get the hell out." And you see these
huge dips because people are thinking
short-term. Mhm. People start panic
selling and because most of the people
in the market are trading on uh margin,
so debt,
$1.2 trillion of margin exists in
That debt has requirements that, "Hey,
in your Robinhood account or wherever
you're doing it, you have to have at
least this much in collateral." "If you
don't, don't worry, Drew. I'm just going
to auto sell the things in your account
to make sure that I, Robinhood, am
fine."
It's called being liquidated.
And so
if
the numbers get off in your account, you
could lose everything. Literally
instantaneously at the speed that AI can
detect, do the transfer, and now poof,
it's all gone. Mhm. Uh so and by the
way, if that trade doesn't happen fast
enough, you can find yourself upside
down. Because it can go into the
negative where we weren't able to sell
your assets, but you still owe us the
money.
>> owe me money. Now on the US side, we're
seeing the US Treasury bond markets to
start to rise and some people are saying
those two things are tied. Um Scott
Bessent talked about it yesterday.
You're going to see how interconnected
the global financial markets are. Mhm.
And so people will borrow Japanese yen
and invest in Nvidia as one very real,
very concrete example. Because Nvidia's
like just returning like crazy. people
think this is going to last forever. So,
they take that money out and they put it
into Nvidia. Borrowing from Japan cost
me 2% Nvidia gives me 30% returns. I pay
the 2% off. I walk away with that delta.
>> Correct. And so, when I become upside
down because either the rate of the yen
that I have to pay back is now higher
than the delta that I'm making, or I
look at the market and I see, "Uh-oh,
the thing that I was counting on giving
me a yield is actually negative. So, now
I'm going to owe that debt
and I'm trapped in the market. So, the
question is, do I panic sell and take a
big loss uh on what I bought it for, but
I can still pay back my debt, or do I
hope that uh
fingers crossed that we don't stay in
this position and I've got plenty of
time to go back and pay that off later?"
And so, people start selling because
they think, "Well, I've already made a
bunch of money, so I don't need to make
more, but I cannot have the exposure of
the debt in Japan because I don't know
where this is going to stop. And if this
is Japan essentially collapsing
economically, well, this may go like
that for 5 to 10 years. And so, it's not
like I have any safety guarantees
whatsoever. So, I'm underwater on
Nvidia, but I'm still ahead of my debt,
so let me liquidate,
lost a bit, but I'm not going to be
negative in my account. I'll pay off my
debt. I'm good." But, that then causes a
cascade in the value of Nvidia. Mhm. And
because people do not understand that
the stock market is a casino, they don't
realize that this is all just paper
value.
It it's worth whatever somebody says
it's worth. Not a dollar more, not a
dollar less. Mhm. And so, when people
panic, for that period of time, it's
really worth less.
And so, people can get trapped. They get
emotional because they don't know, "Is
this going to be down forever, or is
this going to be down for 24 hours?" So,
they panic sell. And then that drives
the cost the price down even more. It
starts liquidating more people because
the value of their stock, which is on
AI's
light speed level is like well, you dip
below the liquidation point for a
millisecond. Tough. It triggers a
cascade of events where you get wiped
out. And so that's how the red just
tumbles and it keeps getting worse and
worse and worse and worse and worse
until basically everybody's liquidated
and then it stabilizes again. But then
that's a lot of people that just got in
some cases lost their entire net worth.
>> Yeah. So out of that 1.5 trillion, these
are actual portfolio accounts and things
that are kind of impacting the market.
>> this is why I'm as I tried to wrap my
head around the stock market um
it always pissed people off, but I would
say wait, this is like trading baseball
cards. That was my first understanding
of it in my 20s and everyone laughed at
me. Ah ha ha ha.
And now the more I learn about it, it's
like that curve. It's like idiot says
this is like baseball cards. Guy in the
middle is like you don't understand how
sophisticated this is. And then the guy
that actually understands it is like
this is like trading baseball cards.
Yeah, I've gone on that journey. This is
like trading baseball cards. This is a
casino. They are only worth what people
say they're worth. Um even something
that pays dividends can trade below what
you would make just collecting the money
off the dividends. Doesn't matter.
It it only trades at the price that
people are willing to pay. That means
this is a psychological game. That means
you are gambling on what the emotional
state of people is going to be. Period.
End of story.
Anyone that says any different than that
is [ __ ] lying to you.
Now or they just don't understand it.
Which I will never
>> They're lying to themselves based off
the story that everybody somebody else
told them. So Now the stock market has
huge advantages. It's good. It's
amazing. Debt has huge advantages. It's
good. It's amazing. Yeah. But oh my god,
this stuff becomes a problem.
>> The Japanese bond market breaks. US
stocks are going to take a tumble. Are
is the S&P 500 dead? Should we go to
gold? I have 6 months of cash in my bank
account. Should I leave that in there?
Should I move it? I I will walk people
through the way to think about it, the
mental framework.
I'll tell you what I'm doing. I do not
advise people to attach their boat to my
way of thinking. They need to formulate
their own way of thinking.
That way we don't both get wiped out
should I be making poor decisions.
But it goes like this. So what do we do
in a time where countries don't trust
each other? So the world order is
unstable. I don't know who's going to be
friends today and who's going to be
friends tomorrow. I don't know if people
are going to war. I don't know what
that's going to do.
I don't trust people to pay back their
debt. So you start setting the table
like that and you go, "Okay, well, in
times of massive uncertainty, what are
the usual plays?" One,
recognize with massive humility that you
cannot predict the future well. So you
want to have a diversified portfolio
that diversifies across economic forces.
So what are the economic forces? You've
got things like high risk. So when
you've got high risk, you've got a lot
of volatility. That's going to be the
area that pulls back first. That's why
you see these lightning crashes in the
price of the stock market in a way that
you're probably not going to see in
something like gold. Gold typically
isn't going to go up super fast. It's
not going to go down super fast. Not by
huge swings because what gold has shown
over time is in times of uncertainty,
people will go there not because they
expect a massive return. They go there
to protect themselves against inflation.
And so they're just moving to that
saying, "This is where you park your
money when you're like, I don't know
what the [ __ ] going to happen." So it
is as close to I'm going to bury my
money in the backyard as you're going to
get. But I want to bury my money in the
backyard in a way that it can't be
inflated away.
So cool. Gold has been that forever.
Bitcoin is trying to be that. Bitcoin
trades more like a tech stock right now,
but I think that it's got long-term
legs, but that's a me thing. So, people
need to be thoughtful. They need to
formulate their own opinion about what
they think about how the human mind is
going to react to Bitcoin. I have a
thing that says the world is only
getting more technical. Um when you
start thinking about wanting AI to be
able to do whatever the hell you want it
to do, you're going to give it digital
money. You don't want that digital money
to be owned by the government. I think
everybody sees now, people alive today
will see how rapidly a government can
become unstable. And so, I think they're
going to go, "Yeah, don't want anything
controlled by the government. Government
has a history of seizing gold." Uh when
protesters started getting shot in Iran,
the price of Bitcoin went skyrocketing
there because they just started gobbling
up as much as they could. Uh and so,
it's like, and sorry, prices aren't
local. They started buying rapidly
there.
>> It it was it outdid the local currency.
Yeah.
>> So, um
they
I think people will look at that and go,
"Hm, this is decentralized. I like
that." Uh it's far easier to move than
physical gold. That's my beef with
physical gold. Um also, I feel like I
can {quote} see it. Whereas gold, I'm
just taking somebody's word. No, no, no,
you really do own physical gold, Tom.
It's all good. So, I'm like, uh So,
anyway, you start doing that. So, um my
portfolio looks like I still own quite a
bit of debt, but it's all
extraordinarily short-term. It's all US
debt primarily, though I do have some
corporate, but I've been slowly backing
out of that for the last year. Um the
reason there is that I know that they'll
at least print money to cover that. And
so, at least US government debt is
saying every holder of dollars will
suffer as Tom suffers. So, I'm like,
okay, like there's some balancing thing
there. Um but I am going to be migrating
more and more out of that into things
like uh
gold, gold mining stocks, silver, silver
mining stocks. Um
Bitcoin I'm already massively deployed,
ETH I'm already massively deployed, but
I might start picking up some more
there. Um international
uh exchanges so that I'm I'm still in um
risk-on markets cuz I think that's
important because you don't want to miss
out on something that goes up because
again, I don't think I can see the
future clearly.
>> [snorts]
>> Uh I'll stay in the US just not overly
indexed on the US.
Um and just try as much as possible to
spread my risk around with a profile
that looks like somebody who is paranoid
that the world order is no longer
stable. Do you do any money markets like
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show. Well, no, no, no, it's all in
short-term government debt. So,
treasuries, bonds. Individual 401k.
>> by the way, just I saw one question in
the chat that So, they're like, "Okay,
good for you, but what about us?" Um
that is for you guys. So, this is where
I am always emotionally traumatized that
people do not think that they have
enough money to invest in the stock
market. And you
downgrade your life in whatever way you
need to in order to start saving money.
And listen, I understand if you've got
kids and all that, the emotional pain of
that may be worse than just dealing
rolling the dice on economic
uncertainty. I totally get that. I've
got nothing but empathy for it.
Um but
no matter what, you need to find a way
to save money for your own emotional
reasons.
Uh everybody hopefully at this point
knows the story of the janitor who
retired a millionaire because he just
lived super frugally and socked away,
you know, whatever,
uh $25 out of every paycheck. I forget
what it was, but it was a ridiculously
small amount of money, but over the 40
years that he worked, that compounding
interest became incredible. Yeah. And
so, when you're playing uh 40-year game,
then you really can start to make money.
Getting rich quick is not going to
happen. So, right now
the thing that I would most aggressively
people to form a mental model around is
how do I protect myself from
instability? Mhm. And the things that
protect from instability are the things
that we've been talking about. They are
going to be uh commodities, productive
assets. And part of the reason that
commodities like gold are so important
is there's no counterparty risk, or at
least you can limit it.
Um so,
that Bitcoin again. So, don't buy silver
now because it's hot. Don't buy silver
now thinking that it's going to go up in
price. Buy silver now because you have a
mental model that goes something like uh
60 to 70% of the value of silver is
determined by industrial use. It's used
in high-tech manufacturing. It's going
to be important in robotics and AI.
Therefore, it's likely to maintain its
value. That this is not a thing that
people can just one day go, "No, we
don't care about silver anymore." So, if
I had money in silver, while
the price may not go up and it may even
go down, it's not going to go down if
inflation all hell breaks loose and
inflation goes crazy. That's going to
probably remain relatively stable. It
will have drawbacks as all things do,
but that's probably going to be
relatively stable. When you think about
inflation can get into the double
digits,
that's where that kind of thing gets
scary. So, I don't know what other words
to say to people other than I get it.
Like if you don't have a lot of money, I
understand that you're going to be
deploying small amounts of money to the
things that I said.
But part of what makes the stock market
the magically delicious thing that it
is, you can buy a fraction of a share.
So, get in. There's such things as penny
stocks. Not that I'm advising that. I'm
just saying that for somebody to say
they can't get into the market because
they don't make a lot of money is
nonsensical and is exactly how you get
wiped out because you're not looking at,
"Okay, well, how do I how do I put $100
into gold?" Whatever.
But find ways to start socking away some
money and protect yourself as much as
possible from inflation.
Um and Mark Cuban said it best, uh the
most guaranteed return you can do is pay
off debt. Cuz if you're paying 23% on a
credit card, you get 23% returns if you
just pay your credit card off. And that
money could go into your pocket instead
of to Capital One, American Express,
wherever you send it to. So. Yes. And I
agree. I have penny stocks should not
have even come out of my mouth. I am not
telling people to buy penny stocks.