Dalio's warning: The AI bubble has arrived, gold is the hard currency

Editor's Note: Ray Dalio, the founder of Bridgewater Associates, recently participated in an in-depth interview on the well-known business podcast The Diary Of A CEO, discussing his views on the AI bubble, the 80-year economic cycle, and Bitcoin. In the interview, Dalio revealed why we are currently in an AI bubble and outlined three major signs that the bubble is about to burst. He also believes that while capitalists will be the biggest beneficiaries of the AI revolution, those with exceptional human intelligence who can collaborate with others will still excel in the future. Odaily Planet Daily has compiled the core content of Dalio's interview as follows, enjoy～

Learning from History: How is the AI Bubble Formed?

The bubble that people often refer to is characterized by a significant rise in prices, impressive company performance, and then the bubble bursts, impacting the economy and the market, leading to a great depression, such as the bubble of 1929 or the internet bubble of 2000.

This situation occurs when a revolutionary new technology emerges. During the internet bubble, we also had astonishing new technologies, and everyone bet that they would surely succeed, leading to a rush to invest, even going so far as to take out loans to invest, but they overlooked the importance of price, and ultimately the price skyrocketed, creating a bubble.

Now we are equally excited about AI, and we should be very excited because it will bring revolutionary changes, and it indeed has. So everyone wants to invest in it, but they still overlook the price. This is a similar mechanism hidden within different cycles.

In economic bubbles, people will go into debt to invest heavily; you will see many people becoming wealthy, but wealth does not equate to real money because they cannot spend that wealth. When they must sell their wealth to obtain money, it will depreciate. So, when they need money for some reason, such as tax changes, rising interest rates, or debt repayment, the bubble will start to burst, and the market will decline.

When the bubble bursts, the process of wealth accumulation will operate in reverse because when they made a lot of money, they had many high-value assets to use as collateral for loans, and this compounding effect would continue, but when the bubble bursts, this process will also reverse.

Economic recessions usually occur after the bubble bursts because when people start repaying debts and selling assets, consumer demand will decrease, and spending will naturally decline.

For example, during the Great Depression in the United States, the late 1920s were a period of prosperity; for the first time, households were electrified, refrigerators and lighting entered homes, and cars, airplanes, and radios became widespread. Everyone believed these technological products would have great potential in the future. However, at the same time, as people continuously bought assets and stock prices kept rising, they also leveraged to borrow money to buy stocks, and ultimately, corporate profits could not support the corresponding stock prices, triggering a chain reaction that ultimately led to the Great Depression.

What I mean is that in these massive trend changes, people know very little, and anyone involved in the AI field cannot plan accurately. They have no idea how much revenue the future can generate, leading to two outcomes: either insufficient investment, falling far behind competitors; or massive investment, yet still unable to achieve precise control, and when this happens, problems will arise.

Three Major Signs of a Bubble Bursting

In the early stages, the factors that burst the bubble are often situations that force people to liquidate some assets to realize cash, and this is generally due to rising interest rates. It could also be policies like wealth taxes, but overall it is a tightening of the financial environment. Because at this stage, there is often inflationary pressure, and central banks will decide to tighten monetary policy. Thus, when interest rates rise, the returns investors can earn from holding bonds will exceed the returns from equity investments.

Additionally, there is a significant increase in stock issuance. We have been discussing how demand drives up stock prices and how wealth is created, but there is also a supply side in the market; companies can issue stocks, and there is almost nothing easier than issuing stocks to create wealth. Nowadays, people can even directly announce they are starting a company and pushing for its listing, and then they can tell their audience that they will issue stocks. It is this massive supply of stocks and the increased fundraising needs of other companies that will ultimately lead to the bubble bursting.

Another very typical way to judge the degree of a bubble is to look at the shareholders of these companies and see whether the chips are held by committed investors or by uncertain retail investors. But I must also emphasize that bubbles are not simply black and white; it is a matter of degree.

A typical characteristic of uncertain chips is a large influx of retail investors lacking professional knowledge, especially through leveraged means; they either borrow to trade stocks or buy leveraged financial products. For example, there are now leveraged ETFs tracking the stock market, and participating in such products is essentially no different from gambling with dice.

All of the above are major signs that a bubble will burst. When the bubble bursts, panic will occur in the market, leading to a large amount of asset liquidation. Conversely, at this time, all assets will become cheap, and everyone will be able to afford them.

However, in investing, people always like to seize the opportunity and speculate too early, and this behavior often further fuels the bubble. So I would like to add that the future is full of uncertainty, and investors should not "time the market"; even experienced investors find it challenging to accurately grasp the timing of a bubble burst, so the best investment strategy in the face of a bubble is diversification.

Responding to Bubble Bursts through Diversification

Ordinary people often believe that cash deposits are the safest asset, but in the long run, this is the worst investment because inflation will devalue it.

Apart from the stock market, there are actually many assets investors can choose from, such as gold, bonds, real estate, and Bitcoin. Their values will fluctuate for various reasons; typically, when gold rises, bonds tend to fall, and real estate may also depreciate, following certain patterns.

Therefore, the best practice is to build a diversified investment portfolio, which not only does not reduce returns but actually reduces risk. Diversification means holding a certain proportion of each asset, and due to different volatilities, investors must know how to balance them. My suggestion is to start by investing in real assets, which is gold.

Gold is very interesting because when all assets perform poorly, gold often performs well; it is a very effective diversification tool. Gold cannot be hacked by technology; you can hold it and own it; it is the only financial asset that is not someone else's liability.

So for most people, if they want to ensure they have some "hard currency," then gold should account for 5% to 15% of their investment portfolio.

Views on Bitcoin

Some investors view Bitcoin as "digital gold," but I prefer investing in real gold bars rather than Bitcoin.

Bitcoin is merely an asset similar to gold; it is also a form of currency that cannot be printed, but some technologies may harm it. For example, if quantum computing emerges and the government can monitor it, it may be taxed; any digital currency is somewhat similar in this regard.

Moreover, when the government says, "I don't need Bitcoin," they have the right to dispose of it at will. Central banks also will not hold large amounts of such assets because they need to ensure the privacy of their transactions while keeping control firmly in their hands. Just look at the situation in Russia; their other various assets have been confiscated/frozen, but that gold is untouchable by others.

Who Benefits Most from the AI Revolution?

In this AI revolution, only a very small number of people (less than one percent of the total population) possess cutting-edge technology and can apply and accelerate its development. For others, if you are engaged in a job that requires thinking, you are at risk of being replaced.

We are entering a world where everything can be automated. The evolution of humanity began in the agricultural era, where there was almost no real innovation. Later, humans invented machines, which replaced human physical labor. In the past, people worked in the fields like oxen, and later they were replaced by tractors. Then we entered the industrial age, where the invention of the printing press allowed people to learn knowledge, followed by a surge of inventions, leading to the first industrial revolution, where machines began to replace human physical labor in factories, and so on.

Therefore, in my view, it is as if machines first replaced human physical functions, then the levels of replacement became higher, and then they began to replace parts of human thinking that could be computerized, and this trend continues to develop, gradually replacing higher-order thinking and reasoning abilities. This developmental trajectory is part of an ongoing evolutionary process.

The ultimate beneficiaries are those capitalists who have the idea of replacing workers; for example, when people shop in stores, businesses earn income, but if you look at the share allocated to workers, you will find that this share is declining, while the share allocated to businesses is increasing. So we are experiencing a phase where, on one hand, the top tier is creating astonishing wealth; on the other hand, the lower tier is facing immense pressure.

This is the challenge we face. Although the economic situation is relatively good, the difficulty for college graduates to find jobs has significantly increased. For instance, new graduates need training for jobs, and now many jobs can be quickly completed through AI and computerization. With the advancement of robotics technology, this situation will worsen; the speed of disruptive change we are witnessing now is due to a massive influx of funds into cutting-edge AI models like Anthropic and OpenAI.

At the same time, the wealth gap is widening because capitalism, although I love capitalism, creates significant disparities in income and wealth. When the thoughts and bodies of workers are replaced, what can they sell as humans?

However, there is no need to be too pessimistic; humans still possess emotions and intuition, and there are some services that AI cannot provide. So, if we want to explore what these "services" are, for example, can robots provide a good massage SPA? What else is left for people to explore? In short, I believe that in the foreseeable future, those with exceptional human intelligence who can collaborate with others will still excel.

About the 80-Year Economic Cycle

I have previously mentioned that the change in world order occurs approximately every 80 years, but this number is not absolutely precise; the length of its cycle has an average fluctuation range, just like human lifespan, where each person's life expectancy or lifespan varies.

I will not overly emphasize the length of time; I will focus more on the current situation. Based on symptoms or related indicators, where are we currently in this process? Where will the next important node appear?

The answer is right around the time frame we are currently in.