The changing world order in the U.S. election, is Ray Dalio suggesting investors to exit first?

Founder of Bridgewater Associates, Ray Dalio, shares his views on "The Changing World Order" at a crucial moment during the U.S. presidential election, hoping to guide investors to navigate future uncertainties with good principles. He also indicates that this election will test whether the U.S. can undergo a smooth transition of power and if not, whether foreign powers may attempt to take advantage of a weakened America.

The United States at a Critical Moment in the Cycle

In his book "Principles for Dealing with the Changing World Order," Dalio helps readers understand the laws of history, learn from the past, and hopefully find better ways to deal with the future.

He divides the rise and fall of empires into six stages, stating that former British Empire, present-day America, and China are all going through the same cycle. He believes that the United States is currently at a critical moment in the fifth stage of the cycle, on the edge of the sixth stage, with abnormally high risks. While he is not asserting that the U.S. is on the brink of these conflicts, he believes the likelihood is lower that they won't happen. However, Dalio emphasizes the importance of continuously monitoring and being prepared when they occur, which has always been his consistent idea and position.

What Happens at the End of Stage Five?

In the later stages of the fifth stage, protests increase and become increasingly violent. As there is not always a clear boundary between benign protests and the beginning of a revolution, leaders often have to balance allowing protests without giving freedom to resist. Leaders must handle this delicately, as when demonstrations transition into revolutions, they face the typical dilemma of allowing protest freedom and suppressing protests, both of which carry risks for leaders and could lead to a powerful revolution capable of overthrowing the system.

When widespread discontent emerges and authorities allow it to grow, it can boil over until it explodes when authorities try to cover it up. Conflicts in the later stages of the fifth stage typically reach a climax, sparking violent battles, signifying the transition to what historians mark as the formal period of civil war, which Dalio refers to as the sixth stage in the grand cycle.

Flaws of Democratic Nations

Dalio believes that the "one person, one vote" democratic process has a flaw where leaders are elected through popularity contests, and the people do not typically scrutinize their abilities as carefully as most organizations would when seeking suitable candidates. Democracy requires consensus decision-making and compromises, necessitating cooperation among many individuals with different viewpoints within the system. This ensures that parties with significant constituencies are represented, but like all large committees composed of individuals with differing views, and possibly even mutual dislike, the decision-making system is not very efficient.

The biggest risk in democratic nations is that they may produce such dispersed and antagonistic decisions that render them ineffective, leading to poor outcomes and potentially resulting in revolutions led by populist dictators representing the majority of people hoping for a robust democracy.

Civil wars are inevitably going to happen, so it is better to remain vigilant rather than assume "civil war won't happen here," as most people in most countries tend to think after long periods without civil war.

Who is the Most Suitable Leader?

Dalio believes that different stages require different types of leaders to achieve the best outcomes. Leaders who perform best in the first stage are "consolidators of power," with his ideal examples being Tang Taizong of China and Napoleon of France.

The fifth stage is a turning point where one path could lead to civil war/revolution, while the other could potentially lead to peaceful coexistence and prosperity in an ideal scenario. Clearly, the path to peace and prosperity is ideal but harder to achieve. This path requires a "strong peace-maker" who will spare no effort to unite the nation, engage with the other side, involve them in decision-making, and reshape the order in a way that is considered fair and functional by the majority. Examples of such cases in history are rare. In a previous interview, he bluntly stated that neither Republican nor Democratic candidates are what the country needs.

Bridgewater Associates founder warns the U.S. is on the eve of a civil war, Ray Dalio: the most important election of my life

Should You Exit the Market First?

Dalio concludes with another one of his principles:

When in doubt, get out. If you don't want to get involved in a civil war or war, you should take your gains and leave. This typically happens in the later stages of the fifth stage. History has shown that when things go bad, the exit doors usually close. This applies to investments and currencies as well, as countries may implement capital controls and other measures during this period.

He also notes that this is solely his personal view and does not represent Bridgewater's opinion. He also hopes that everyone lives in interesting times and has good principles to deal with them.