Ray Dalio's major judgment: A textbook-style AI asset bubble is brewing, and the "big cycle," occurring once every 80 years, is entering its final phase.

Ray Dalio, founder of the world's largest hedge fund Bridgewater, recently warned that typical characteristics of an AI asset bubble have already emerged. Coupled with an internal debt crisis and external geopolitical conflicts, humanity is at the tail end of an "80-year" major cycle of recession. In an in-depth interview with host Steven Bartlett on the business podcast "The Diary Of A CEO," aired on July 30, Dalio, a global macro investment master who accurately predicted the financial crisis in 2008 and achieved a positive return of 9.5% against the trend, provided penetrating analyses on current market concerns including the frenzy of AI technology, global asset allocation, geopolitical competition, and the widening wealth gap. The current market is caught up in the euphoria brought by the productivity revolution of artificial intelligence, but according to Dalio, a "textbook-style asset bubble" is brewing. He pointed out that the market is facing a backlash inevitably triggered by leveraged funds pushing up AI asset valuations while also entrenched in a "declining phase" of a historical macro major cycle lasting 80 years. At the end of this cycle, extremely inflated debts, unprecedented wealth disparity, and escalating global geopolitical conflicts are resonating with each other. Regarding asset allocation, he bluntly stated that "cash is the worst investment in the long run," and clearly expressed a preference for gold bars over Bitcoin when it comes to safe-haven assets. For ordinary people, the large-scale replacement of human intellect and labor by AI will further tear apart the wealth divide in society. "Investing only $50 million yet claiming a valuation of $1 billion": Typical bubbles are beginning to show. At the start of the program, the host mentioned that Wall Street legend investor Jeremy Grantham had asserted that we are currently facing the largest investment bubble in U.S. history. To this, Dalio expressed agreement: He is right. We have already seen the classic signs of a bubble. Dalio pointed out that the emergence of new technologies is always accompanied by euphoria, and todays AI, much like the electrification of 1929 and the internet of 2000, represents a revolutionary technology. The problem with the market is that it is "not paying attention to prices." Dalio detailed the micro-mechanism of a bubble from expansion to collapse: Now you can issue stocks; for instance, you raised $50 million and then valued your company at $1 billion. In reality, only $50 million has been invested in this company, but because of accounting value, you become a billionaire. This prosperity built on paper wealth is extremely fragile. Dalio warned that when the trigger conditions for the bubble to burst ariseusually an increase in interest rates or investors needing cash to pay taxes or debtsthe crisis will erupt. Wealth does not equal money. You cannot directly consume wealth; you must sell assets to exchange for money. When they need cash for some reason, like rising interest rates requiring interest payments, the bubble will be pierced. As AI companies continue to sell stocks at inflated valuations, the supply of stocks in the market increases significantly. Once leveraged investors face forced liquidations, everything will become cheap, people will start to cut back on spending, and an economic recession will follow. 80-year "major cycle" enters decline phase: the inevitable outcome of debt and conflict. If the AI bubble is a short-term frenzy, then Dalios "Big Cycle" is the sword of Damocles hanging over the global economy. This usually lasts a lifetime, averaging about 80 years. The last time we experienced the start of this Big Cycle was in 1945. Dalio suggests that countries like the U.S. and the U.K. are currently in the "decline phase" of this major cycle. He attributes the current recession to three interrelated destructive forces: Exhaustion of funds and debt: The government doesnt have enough money. We have enormous budget deficits; where are you going to get the money to pay the bills? He uses the U.K. as an example, The U.K. has had six prime ministers in the past seven years because the government does not have enough money to fulfill its promises. Extreme internal division: Capitalism creates prosperity while also generating significant wealth disparity. When the economy is declining, the left and right will be at each other's throats. Disintegration of the external geopolitical order: Dalio bluntly stated that Americas international control is waning, even exposing vulnerabilities in crises like the Red Sea crisis and conflicts in the Middle East. People realize that the U.S. doesnt want to go to war Its like Britain during the Suez Crisis; previously, if the U.S. hinted at something, other countries would comply, but that kind of power no longer exists. Asset hedging guide: "Cash is the worst investment," gold counters Bitcoin. Faced with the inevitable economic cycle fluctuations, how should investors place their wealth? Dalio gave clear principles: reduce cash holdings and diversify extensively. People keep their money in banks because it feels the safest. But it isnt; for a long period, it has been the worst investment because inflation will eat it away. Dalio ran the numbers: If inflation is around 3.5% to 4% per year, even if you receive the same level of interest, your long-term returns remain pitiful after taxes. His recommendation is to diversify and presented several asset classes on the table: stocks, cash, gold, bonds, real estate, and Bitcoin. When it comes to hard currency selection, despite the market's enthusiasm for cryptocurrencies, Dalio steadfastly supports gold. I hold about 1% of Bitcoin It is a currency that cannot be printed or hacked by technology. But he immediately pointed to the gold bars on the table and emphasized: However, among the asset classes where I want to ensure I have hard currency (which should comprise 5% to 15% of an ordinary person's investment portfolio), I prefer these gold bars over Bitcoin. When these assets (stocks and bonds) perform poorly, gold tends to perform well, making it a very effective hedging tool, Dalio said. Gold was not considered a currency until 1971, but it is still the second-largest reserve currency today. Central banks hold it, and it has characteristics that other assets do not. He pointed out Bitcoins fatal weakness regarding privacy and government control: When quantum computing comes, it could be monitored and taxed by the government. When the government says, I dont want it, they have the power to do anything with it. Central banks wont hold large amounts of Bitcoin; look at Russias confiscated assetsthey didnt take away gold. In times of conflict, people have a sense: if I hold gold, others cant take it away. The brutal divide of AI: either become part of the top 10% or be replaced. As technological explosions collide with economic downturns, ordinary people's job markets are undergoing seismic changes. Dalio likened the development of AI to an extension of the human evolutionary history: tractors replaced human labor, and AI is now replacing human thought and reasoning. In this process, the wealth gap between capitalists and workers will widen further. Look at corporate profits; the share going to workers is decreasing, while the share going to business owners (capitalists) is increasing. For young people's career planning, Dalio provided a highly pragmatic prediction: You must become part of the small percentage of the population that is proficient in using AI and is at the forefrontabout a few percent to 10% of the population. If your job involves pure thinking, you will be at risk of being replaced. Facing an unpredictable future, he advised against predicting specific career prospects (such as whether to learn programming) and instead to return to the essence: History shows that the most successful are not necessarily the smartest or the hardest workers, but those who are the most adaptable. Maximize your ability to learn, and use tools like AI to enhance your usefulness. This article is republished from the WeChat public account "Wall Street Insights," author Dong Jing; edited by GMTEight: Wenwen.