Ray Dalio, founder of Bridgewater Associates, warned on Tuesday (Oct 6) that global debt supply and demand are out of balance, and a debt crisis may emerge within the next two years. He stated that he is shorting bonds, and believes an ideal diveRSIfied investment portfolio should allocate 5% to 15% of assets to gold, while seeking investment opportunities outside the United States.
Speaking via video link at the Greenwich Economic Forum the same day, Dalio said governments and large tech enterprises keep issuing debt, while demand from key buyers such as China and Japan is weakening. He believes this situation of rising supply and insufficient demand could turn into a crisis "sometime in the next two years." "We are clearly in a high-risk period," he remarked.
In an earlier Bloomberg TV interview released the same day, Dalio judged that a crisis could occur "within three years" regarding US debt risks, warning that the United States is approaching the limit of debt it can bear.
Imbalanced Debt Supply and Demand, Interest Payments Crowding Out Fiscal Space
The core of Dalio’s concern is the rift between expanding financing needs and willingness to purchase debt. On one hand, governments need to keep borrowing, and large tech companies are increASIng debt financing. On the other hand, some traditional buyers are reducing purchases, and geopolitical tensions have further dampened foreign investors’ demand for US debt.
He previously pointed out that as interest costs rise, debt-servicing expenses are taking up a growing share of government budgets and squeezing room for other spending. The faster debt accumulates, the greater the interest and repayment pressure in the future, making fiscal adjustments more difficult.
He also kept an eye on the AI investment boom. In the Bloomberg interview, Dalio said the expansion of the AI industry is increASIngly reliant on debt financing, and some large enterprises have begun to face constraints in accessing credit. He also worried that excessive corporate investment to compete for an uncertain future market may amplify bubble risks in the technology sector.
Shorting Bonds and EmphASIzing Gold’s Role in Portfolios
Faced with debt risks, Dalio said he is shorting bonds. Meanwhile, he believes an ideal diveRSIfied investment portfolio should allocate 5% to 15% of assets to gold.
This percentage is his suggestion for portfolio allocation, not disclosure of the exact proportion of his personal gold holdings. Combined with his judgment on debt supply and demand, fiscal pressure and geopolitical risks, gold forms an important part of his risk diveRSIfication strategy.
Bitcoin Allocation at Around 1%, Remaining Concerns Over Digital Security
Dalio revealed that he also holds a small amount of Bitcoin with an allocation ratio of roughly 1%, but he stated he is not a Bitcoin advocate. He paid special attention to digital security risks brought by advancing AI capabilities and remained reserved about the safety of digital assets.
Therefore, the small holding does not represent his fully bullish view on Bitcoin. In the allocation ideas he introduced this time, the recommended proportion of gold is significantly higher than that of Bitcoin.
Seeking Opportunities Outside the US and Focusing on Capital-rich Nations
Dalio is also turning his sights to markets outside the United States. He believes "surplus countries" such as Singapore and the United Arab Emirates, which are capital-rich and less reliant on foreign borrowing, offer noteworthy investment conditions, and there are individual opportunities in some European markets. He moved his family office to Abu Dhabi in 2023.
When evaluating different countries, Dalio stressed innovation capacity and the ability to adapt to economic and technological changes. His assessment question is: "Do they have innovative capabilities? Are they riding the wave, or being swept away by it?"
His approach is to find opportunities to diveRSIfy risks from a single market based on nations’ capital positions, financing dependence and development potential.
Bullish on Inflation-Linked Bonds and Stressing Preparedness for Unknown Risks
In the fixed-income space, Dalio is also bullish on inflation-linked bonds, arguing such assets can help hedge against peRSIstent price pressures. This shows his caution over the debt market does not mean rejecting all bond assets, but focusing on the role of different instruments in portfolios.
Dalio emphASIzed in his remarks that investors cannot fully grasp all risks, so they need to attach importance to diveRSIfied allocation and the ability to cope with uncertainty. He said: "What you don’t know far exceeds what you do know. But I do believe we have a debt problem."