Principles for Dealing with THE CHANGING WORLD ORDER RAY DALIO © COPYRIGHT 2021 This PDF contains the charts and tables from the book for printing and easy reference. 1 THE CHANGING WORLD ORDER 1500 1600 1700 1800 1900 2000 Inflection during the Industrial Revolution Invention of capitalism (founding of Dutch Stock Exchange) Global real GDP is primarily a mix of European countries before 1870 due to limited reliable data coverage across other countries before that point GLOBAL REAL GDP PER CAPITA (LOG) 7 8 9 10 11 0 10 20 30 40 50 60 70 80 1500 1600 1700 1800 1900 2000 Baby Boom WWII WWI, Spanish flu pandemic Thirty Years’ War Third Plague pandemic COVID-19 1557 influenza pandemic Flu outbreak & famine Dashed line based on experience of Great Britain only GLOBAL LIFE EXPECTANCY AT BIRTH C H A P T E R 1 THE BIG CYCLE IN A TINY NUTSHELL 2 THE CHANGING WORLD ORDER 0 100 200 300 400 1500 1600 1700 1800 1900 2000 War of the Spanish Succession Napoleonic Wars World War I World War II Spanish flu HIV/ AIDS Indian and Chinese famines China’s Great Leap Forward Series of Indian famines Cocoliztli epidemics Thirty Years’ War, fall of Ming Dynasty, Indian famine GLOBAL DEATHS BY CATEGORY (RATE PER 100K PEOPLE, 15YMA) Conflicts Natural Disasters Pandemics Famines COVID-19 3 THE CHANGING WORLD ORDER ESTIMATED DEATHS FROM CONFLICT (MAJOR POWERS, %POPULATION, 15YMA) Internal Conflict External Conflict Total 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 1400 1500 1600 1700 1800 1900 2000 Collapse of Ming Dynasty, religious wars in Europe Based on deaths as a share of the population for the major powers and thus will differ from the estimate of global conflict deaths shown in the prior chart Chinese border wars, religious wars in Europe Wars of Religion in France Time of Troubles in Russia European monarchic wars Seven Years’ War in Europe Napoleonic Wars Ethnic wars in China WWI WWII, Holocaust, communist revolutions Global RGDP Per Capita (2017 USD, Log) USA Equities Cumulative Return 0 20 40 60 80 100 120 140 160 8.50 8.60 8.70 8.80 1929 1931 1933 1935 1937 1939 1941 1943 1945 ~10% fall ~12% fall 4 THE CHANGING WORLD ORDER 0 1 1500 1600 1700 1800 1900 2000 Level Relative to Other Empires (1 = All-Time Max) RELATIVE STANDING OF GREAT EMPIRES France Germany Spain Netherlands Ottoman Empire Japan India United Kingdom China United States Major Wars Russia United States United Kingdom Netherlands China 5 THE CHANGING WORLD ORDER 0 1 -120 -80 -40 0 40 80 120 Level Relative to Peak (1 = Peak) Years (0 = Empire Peak) THE ARCHETYPICAL RISE AND DECLINE BY DETERMINANT Education Innovation and Technology Competitiveness Military Trade Economic Output Financial Center Reserve FX Status THE TOP THE DECLINE THE RISE New Order New Order  6 THE CHANGING WORLD ORDER New Order New Order Less productive Overextended Losing competitiveness Wealth gaps Strong leadership Inventiveness Education Strong culture Good resource allocation Good competitiveness Strong income growth Strong markets and financial centers Large debts Printing money Internal conflict Loss of reserve currency Weak leadership Civil war/revolution 13 14 17 18 9 10 1 2 3 4 5 6 7 8 THE TOP THE DECLINE THE RISE 11 12 15 16 9 11 12 10 13 15 14 16 18 17 1 2 3 4 5 6 8 7 7 THE CHANGING WORLD ORDER ROUGH QUANTITATIVE SCORING OF MEASURES BY STAGE IN CYCLE THE RISE THE TOP THE DECLINE Debt Burden (Big Economic Cycle) Internal Conflict (Internal Order Cycle) Education Innovation & Technology Cost Competitiveness Military Strength Trade Economic Output Markets & Financial Center Reserve Currency Status Resource-Allocation Effi- ciency Infrastructure & Investment Character/Civility/ Determination Governance/Rule of Law Gaps in Wealth, Opportunity & Values Dark green = gauge is strong/good Dark red = gauge is weak/bad 1 1 Acts of nature, external order, and geology are not included in cycle analysis. Readings use proxies for determinants with limited history. 8 THE CHANGING WORLD ORDER Relative Power Time New World Order New World Order United States United Kingdom Netherlands China CHANGES TO THE WORLD ORDER (CONCEPTUAL EXAMPLE) End of the Old, Beginning of the New (e.g., Dutch to British) End of the Old, Beginning of the New (e.g., British to US) ■ Debt restructuring and debt crisis ■ Internal revolution (peaceful or violent) that leads to large transfers of wealth from the “haves” to the “have-nots” ■ External war ■ Big currency breakdown ■ New domestic and world order ■ Debt restructuring and debt crisis ■ Internal revolution (peaceful or violent) that leads to large transfers of wealth from the “haves” to the “have-nots” ■ External war ■ Big currency breakdown ■ New domestic and world order 9 THE CHANGING WORLD ORDER How the Machine Works = (f)… Case 1 Case 2 Case 3 Case 4 Case 5 Case 6 Case 7 Case 8 Case 9 Case 10, Etc Determinant 1 Effect Effect Effect Effect Effect Effect Effect Effect Effect Effect Determinant 2 Effect Effect Effect Effect Effect Effect Effect Effect Effect Effect Determinant 3 Effect Effect Effect Effect Effect Effect Effect Effect Effect Effect Determinant 4 Effect Effect Effect Effect Effect Effect Effect Effect Effect Effect Determinant 5 Effect Effect Effect Effect Effect Effect Effect Effect Effect Effect Determinant 6 Effect Effect Effect Effect Effect Effect Effect Effect Effect Effect Determinant 7 Effect Effect Effect Effect Effect Effect Effect Effect Effect Effect Determinant 8 Effect Effect Effect Effect Effect Effect Effect Effect Effect Effect Determinant 9 Effect Effect Effect Effect Effect Effect Effect Effect Effect Effect Determinant 10 Effect Effect Effect Effect Effect Effect Effect Effect Effect Effect Etc C H A P T E R 2 THE DETERMINANTS