Author: Ray Dalio, Founder of Bridgewater Associates
Translation: Yangz, Techub News
As a systematic investor focused on global macro trends, as we bid farewell to 2025, I will reflect on the past year, particularly the underlying mechanisms of market operations. This is the theme of today's thoughts.
Despite the undeniable objective facts and investment returns, my perspective differs from that of most people. While the public generally views U.S. stocks (especially U.S. AI concept stocks) as the best investment choice and considers them the most significant investment theme of 2025, it is indisputable that the real excess returns (and core narrative) actually come from two aspects: changes in currency value (with the U.S. dollar, other fiat currencies, and gold being key); and the significant underperformance of U.S. stocks compared to non-U.S. markets and gold (the latter becoming the best-performing major market of the year). This primarily stems from fiscal and monetary stimulus policies, productivity improvements, and a massive reallocation of funds from the U.S. market to other assets.
In this reflection, I will take a step back to examine the dynamic relationships between currency/debt/market/economy over the past year and briefly discuss how the four major drivers—politics, geopolitics, natural forces, and technology—affect the global macro landscape within the evolving framework of the "long cycle."
Changes in Currency Value
Regarding currency value: the U.S. dollar fell 0.3% against the yen, 4% against the yuan, 12% against the euro, 13% against the Swiss franc, and 39% against gold (gold being the second-largest reserve currency and the only major non-credit currency). Therefore, all fiat currencies are depreciating. The most significant themes and market fluctuations of the year stem from the weakest fiat currencies experiencing the largest declines, while the strongest/sturdiest currencies appreciate the most.
The best-performing major investment last year was going long on gold (with a return of 65% in U.S. dollars), outperforming the S&P 500 index (with a return of 18% in U.S. dollars) by 47%. In other words, when priced in gold, the S&P 500 index fell by 28%.
Let’s review some key principles relevant to the current situation:
When a person's local currency depreciates, things priced in that currency appear to rise. In other words, viewing investment returns through the lens of a weak currency makes them seem stronger than they actually are. In this case, the return on investment in the S&P 500 index is 18% for dollar-based investors, 17% for yen-based investors, 13% for yuan-based investors, 4% for euro-based investors, 3% for Swiss franc-based investors, and -28% for gold-based investors.
Currency movements have a significant impact on wealth transfer and economic conditions. When a person's local currency depreciates, it reduces their wealth and purchasing power, making their goods and services cheaper when priced in other currencies, while making foreign goods and services more expensive when priced in their local currency. In this way, it affects inflation rates and trade flows (who buys what from whom), although this impact has a lag. Therefore, whether you hedge against currency is crucial. What if you have no view on currency and do not want to hold one? You should always hedge your lowest-risk currency portfolio and, based on that, make tactical adjustments if you believe you can do so effectively. I do not intend to elaborate on my specific operations now, but I will discuss it later.
As for bonds, or debt assets, because they are promises to pay in currency, when the value of that currency declines, even if their nominal price rises, their real value decreases. Last year, the 10-year U.S. Treasury bond had a return of 9% in U.S. dollars (about half from interest and half from price), 9% in yen, 5% in yuan, -4% in euros, -4% in Swiss francs, and -34% in gold—while cash was an even worse investment. So, you should understand why foreign investors do not favor U.S. bonds and cash (unless they have hedged against currency). So far, the imbalance in bond supply and demand has not posed a serious problem, but a large amount of debt (nearly $10 trillion) will need to be rolled over in the future. Meanwhile, the Federal Reserve seems likely to lean towards easing policies to lower real interest rates. For these reasons, debt assets appear unattractive, especially at the long end of the yield curve, where a further steepening of the yield curve seems highly probable, but whether the Fed's easing will be as significant as currently priced is questionable.
U.S. Stocks Significantly Underperform Non-U.S. Markets and Gold
As mentioned earlier, although U.S. stocks performed strongly in dollar terms, their strength is significantly diminished when priced in stronger currencies, and they lag significantly behind the performance of other countries' stock markets. Clearly, investors prefer to hold non-U.S. stocks over U.S. stocks, just as they prefer non-U.S. bonds over U.S. bonds and dollar cash.
More specifically, European stocks outperformed U.S. stocks by 23%, A-shares by 21%, the UK stock market by 19%, and the Japanese stock market by 10%. Emerging market stocks performed even better overall, with a return of 34%, while emerging market dollar bonds returned 14%, and emerging market local currency bonds had an overall return of 18% in U.S. dollars. In other words, there has been a massive outflow of funds, asset values, and even wealth from the U.S., and the ongoing situation is likely to lead to more asset rebalancing and diversification.
The strong performance of U.S. stocks in dollar terms last year was driven by earnings growth and P/E ratio expansion. Specifically, earnings grew by 12% in dollars, the P/E ratio rose by about 5%, and the dividend yield was about 1%, resulting in an approximate total return of 18% for the S&P 500 index in dollars. The "Tech Seven" stocks, which account for about one-third of the S&P 500's market capitalization, achieved a 22% earnings growth in 2025; contrary to popular belief, the remaining 493 stocks in the S&P index also achieved a strong earnings growth of 9%, resulting in an overall earnings growth of 12% for the entire S&P 500 index. This was driven by a 7% increase in sales and a 5.3% improvement in profit margins, with sales contributing 57% to earnings growth and margin improvements contributing 43%. It appears that a significant portion of the margin improvement is attributable to enhanced technological efficiency, but I cannot confirm this with specific data. Regardless, the earnings improvement is largely due to the expansion of the economic pie (i.e., sales), with companies (and the capitalists who own them) capturing most of the gains, while workers receive a relatively small share. In the future, closely monitoring those margin increases that translate into profits will be crucial, as the market is currently pricing in these substantial increases, while leftist political forces are attempting to claim a larger share of the pie.
Valuation and Future Expectations
While understanding the past is easier than predicting the future, as long as we grasp the most important causal relationships, we can indeed derive information from the current situation that helps us better anticipate the future.
For example, we know that in the context of high P/E ratios and low credit spreads, valuations seem to be at elevated levels. Historically, this suggests that future stock returns will be low. When I calculate expected returns based on current stock and bond yield levels, using normal productivity growth and the resulting profit growth, I arrive at a long-term expected stock return of about 4.7% (in the bottom 10% historical percentile). Relative to the current bond return of about 4.9%, this level is very low, indicating that the stock risk premium is at a low level. Additionally, credit spreads have narrowed to extremely low levels by 2025, which has been favorable for low-rated credit assets and equities, but also means that there is limited room for further spread compression and an increased probability of widening, which is negative for these assets.
All of this means that it is currently difficult to extract more returns from stock risk premiums, credit spreads, and liquidity premiums. This also means that if interest rates rise (which is possible, as the pressures driven by supply and demand are intensifying with the decline in currency value—i.e., supply increases while demand prospects worsen), it will have a significant negative impact on the credit and stock markets, all else being equal.
Of course, there remain significant uncertainties regarding Federal Reserve policy and productivity growth prospects. The new Federal Reserve Chair and the Federal Open Market Committee are likely to lean towards lowering nominal and real interest rates, which will support asset prices and create bubbles. As for productivity growth, there may be some improvement in 2026, but how much improvement there will be, how much of it will translate into corporate profits, stock prices, and ultimately benefit capital owners, and how much will flow to workers and socialists in the form of wage adjustments and taxes (a typical political right/left issue) remains uncertain.
In line with the operational logic of the economic machine, the Federal Reserve's interest rate cuts and credit easing in 2025 lowered the discount rate, determining the present value of future cash flows and compressing risk premiums, collectively leading to the aforementioned results. These changes supported asset prices that performed well in a re-inflation environment, particularly long-duration assets like equities and gold, making these markets no longer cheap. Additionally, it is worth noting that these re-inflation measures have not significantly benefited venture capital, private equity, and real estate (i.e., illiquid markets). These markets are facing challenges.
If one believes the book valuations in the venture capital and private equity space (which most do not), the current liquidity premium is at an extremely low level; I believe that as these institutions' debts must be rolled over at higher rates and liquidity-raising pressures continue to mount, the liquidity premium is likely to rise significantly, leading to declines in illiquid assets compared to liquid assets.
In summary, driven by significant fiscal and monetary re-inflation policies, almost all assets priced in U.S. dollars have seen substantial increases, and current prices are relatively high.
Shifts in the Political Landscape
When examining market changes, it is essential to pay attention to shifts in the political landscape, especially in 2025. As markets and economies influence politics, politics also affects markets and economies, playing a significant role in driving them.
More specifically, for the U.S. and the world:
The domestic economic policies of the Trump administration have historically been, and continue to be, a leveraged bet on the forces of capitalism, aimed at revitalizing U.S. manufacturing and empowering U.S. AI technology, which has contributed to the market changes I described above.
Its foreign policy has deterred and alienated some foreign investors, with concerns over sanctions and conflicts supporting the portfolio diversification and gold purchasing behaviors we have observed.
Its policies have exacerbated wealth and income disparities, as the "propertied" class (the top 10%) holds more stock wealth and has seen greater income growth.
Due to the impact of the third point, those capitalists in the top 10% do not currently view inflation as a problem, while the majority (the bottom 60%) feel overwhelmed. The issue of currency value, i.e., affordability, is likely to become the primary political issue next year, which could lead to the Republican Party losing control of the House of Representatives and set the stage for a very chaotic 2027, paving the way for a fiercely contested left-right election in 2028.
More specifically, 2025 is the first year of Trump’s four-year term in which he controls both houses of Congress, which has historically been the best time for a president to implement their agenda. Therefore, we see his administration making a radical bet on capitalism—namely, aggressive fiscal stimulus policies, reducing regulations to make currency and capital more abundant, lowering the production difficulty of most goods, raising tariffs to protect domestic producers and increase tax revenue, and actively supporting key industry production. Behind these measures is a shift led by Trump from free-market capitalism to government-directed capitalism.
Based on the operation of the democratic system, President Trump has a two-year period of unimpeded governance, but his policies may be significantly weakened in the 2026 midterm elections and reversed in the 2028 presidential election. He must feel that this is insufficient to accomplish what he believes must be done. However, it is now rare for a political party to govern for an extended period, as they find it difficult to fulfill promises to meet the economic and social expectations of voters.
In fact, when those in power cannot govern long enough to meet voter expectations, the viability of democratic decision-making comes into question. In developed countries, it is becoming increasingly common to see populist politicians from the left or right advocating extreme policies for leapfrog improvements, only to fail to deliver on their promises and be ousted from power. This frequent extreme alternation is undermining stability, resembling the conditions of previously underdeveloped countries.
Regardless, a significant struggle is brewing between the hard-right led by President Trump and the hard-left, which is becoming increasingly evident. On January 1, we saw the opposition gather at Mamdani's inauguration, with Zohran Mamdani, Bernie Sanders, and Alexandria Ocasio-Cortez coming together to support the anti-billionaire "democratic socialism" movement. This will be a struggle over wealth and money, likely to impact markets and the economy.
On Geopolitics, Natural Forces, and Technology
Regarding changes in the world order and geopolitics, 2025 has seen a clear shift from multilateralism (the desire to operate under rules supervised by multilateral organizations) to unilateralism (dominated by power, with countries acting based on their own interests). This has already increased and will continue to increase the threat of conflict, leading most countries to increase military spending and finance it through borrowing. It has also prompted more use of economic threats and sanctions, a rise in protectionism, intensified de-globalization, more investments and business transactions, increased foreign commitments to invest in the U.S., heightened demand for gold, and a decline in foreign demand for U.S. debt, dollars, and other assets.
Regarding natural forces, climate change continues to evolve, while the Trump administration has politically directed spending shifts and encouraged energy production, attempting to downplay the issue.
In terms of technology, the early-stage bubble of artificial intelligence has had a tremendous impact on everything. I will soon release a statement regarding my bubble indicators, so I will not delve into this topic now.
Additionally, there is much to ponder, and we have not yet extensively covered situations outside the U.S. I find that understanding historical patterns and the causal relationships behind them, having a well-backtested and systematic strategy, and utilizing artificial intelligence and high-quality data is invaluable. This is my way of operating and the essence I hope to convey to you.
Conclusion
In summary, based on this analytical framework, I believe that the dynamics of debt/currency/market/economy, internal political dynamics in the U.S., geopolitical dynamics (such as increased military spending and financing through borrowing), natural forces (climate), and new technological forces (such as the costs and benefits of AI) will continue to be the main driving forces shaping the overall landscape, and these forces will generally follow the "long cycle" template I outlined in my writings.
Given the length of this piece, I will not elaborate further. If you have read my book "How Countries Go Broke: The Big Cycle," you will understand my views on the evolution of cycles; if you wish to learn more but have not yet read it, I recommend you do so.
Regarding portfolio construction, while I do not want to be your investment advisor (i.e., I do not want to directly tell you what positions to hold and have you simply follow my advice), I do hope to help you invest well. While I believe you can infer the types of positions I like and dislike, what is most important for you is to have the ability to make your own decisions, whether it is betting on the market's performance, constructing and adhering to an excellent strategic asset allocation portfolio, or selecting managers who can invest well for you.
免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。
