The stock market hits new highs, so why are most people getting poorer? Ray Dalio: The market illusion under fiat currency devaluation

The main theme of 2025 is the victory of the US stock market, especially AI stocks. But Ray Dalio, founder of Bridgewater Associates, has a different view. He believes that the biggest investment story of 2025 is not in stocks, but in the collapse of currency values and the change in asset pricing benchmarks. Ray Dalio chooses to review not just a single market or hot industry, but how the entire “currency—debt—market—economy” machine has operated over the past year.

Although the stock market appears to perform well, when converted from USD to gold standard, US stocks have actually declined by 28%. The USD has depreciated against gold by as much as 39%.

The biggest winners and losers of 2025: it’s not stocks, but the value of money

Dalio points out that the most undeniable fact of 2025 is: all fiat currencies are depreciating, just at different speeds.

Taking the US dollar as an example, in 2025 the USD:

• Depreciates 0.3% against the Japanese Yen
• Depreciates 4% against the Chinese Yuan
• Depreciates 12% against the Euro
• Depreciates 13% against the Swiss Franc
• Depreciates up to 39% against gold

Gold, which is the world’s second-largest reserve asset and the only major non-sovereign fiat currency, performed the best among major markets in 2025.

Gold, priced in USD, rose 65%

S&P 500 rose 18%

Converted into gold, US stocks declined by 28%

Dalio emphasizes a frequently overlooked but extremely important principle:

When your pricing currency depreciates, all assets measured in it will appear to be overvalued.

For the same S&P 500:

• USD investors: +18%
• Yen investors: +17%
• Yuan investors: +13%
• Euro investors: +4%
• Swiss Franc investors: +3%
• Gold investors: -28%

Bonds and cash: nominally safe, but actually eroded by inflation

Dalio further points out that bonds are essentially promises to deliver currency in the future. When the currency itself depreciates, the real value of bonds inevitably suffers.

10-year US Treasury bonds in 2025:

• USD denomination: +9%
• Yen denomination: +9%
• Yuan denomination: +5%
• Euro/Swiss Franc denomination: -4%
• Gold denomination: -34%

Cash performs even worse

This also explains why overseas capital shows low interest in USD bonds and USD cash (unless hedged against exchange rate risk). Dalio’s outlook for the future is quite conservative: about 10 trillion USD in debt will be refinanced, and the Federal Reserve tends to keep real interest rates low. The risk of long-term bonds is higher than the returns, and the probability of further steepening of the yield curve is not low.

Is the 2025 US stock bull market actually losing to the rest of the world?

Even with impressive performance in USD terms, Dalio emphasizes:

In 2025, US stocks significantly lag behind non-US stocks and gold.

European stocks: +23% (relative to US stocks)

Chinese stocks: +21%

UK stocks: +19%

Japanese stocks: +10%

Emerging markets overall: +34%

Not just stocks, but also emerging markets:

USD bonds: +14%

Local currency bonds (USD-denominated): +18%

There is only one conclusion:

Global capital is reallocating, moving away from the US.

Why can US stocks still rise? Strong fundamentals, growth not driven by a single sector

Ray Dalio does not deny the nominal performance of US stocks in 2025. Driven by a 12% growth in corporate earnings, about 5% expansion in P/E ratio, and approximately 1% dividend yield, the full-year return is about 18%. Notably, aside from the “Big Seven” tech giants, the other 493 constituent stocks also saw earnings grow by about 9%, indicating that the rally is not supported by a single sector.

However, Dalio points out that much of this earnings and asset price increase stems from re-inflation policies and declining discount rates, rather than structural improvements. As profits expand, capital gains a larger share relative to labor, creating a noticeable gap in inflation perception between asset holders and the majority of the public.

He believes this imbalance will intensify political polarization, and future adjustments in wages, tax policies, or regulations could impact corporate profit structures, challenging the current market expectations of continuous profit expansion.

Valuations, risk premiums, and future returns: limited room left

In Dalio’s model:

• Long-term US stock expected return: about 4.7%
• Long-term bond return: about 4.9%

Equity risk premiums are low, and credit spreads have compressed to historic lows. In other words, it will be very difficult for future markets to generate returns solely through valuation expansion and liquidity premiums.

Ray Dalio: AI is in the early stage of a bubble

Dalio believes that understanding the 2025 market cannot be separated from politics. He bluntly states that Trump’s policies are a highly leveraged gamble on capitalism. Stimulus policies, tariffs, subsidies, deregulation—these are essentially government-led capitalism. The result is a widening wealth gap: the top 10% of the asset class are indifferent to inflation; the bottom 60% are squeezed by rising living costs.

Dalio predicts that currency value and affordability will become the biggest political issues. The 2026 midterm elections and the 2028 presidential election may see increased polarization. The conflict between wealth and money will directly impact the markets.

Dalio places 2025 within his long-term Big Cycle framework, believing that:

• The world is shifting from a multipolar order to unipolar dominance.
• Military spending, deficits, and gold demand are rising.
• AI is in the early stage of a bubble.
• Climate change persists, but political responses are divided.

These forces are intertwined, reshaping capital flows and the international order.

This article: “Stock Market Hits New Highs, Why Are Most People Still Poor?” Ray Dalio: The Market Illusion Under Fiat Currency Devaluation first appeared on Chain News ABMedia.