Ray Dalio Has 3 Big Things to Worry About. Here’s What Investors Need to Know.

He stresses the importance of diversification, and to his point, my number of existential fears is now approaching double digits.

Dalio’s Bridgewater Associates, the world’s largest hedge fund, with $150 billion or so in assets, gained acclaim for dodging market downturns in 1987 and 2008, and racked up decades of impressive returns. I spoke with Dalio for a Barron’s television program and continued the conversation off air. Things started awkwardly.

China, where Dalio has invested for half of his life, has a dreadful human-rights record. It also doesn’t take criticism well. So, U.S. business leaders with operations in China who are asked about human rights must dial in just the right amount of outrage to satisfy Americans while not putting capital and jobs at risk in China.

Dalio failed to stick the landing when asked on CNBC about disappearances—like the vanishing from public life of a Chinese tennis star who has accused a retired official in China’s Communist Party of sexual assault. And Dalio used the phrase “strict parent” to describe China’s behavior, and seemed to equate human-rights concerns there with those in the U.S. A backlash followed. Sen. Mitt Romney, who calls Dalio a friend, said the response was a “sad moral lapse.”

When I asked Dalio to clarify, he said that he had done a “lousy job” explaining himself; that he didn’t mean to suggest that China and the U.S. operate in similar ways; and that with the strict parent comment, he was trying to explain the viewpoint of a policy maker in China.

Fair enough, and Dalio isn’t alone. When Jamie Dimon, CEO of JPMorgan Chase (ticker: JPM), joked recently that his bank would outlive China’s Communist Party, and then quickly apologized, one United Kingdom newspaper called it groveling, and author Nassim Taleb tweeted that the apology was driven by “economic interest.”

If economic disengagement is the answer, it must be slow to take effect, because the U.S. has been trying it for 59 years with Cuba. Then again, when China joined the World Trade Organization 20 years ago, it was supposed to import democratic values, not export authoritarian ones. The only thing I’m confident of is that more chiefs will fumble these questions, and that politicians will risk a pulled hamstring in the rush to grandstand.

On to Dalio’s three top concerns, which are outlined in his new book, Principles for Dealing With the Changing World Order: Why Nations Succeed and Fail. He says that chronic U.S. deficits could lead to an inflationary spiral where Treasury buyers lose confidence, and the Federal Reserve must create vast amounts of new money to sop up Treasury supply. The fact that the U.S. inflation rate just hit a 39-year high makes this a timely message. Doves say that some inflationary factors will pass, and that yields on Treasury inflation-protected securities, or TIPS, imply five-year inflation averaging 2.8%, well below the latest reading of 6.8%. Dalio says to avoid cash and prefer TIPS to nominal Treasuries.

When Dalio talks about civil war in the U.S., he means rising polarity and the calling into question of election rules and outcomes. “When the causes that people are behind are more important to them than the system, the system is in jeopardy,” he says. States and cities could fall into conflict with the federal government. “Then, it will be power that will determine how that goes down,” he says.

Hey, remember when Sting did that song that went, “I hope the Russians love their children, too,” and then five years later, whammo, the Berlin Wall fell? I’m not saying it was cause and effect or anything, but we should see if he can work up a ditty about Americans laying off social media and partisan news for a while, and maybe joining more Elks Lodges and bowling leagues until things calm down. Just spitballing here. If it works, feel free to put my name below Sting’s on the Nobel Peace Prize.

Dalio’s third fear is war with China, yet he still puts money to work there. “Most of their markets used to be closed, and now the markets are better developed and so there’s greater opportunities to invest there,” he says.

Sometimes, political risk is amply discounted in a company’s share price. Seven years ago, a fund manager told me he was buying three Russian blue chips, because he needed a 50% discount to get comfortable with Russia, and he was getting an 80% one. And how do you suppose those stocks have done?

Terribly, actually. Come to think of it, that’s a bad example to illustrate my point. But what about Alibaba Group Holding (BABA)? In January, I wrote to be wary of the shares until founder Jack Ma reappeared. They’ve fallen by half, and Ma has popped up, although he’s no longer the same swashbuckling glad-hander of world leaders and critic of China’s financial regulators. Shares trade at 20 times forward free cash flow estimates, versus more than 50 for Amazon.com  (AMZN).

The problem is that U.S. buyers of Alibaba shares aren’t getting Alibaba, but rather a Cayman Islands shell company with a contractual relationship with Alibaba. China has soured on letting its companies use that loophole to pursue capital abroad. And U.S. regulators don’t like the risk of arbitrary action from China. When DiDi Global (DIDI), the Uber of China, recently said it would delist from the New York Stock Exchange and pursue a listing in Hong Kong, its shares fell more than 20% in a day.

For typical U.S. investors, Alibaba still looks risky. But for those allocating funds to digital cartoon apes, I suppose it’s a reasonable alternative.