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Ray Dalio, founder and co-chief investment officer of Bridgewater Associates, the world’s largest hedge fund, has doubled down on his warnings against trade wars brought on by President Donald Trump’s divisive rhetoric.
“Recent geopolitical developments have led me to raise my probabilities of trade and other types of wars, such as capital wars, cyber wars (and possibly even shooting wars),” Dalio said in a LinkedIn post Monday.
“I’m not saying they’re probable, and I’m not sure that my assessment is right.
I’m just saying that it seems to me that the odds have increased relative to where they were.”
Dalio goes on to explain how Trump’s trade fight with China — one that has already wiped away billions from US equity markets in a matter of days — is most similar to the 1930’s in American history.
He lists nine reasons:
1.
Big deleveragings
2.
Monetizations of debt that helped the deleveragings by pushing the markets and the economies higher
3.
Large wealth gaps that were increased by the monetizations as well as new technologies and open trade
4.
Rising protectionism
5.
The emergence of strong populist leaders arising because of the wealth and opportunity gaps and large numbers of people believing that the system did not work for them
6.
The emergence of new world powers to challenge the old
7.
Growing militarism and nationalism
8.
Tightenings of monetary policies
9.
More conflicts internal and external, with the external conflicts helping to support the populist leaders It’s not the first time Dalio has taken to LinkedIn to voice his thoughts on the current geopolitical climate.
Most recently, he took to the platform in March 2017 to publish a “study of populism” to warn how these movements so often lead to disorder and conflict.
At the time, he was optimistic an amicable trade deal could be reached between the US and China.
“When I painted it, I said that if there was a step-up in the conflict, my scenario would be broken and I’d seriously worry,” Dalio said.
“Then Trump raised the stakes by another $100 billion Now we have a very public game of chicken going on.
Maybe Trump’s statement was just an impulsive slip-up that he will backtrack on, or maybe he was serious.”
As for investing through volatile times, Dalio says not much has changed over the last 120 years.
“Our philosophy for managing money through such geopolitical shifts is to know where our edge is, and to neutralize those exposures on which we do not have an edge, while ensuring our portfolios are liquid (to be flexible) and diversified (to not have concentrated risks),” he said.
