Dalio Analyzing Trump for Future Controversy

Ray Dalio, founder, chairman and chief investment officer (CIO) of Bridgewater Associates, expressed his concerns on President Trump’s policies—specifically regarding the Paris Agreement—in a LinkedIn post yesterday.

“Sometimes conflict produces better results and sometimes it produces worse results for the people who are pursuing it to get what they want,” Dalio wrote. “For example, if Donald Trump were optimizing for his own well-being through conflict, it’s entirely possible that he would undermine his own well-being because the retaliation could be more damaging to him than the cooperation.”

Dalio compares analyzing President Trump’s actions as akin to solving a puzzle. In his attempt to put the pieces together, he says he is comparing the President to populists of the past, leading Dalio to put a close watch on the way he and his advisories approach conflict.

“From the higher-level perspective, when faced with the choices between what’s good for the whole and what’s good for the part, and between harmony and conflict, he has a strong tendency to choose the part and conflict,” he said. “By ‘the whole,’ I mean the whole ecosystem, the whole world community, and whole of the US, and by ‘the part,’ I mean the part of the US that he is presumably trying to help.”

The world’s largest hedge fund manager also examines why gray-area hopefuls may or may not choose to side with the President’s actions and their subsequent consequences, based on three key questions:  “1) what exactly is the part he’s trying to optimize for (e.g., American manufacturing workers) and at the expense of whom, 2) am I more aligned with that part he is trying to protect (e.g., American manufacturing workers) or more aligned with those who will lose out (e.g., immigrants, those who will lose benefits from his budget changes), and 3) will his path of conflict rather than cooperation be effective or harmful?”

Although Dalio says it’s possible that conflict can sometimes be a good thing, it’s very much a high-risk/high-reward path—not unlike Dalio’s work with hedges. That said, Dalio feels that the President should make more cooperative decisions and less controversial ones.

“I have to confess a personal bias that is opposite his—i.e., I’m inclined to optimize for the whole through cooperation in order to make the pie bigger, and then cooperatively and competitively divide up the pie,” Dalio says. “I believe that we are connected to our whole ecology, our whole world community, and our whole United States, such that it pays to be in symbiotic relationships with them—so, I’m concerned about his path. I am especially concerned about the consequences of his pursuing so much conflict. At the same time, I see some encouraging moves on his part (e.g., to pursue public-private partnerships to rebuild infrastructure).”

While no populist comparisons were directly named, he does mention how Bridgewater’s recent study “Populism and the Phenomenon” stresses the importance of watching how conflict is handled in the early days of a populist government.

Dalio also expressed his thoughts on China’s new FX policy, calling it a “smart move.” He feels the new policy is good because it demonstrates the Chinese government’s power, helps stabilize the yuan, and “produces a tightening that works well in conjunction with tighter monetary policies to tighten credit,” which Dalio feels is appropriate.