Key Takeaways
- • Ray Dalio, founder of Bridgewater Associates, warned at the World Economic Forum in Davos on Tuesday that President Donald Trump's aggressive political direction could trigger "capital wars," with foreign governments and investors reducing their appetite for U.S. assets.
- • Dalio said foreign holders of U.S. Treasurys and dollars may become less willing to finance U.S. deficits if trust erodes, at a time when the U.S. continues to issue large volumes of debt.
- • Treasury prices fell Tuesday as renewed tariff threats tied to Greenland revived fears of a trade war with Europe and prompted a flight from U.S. assets.
- • Spot gold rose to an all-time high of $4,689.39 on Tuesday as investors sought safe-haven assets.
- • Dalio recommended gold make up 5% to 15% of a typical portfolio as a diversifier during periods of financial stress.
Summary
Billionaire investor Ray Dalio warned on Tuesday that President Donald Trump's aggressive political direction could spark a new phase of global financial conflict, as foreign governments and investors reconsider their appetite for U.S. assets. Speaking to CNBC's "Squawk Box" at the World Economic Forum in Davos, Switzerland, Dalio said that "on the other side of trade deficits and trade wars, there are capital and capital wars," adding that "maybe there's not the same inclination to buy at U.S. debt and so on."
Dalio, founder of Bridgewater Associates, one of the world's largest hedge funds, said countries holding large amounts of U.S. dollars and Treasurys may become less willing to finance U.S. deficits if trust erodes. He noted the U.S. continues to issue large volumes of debt, which creates a problematic situation if confidence weakens on either side. He also argued that history offers multiple examples of economic conflict escalating beyond trade into capital flows and currency disputes, stating that even allies "prefer to go to a hard currency" during geopolitical conflicts.
The warning came as Treasury prices tumbled on Tuesday. Investors weighed renewed tariff threats from Washington that revived fears of a trade war with Europe and spurred a flight away from U.S. assets. The president has intensified his rhetoric on Greenland, threatening new tariffs on countries opposing the sale of the Danish territory to the United States.
Dalio reiterated the importance of diversification and highlighted gold as a key hedge during financial stress, recommending it comprise between 5% and 15% of a typical portfolio. "It does very well when other assets don't do well," he said. "It is an effective diversifier." Spot gold rose to an all-time high of $4,689.39 on Tuesday as investors flocked to safe-haven assets amid intensifying tensions.
Dalio, founder of Bridgewater Associates, one of the world's largest hedge funds, said countries holding large amounts of U.S. dollars and Treasurys may become less willing to finance U.S. deficits if trust erodes. He noted the U.S. continues to issue large volumes of debt, which creates a problematic situation if confidence weakens on either side. He also argued that history offers multiple examples of economic conflict escalating beyond trade into capital flows and currency disputes, stating that even allies "prefer to go to a hard currency" during geopolitical conflicts.
The warning came as Treasury prices tumbled on Tuesday. Investors weighed renewed tariff threats from Washington that revived fears of a trade war with Europe and spurred a flight away from U.S. assets. The president has intensified his rhetoric on Greenland, threatening new tariffs on countries opposing the sale of the Danish territory to the United States.
Dalio reiterated the importance of diversification and highlighted gold as a key hedge during financial stress, recommending it comprise between 5% and 15% of a typical portfolio. "It does very well when other assets don't do well," he said. "It is an effective diversifier." Spot gold rose to an all-time high of $4,689.39 on Tuesday as investors flocked to safe-haven assets amid intensifying tensions.
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