In a blog post, hedge fund king Ray Dalio said Americans are more divided socially and economically than since the deep, dark days of the Great Depression. He also opined that the world is heading into another global conflict.
The head of $150.0 billion Bridgewater Associates, LP compared the current U.S. climate to 1937, the year Adolf Hitler rallied Germans in the run-up to World War II and as the U.S. economy continued to plunge deeper into the Great Depression that began in 1929.
“It seems to me that we are now economically and socially divided and burdened in ways that are broadly analogous to 1937,” Dalio wrote. “During such times conflicts [both internal and external] increase, populism emerges, democracies are threatened and wars can occur. I can’t say how bad this time around will get. I’m watching how conflict is being handled as a guide, and I’m not encouraged.”
Dalio’s insight comes at a time when the U.S. is confronting its past over race relations and historical revisionism, political divide in Washington is growing, stalemate in the capital is preventing anything from getting done, the U.S. economy is not as strong as Wall Street wants us to believe, the U.S. markets are stalling, and tensions with North Korea continue to escalate.
The future doesn’t exactly look bright in Dalio’s world. He went on to say that historically, democracies are healthy “when the principles that bind people are stronger than those that divide them, when the rule of law governs disputes, and when compromises are made for the good of the whole—and that democracies are threatened when the principles that divide people are more strongly held than those that bind them and when divided people are more inclined to fight than work to resolve their differences.”
Those conflicts are preventing any chance of reconciliation and the social and economic divide has created a fractured economy.
On the surface, Dalio says, the U.S. economy appears to be doing fine, but the data doesn’t support this belief. When you look at the numbers, “it’s clear that some are doing extraordinarily well and others are doing terribly, with gaps in wealth and income being the greatest since the 1930s.”
To back up his claims, Dalio points to a Gallup poll that shows Trump’s approval rating among Republicans is at 79%, while among Democrats, it’s seven percent. Of those who approve of Trump, 61% say nothing could make them disapprove of his job as President, and 57% who disapprove of Trump say they are never going to change their mind on his performance.
At the same time, 40% back the President’s impeachment, with sentiment running along party lines.
The majority of Americans disagree with country’s leadership and the direction it is heading in. Americans are “more inclined to fight for what they believe than try to figure out how to get beyond their disagreements and work productively based on shared principles.”
Where does that leave the U.S.?
While Dalio sees no important economic risks on the horizon, he is concerned about growing internal and external conflicts leading to further gridlock and an inability to pass legislation and other conflicts.
Dali concluded by saying that his fund continues to watch how the conflict in Washington unfolds while “tactically reducing our risk” to the current climate that is “not being handled well.”
Dalio doesn’t explicitly say what that entails, but he has not been shy in the past to encourage investors to take a defensive position and buy precious metals like gold when global conflicts arise.
“The Principles That Divide Us Might be Greater Than Those That Bind Us Together,” LinkedIn Corp, August 21, 2017.