What Ray Dalio Thinks Of The “Trump Phenomenon”

While Ray Dalio has held various strong opinions on the markets and the global economic system (sadly his “beautiful deleveraging” thesis turned out to be a “monstrous releveraging” coupled with negative interest rates) as behooves the head of the world’s largest hedge fund, he has rarely ventured into social or political commentary. Which is why we were surprised to hear him discuss what has become the dominant topic of the day in recent months: Donald Trump.

Below we present a transcript excerpt from an interview Bloomberg’s TV’s Erik Schtatzker conducted with Dalio last week in which, more interesting than Dalio’s thoughts on China, monetary policy or the debt cycle, we hear Dalio’s thoughts on the rising tide of social anger.

SCHATZKER:  Ray, I’m curious to know because we talked a lot about the machine, we talked a lot about cycles and how the economy works. What role does politics play in that? American politics is attracting an enormous amount of attention.  Two days ago we had Super Tuesday.  It seems as though Mr. Trump is on his way to winning the Republican nomination.  Things could change.  Do you have to recalibrate your models to account for things like that?

DALIO:  I’m going to take the first part of the question rather than the recalibrate part of the question, just to be answering.   If you go on the Web, YouTube, I’ll plug for there, I took 30 minutes to say how the economic machine works.  And there’s a part that will explain everything I know.  

And basically what happens is there is a part in the cycle where there is tension.  And when you get to this phase of the cycle, there is tension between the haves and have-nots and also there’s a frustration with government. 

And what is happening in the United States is not very much different than what is happening in Spain or what is happening in many countries, that there is a frustration.  

We have a situation in which emotionally charged individuals, who may not be well informed in choosing leader, might select leaders who are not capable and are emotional themselves.  

And if that happens in these countries, which is more prone to happen in these circumstances where there are these tensions, then that means that you get a type of leadership which handles the situations worse than if you had more capable, more moderate type of people who understand how the machine works and how they deal with it. 

So whose hands it is in is important.  OK.  And how fragmentation exists, if where one group, fighting against another group, it is going to be bad.  If there is, in a sense, a moderation and a bringing together of people in terms of a common mission and thoughtful disagreement, while we’re talking about thoughtful disagreement, if you can work your way through to get at the right answers, then this is all manageable. 

So politics does matter.  In answer to your question of how we deal with, we measure what their actions are.  And based on their actual actions, then we make our responses.

The “market” will certainly be curious to see what Dalio’s “response” will be, and how he will be trading the “Trump phenomenon”, if and when the Donald is just a few months, weeks and/or days, away from the White House.