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 interest in U.S. assets amid rising anxiety and economic tensions.
“Behind every trade deficit and trade war, there are capital wars and capital wars,” Dalio told CNBC’s “Squawk Box” at the World Economic Forum in Davos, Switzerland. “Given the conflict, we cannot ignore the possibility of a capital war. In other words, the propensity to buy things like U.S. Treasuries may not be the same.”
The founder of Bridgewater Associates, one of the world’s largest hedge funds, worries that a loss of confidence could make countries with large holdings of U.S. dollars and U.S. Treasuries less willing to finance U.S. deficits. At the same time, Dalio said, the United States continues to issue large amounts of debt, creating a problematic situation if confidence on either side weakens.
“We know that both holders of US dollars are denominated in US dollars…and the United States, the country that needs it, is worried about each other, right? So if other countries are holding US dollars and they’re worrying about each other, and we’re producing a lot of dollars, that’s a big problem,” he said.
U.S. Treasury prices fell on Tuesday as investors rekindled concerns about a trade war with Europe and weighed the threat of new U.S. government tariffs, prompting a flight from U.S. assets. The president has stepped up his rhetoric on Greenland, threatening to impose new tariffs on countries that oppose the sale of Danish territory to the United States.
Dalio said there are similar instances in history where economic disputes escalated beyond trade into capital transfer and currency disputes.
“When there is a conflict or an international geopolitical dispute, even allies don’t want to be in debt to each other. They prefer hard currency. This is logical, it is a fact, and it has been repeated throughout the history of the world,” he said.
Dalio reiterated the importance of diversification, arguing that investors should not become overly reliant on any one asset class or country. He highlighted gold as an important hedge during times of financial stress, recommending that a typical portfolio should consist of 5% to 15% gold.
“The company is doing very well even if other assets are not performing well,” Dalio said. “It’s an effective means of diversification.”
Spot gold rose to a record high of $4,689.39 on Tuesday as investors flocked to safe-haven assets as tensions escalated.
