Billionaire investor Ray Dalio warned Tuesday that President Donald Trump’s aggressive policies could trigger a new phase of global financial conflict as foreign governments and investors reconsider their appetite for U.S. assets amid rising unrest and economic tensions.
“On the other side of trade deficits and trade wars, there is capital and capital wars,” Dalio told CNBC’s “Squawk Box” at the World Economic Forum in Davos, Switzerland. “When you look at the conflicts, you can’t ignore the possibility of capital wars. In other words, maybe there isn’t the same inclination to buy U.S. debt and so on.”
The founder of Bridgewater Associates, one of the world’s largest hedge funds, worries that countries holding large amounts of U.S. dollars and government bonds may be less willing to finance U.S. deficits if confidence wanes. At the same time, the U.S. continues to issue large amounts of debt, creating a problematic situation as trust weakens on both sides, Dalio said.
“We know that both the holders of the U.S. dollar are denominated in U.S. dollars … and those who need it, the United States, are worried about each other. Is that right? So if there are other countries that hold it that are worried about each other, and we produce a lot of it, that’s a big problem,” he said.
Treasury bond prices plunged on Tuesday as investors weighed renewed tariff threats from Washington, reviving fears of a trade war with Europe and sparking a flight from U.S. assets. The president has ratcheted 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 history offers numerous examples of similar episodes in which economic conflicts escalated beyond trade to capital flows and currency disputes.
“When there are conflicts, international geopolitical conflicts, even allies don’t want to hold each other’s debts. They prefer to switch to a hard currency. This is logical and factual and repeats itself throughout world history,” he said.
Dalio reiterated the importance of diversification and argued that investors should not rely too heavily on a single asset class or country. He emphasized that gold is an important hedge in times of financial stress and recommended that it make up between 5% and 15% of a typical portfolio.
“It works very well when other assets are not doing well,” Dalio said. “It’s an effective diversifier.”
Spot gold prices rose to an all-time high of $4,689.39 on Tuesday as investors flocked to safe havens amid rising tensions.