Ray Dalio's Gravest Warning Yet: "I Am Tactically Reducing Risk", U.S. Most Divided Since 1937

Tyler Durden's picture

Two weeks after Ray Dalio warned in his latest letter to Bridgewater clients that the right trade in the current environment is to buy gold in case "things go badly", the head of the world's biggest hedge fund is out with his gravest warning yet, saying that he is "concerned about growing internal and external conflict leading to impaired government efficiency." In his LinkedIn post, he writes that he "continues to closely watch how conflict is being handled a guide, and I’m not encouraged.”

Echoing a similar warning issued just days ago from perhaps the most prominent name in all of finance, Lord Jacob Rothschild, the head of the world's biggest hedge fund says that “conflicts have now intensified to the point that fighting to the death is probably more likely than reconciliation" and in a stark comparison to the days prior to World War II, observes that "politics will probably play a greater role in affecting markets than we have experienced any time before in our lifetimes but in a manner that is broadly similar to 1937."

Basically, Ray Dalio just compared the current political environment to the days just prior to the outbreak of World War II. That is probably not a coincidence.

His full LinkedIn note:

I believe that a) most realities happen over and over again in slightly different forms, b) good principles are effective ways of dealing with one's realities, and c) politics will probably play a greater role in affecting markets than we have experienced any time before in our lifetimes but in a manner that is broadly similar to 1937.


I'm essentially an economic mechanic who focuses on how reality works by studying the cause:effect relations and how they played out in history to help me bet on what's likely to occur. For reasons previously explained in "Populism..." it seems to me that we are now economically and socially divided and burdened in ways that are broadly analogous to 1937. 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.


History has shown that 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. Conflicts have now intensified to the point that fighting to the death is probably more likely than reconciliation.


Average numbers hide the depths of the divisions. For example, by looking at average figures, one might conclude that the United States economy is doing just fine, yet when one looks at the numbers that comprise those averages, 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.


Largely as a function of these economic differences and differences in the principles that people believe most deeply in, we are seeing large and increasingly firm political differences, which are apparent only by looking below the averages. For example, Donald Trump's approval rating of 35% is a result of 79% support among Republicans and 7% among Democrats (Gallop). Of those who approve of President Donald Trump, 61% say they can't think of anything Trump could do that would make them disapprove of his job as President, and 57% who disapprove of Trump say they are never going to change their minds on the President's job performance (Monmouth). Similarly 40% of those polled (PRRI) would favor Donald Trump’s impeachment, which consists of 72% of Democrats and 7% of Republicans, and most of them won't change their minds.


In other words, the majority of Americans appear to be strongly and intransigently in disagreement about our leadership and the direction of our country. They appear more inclined to fight for what they believe than to try to figure out how to get beyond their disagreements to work productively based on shared principles.


So, where does that leave us?


While I see no important economic risks on the horizon, I am concerned about growing internal and external conflict leading to impaired government efficiency (e.g. inabilities to pass legislation and set policies) and other conflicts.


I of course hope that the principles that bind us together are stronger than the ones that divide us. I believe that this is a time when it is especially important for us a) to be explicit about what our principles are in order to be clear about what we agree and disagree on, b) to practice the art of thoughtful disagreement, and c) to respect our ways of getting past our disagreements so we can start rowing in the same direction. I believe that how well this is done will have a greater effect on the economy, markets and our overall well-being than classic monetary and fiscal policies, so I continue to closely watch how conflict is handled while tactically reducing our risk to it not being handled well.

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FGH's picture

 I always believed government inaction and "inefficiency" was bullish. I guess it's different this time.

Life of Illusion's picture

Ray, you already been rowing reflation trade together with the FED..

Now your FED’s insider trade maxed out and ending,  so, blame on current leadership, typical you!


Not sure what Cohn will do next? Makes Ray a little nervous?

Son of Thor's picture

I’m making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do… http://disq.us/url?url=http%3A%2F%2Fwww.jobproplan.com%3A68UoF1LgzM-Yo3S...

mike_king's picture

Diversity+Proximity=WAR, every time. ALL Democrats are our enemy.

JRobby's picture

The Communists (30% to 40% ???) Of the US population do not know but definitely do not agree with the USA that existed up until the 1960's. These people know nothing of history and seek to erase it based on the lie they have been conditioned to.

The inflation 1970's followed by several rounds of "deregulation", 1980 to 2000, set the stage for now where an  acute backlash and division has formed and come to a head.

BandGap's picture

Why do pictures of this guy always look like he is picking up a puppy at the local dog pound?

J bones's picture

Because Wall Street is nothing but rainbows, puppy dogs and ice cream cones!

Deplorable's picture

What, me worried?

Greenspazm's picture

This demonstrates how to say absolutely nothing of any practical utility in 675 words.

blue51's picture

He basically is saying, albeit with too many words , buy more guns & ammo .

Omen IV's picture

yes - "So, where does that leave us" He said


He thinks Comey is an Ethical Guy - so why listen after that?

JRobby's picture

Because Comey had his back for years.

The Cooler King's picture

At least in 1938 we had 'Seabiscuit' & 'War Admiral'


We've degenerated to 'Trump' vs. 'Maxine Waters'

hedgeless_horseman's picture


Great book: Seabiscuit: An American Legend, by Laura Hillenbrand.

In regards to Seabiscuit vs. War Admiral as a distraction from war and the economy, we do have a similiar match up this weekend with McGregor vs. Mayweather.

I think McGregor is going to knock his fucking head off.


Regardless of the outcome, I'll drink a toast of uisce betha to Red Pollard, while watching the fight at the pub.

clade7's picture

So... you are pulling for the barefoot and bearded White guy?   Racist!  Tear down his shorts!

Father ¢hristmas's picture

Now you are letting your whiteness blind you.

There is no fucking way McGregor beats Mayweather.

corporatewhore's picture

What, no sarah jessica parker or chelsea clinton?


The Cooler King's picture

Never heard of em... Oh wait! Isn't chelsea clinton that one who rivals whatshername shultz for ugliest nag on the planet?

corporatewhore's picture

the one is possibly related to carrot top

The Cooler King's picture

Only if 'carrot top' was in the MEDUSA family tree

Bay of Pigs's picture

"Democracies are threatened "?

What planet has this guy been on since 9/11? Patriot Act? DHS? TSA? NDAA?

Clowns on Acid's picture

Ray's "Monetary Democracy" is threatened.

besnook's picture

dalio is anti populist. he is a zionazi. no power to the people, they are dangerous to his fortune.

tattmaster's picture

What a load of sheet.  Didn't even having have time to get to the potty reading this one.  Jesus, what a creepy guy.

taketheredpill's picture



Difference between 1937 and today is that back then, regardless of whether you voted Dem/Rep,  people considered themselves Citizens.

With Citizens, compromise is possible on the basis of a shared vision, common ground.  


Today people have been trnasformed into self-dealing Consumers.  Nobody cares about anybody else but themselves and few people closest to themselves.


Falconsixone's picture

Who gives a shit what your doing?

When is enough enough?

Ever think about using some of that money for something other than hording before you head to hells hedge fund ?


You said work...lol

totenkopf88's picture

Largest Misallocation of Capital in Human History

wmbz's picture

"I don't make jokes,  I just watch the government and report the facts."  ~Will Rogers

gregga777's picture

The Democratic Party was/is the party:

* of slavery-Northern and Southern Democrats uniformly protected slavery prior to the Civil War;
* that started the Civil War;
* of John Wilkes Booth, who assassinated Republican President Abraham Lincoln;
* that created the KKK (Klu Klux Klan) (not to be confused with the Klinton Krime Klan);
* of the Southern Jim Crow laws;
* the Southern poll taxes to keep Blacks from voting;
* that segregated the Federal civil service—effectively firing any Blacks—and the US Armed Forces prior to WW1 and that also nearly single-handedly revived the dying Klu Klux Klan (thanks to the Demo-Marxist hero and vile white supremacist Woodrow Wilson);
* Republicans freed the slaves yet about 95% of black Americans incomprehensibly give Democrats their total devotion and allegiance;
* promised to keep the United States out of WW1 and then promptly reneged on that promise after the inauguration (thanks again to Woodrow Wilson);
* of the more than 500,000 man American commitment to the Vietnam War that they later demonized;
* of Northern racial segregation by zoning law fiat;
* that decided to blame the Vietnam War on the men and women who served there, demonizing them for having served;
* that created the Federal government's organs of state propaganda by allowing six Crony Capitalist CONporations to acquire ownership of at least 90% of all news Media and entertainment companies (thanks to William Jefferson "Bill the Rapist" Clinton);
* that created the notorious KKK (Klinton Krime Klan);

I've never voted for a Demo-Marxist Party political parasites and I never will. Not that I have any respect for the Repussican Party, but I absolutely loathe the Demo-Marxists.

dark pools of soros's picture

and of course those polls are as accurate as they were for the election

EmeraldWI's picture

Union membership in 1937 was about the same as today except this time around it won't pop to 40% of the workforce. An additional 50 million working would fund SSI and Medicare for all and balance the budget. The paymasters don't want to pay wages in this country so that's not going to happen. Capitalism needs to be messed with or the units of labor are consumed.

Clowns on Acid's picture

No mention of Fed printing money out of thin air and its impact on socio-econommic fabric of US....interesting....ever think of that Ray in your "society is fracturing statement "? Have you considered Obama's policies of flooding the US with 30MM illegals as well as low skilled "refugees from violent societies as being a major factor in the "fracturing"

In 1937...8 years after 1929 collapse...hey its 8 years after the Bank HOLDING companies were bailed out and further enriched.....of course that didn't happen in 1929...did it Ray?

What happened in 1937 that reminds you of today Ray? The Fed's policy of sterilzing gold by fixing the price to $35/oz? Couldn't print gold back then Ray ....big difference. It appears that you are appealing to Mr Yellen to announce NO further rate hikes and MOAR QE...are you Ray?

Tell us really what you are saying Ray...your message is not transparent or revealing.


Bay of Pigs's picture


Yes, 1937. I was wondering if Ray knew all that and understood what it means. Maybe he should ZH if he wants some clarity on his own remarks?

Wahooo's picture

Hey Ray, shaddup and play the guitar!

Stan Smith's picture

If Ray showed a hint of concern over the perpetual money printing machine known as the Fed,  I'd take his concerns more seriously.   Seeing as he and has investors have been getting rich off of this,  it's a little hard to stomach.

He's not entirely wrong by the way.    But had this concern risen years ago I'd take it more seriously.

naro's picture

Capitalism cannot exist without government injection of currency.

Blankenstein's picture

> implying that the Federal Reserve is federal and not privately owned

buzzsaw99's picture

needs moar cowbell

Solio's picture

They misheard you and thought you said need needs more cobalt (60.)

DrData02's picture

Name a single principle that binds the residents of this country together. -- There is none. We used to be a people, a nation. But no longer. The USA in now nothing more than an aggregation of people.

gunsnmoney's picture

That's two things, he said one. I downvote you

Archibald Buttle's picture

now that  there is the funniest joke i've heard all day. almost peed my pants.