Less than a week after Donald Trump won the presidency, the head of the world's biggest hedge fund, Ray Dalio, unexpectedly declared that he was a firm believer in Trump's policies in a lengthy LinkedIn article in which he praised the coming age of Trump: "there is a good chance that we are at one of those major reversals that last a decade (like the 1970-71 shift from the 1960s period of non-inflationary growth to the 1970s decade of stagflation, or the 1980s shift to disinflationary strong growth).... there’s a good chance that the economy/market will shift from what we have gotten used to and what we will experience over the next many years will be very different from that."
It now appears that Trump's honeymoon with some of the biggest asset managers is now officially over, because in his latest Daily Observations note, scooped by BBG, Dalio and co-CIO Bob Prince write that he’s becoming "more concerned that the damaging effects of President Donald Trump’s populist policies may overwhelm the benefits of his pro-business agenda."
“We are now in a period of time when how this balance tilts will be more important to the economy, markets, and our well-beings than normally dominant drivers such as central bank policies,” Dalio wrote. The duo added that the current investment environment is marked by “exceptional uncertainty” and recommended avoiding concentrated bets, and holding easy-to-sell assets.
And, as Bloomberg puts it, Dalio is "turning sour" on the new leader following his ban on visitors from seven mostly Muslim countries and his proposed border tax on Mexican goods. Earlier this month at the World Economic Forum in Davos, Dalio said it remains to be seen whether Trump is aggressive and thoughtful, or aggressive and reckless. So far the executives said they haven’t seen much thoughtfulness in Trump’s policy moves.
Voicing a tone of caution that has increasingly gripped markets as they shift away from the euphoria phase and revert back to reality, the Bridgewater authors write that “while there is a lot of potential to improve fiscal policies and make beneficial structural reforms (to enhance the business friendly environment, reduce regulatory inefficiencies, etc.), there is also significant risk that his populist policies could hurt the world economy (and worse),” Dalio and Prince said.
Their conclusion: “Nationalism, protectionism and militarism increase global tensions and the risks of conflict. For these reasons, while we remain open-minded, we are increasingly concerned about the emerging policies of the Trump administration,” they said.
As we will shortly show in a subsequent post, Wall Street disenchantment with Trump is growing fast - as expected - now that the market has failed to make new record highs in at least few days. The first correction, or worse, bear market, and the new president will suddenly find his hands full justifying his policies to the same Wall Street which until just a few weeks ago could not stop singing his praises... after completely failing to predict his victory, of course.