Hedge fund billionaire Ray Dalio, founder of the $160 billion behemoth Bridgewater Associates, believes we’ll see a major boost in the economy after President-elect Donald Trump takes office.
I don’t know Mr. Dalio personally but I know a number of people who do, and they agree that he is brilliant. On December 19, Dalio posted a lengthy editorial on LinkedIn with his thoughts on what to expect from the Trump administration.
His views are controversial (no surprise there), and I don’t necessarily agree with all of them, but they are very interesting nonetheless. The piece is too long to reprint in-full, but here are some of the highlights (all emphasis is mine):
“Now that we’re a month past the election and most of the Cabinet posts have been filled, it is increasingly obvious that we are about to experience a profound, president-led ideological shift that will have a big impact on both the US and the world.
Trump is a deal maker who negotiates hard, and doesn’t mind getting banged around or banging others around. Similarly, the people he chose [for top administration posts] are bold and hell-bent on playing hardball to make big changes happen in economics and in foreign policy (as well as other areas such as education, environmental policies, etc.)…
[The Trump administration] wants to, and probably will, shift the environment from one that makes profit makers villains with limited power to one that makes them heroes with significant power. The shift from the past administration to this administration will probably be even more significant than the 1979-82 shift from the socialists to the capitalists in the UK, US, and Germany — when Margaret Thatcher, Ronald Reagan, and Helmut Kohl came to power.
This particular shift by the Trump administration could have a much bigger impact on the US economy than one would calculate on the basis of changes in tax and spending policies alone because it could ignite animal spirits and attract productive capital.
Regarding igniting animal spirits, if this administration can spark a virtuous cycle in which people can make money, the move out of cash (that pays them virtually nothing) to risk-on investments could be huge. Regarding attracting capital, Trump’s policies can also have a big impact because businessmen and investors move very quickly away from inhospitable environments to hospitable environments…
A pro-business US with its rule of law, political stability, property rights protections, and (soon to be) favorable corporate taxes offers a uniquely attractive environment for those who make money and/or have money. These policies will also have shocking negative impacts on certain sectors.
Regarding foreign policy, we should expect the Trump administration to be comparably aggressive. Notably, even before assuming the presidency, Trump is questioning the ‘One-China’ policy which is a shocking move. Policies pertaining to Iran, Mexico, and most other countries will probably also be aggressive.
The question is whether this administration will be a) aggressive and thoughtful or b) aggressive and reckless. The interactions between Trump, his heavy-weight advisors, and them with each other will likely determine the answer to this question… We are pretty sure that it won’t take long to find out.
Most notably, many of the people entering the new administration have held serious responsibilities that required pragmatism and sound judgment, with a notable skew toward businessmen.
We can get a rough sense of the experience of the new Trump administration by adding up the years major appointees have spent in relevant leadership positions. The table below compares the executive/government experience of the Trump administration’s top eight officials* to previous administrations — counting elected positions, government roles with major administrative responsibilities, or time as C-suite corporate executives or equivalent at mid-size or large companies.
Trump’s administration stands out for having by far the most business experience and a bit lower than average government experience… But the cumulative years of executive/ government experience of his appointees are second-highest…
Below we show some rough quantitative measures of the ideological shift to the right we’re likely to see under Trump and the Republican Congress. First, we look at the economic ideology of the incoming US Congress… As the chart below shows, the Republican members of Congress have shifted significantly to the right on economic issues since Reagan; Democratic congressmen have shifted a bit to the left…
When we look more specifically at the ideology of Trump’s Cabinet nominees, we see the same shift to the right on economic issues. Below we compare the ideology of Trump’s Cabinet nominees to those of prior administrations using the same methodology as described above for the Cabinet members who have been in the legislature…
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Due to space limitations, I have to leave it there for today. This at least gives you a sense for the big things Mr. Dalio expects of the Trump administration. Yet as I wrote on Tuesday, I worry that it may take longer than Trump or Dalio think it will take to get most of the new president’s policies and programs enacted. That could lead to some early national disappointment, especially among Trump supporters. We’ll see.
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