Ray Dalio warns ‘capital wars’ could follow Trump’s actions, with countries dumping US assets

Billionaire investor Ray Dalio has warned that US President Donald Trump’s aggressive political direction could spark a new phase of global financial conflict, as foreign governments and investors reconsider their appetite for US assets amid rising unease and economic tensions.

“On the other side of trade deficits and trade wars, there are capital and capital wars,” Mr Dalio told CNBC’s Squawk Box at the World Economic Forum in Davos, Switzerland.

“If you take the conflicts, you can’t ignore the possibility of the capital wars. In other words, maybe there’s not the same inclination to buy at US debt and so on.”

The founder of Bridgewater Associates, one of the world’s largest hedge funds, is concerned that countries holding large amounts of US dollars and Treasurys may become less willing to finance US deficits if trust erodes. At the same time, the US continues to issue large volumes of debt, creating a problematic situation if confidence weakens on either side, Mr Dalio said.

“We know that both the holders of US dollars are denominated . . . and those who need it, the United States, are worried about each other. Right? So if you have other countries who are holding it, and they’re worried about each other, and we’re producing a lot of it, that’s a big issue,” he said.

Treasury prices tumbled Tuesday as investors weighed renewed tariff threats from Washington that revived fears of a trade war with Europe and spurred a flight away from US assets. The president has intensified his rhetoric on Greenland, threatening to impose new tariffs on countries opposing the sale of the Danish territory to the United States.

Mr Dalio said history offered multiple examples of similar episodes in which economic conflict escalated beyond trade into capital flows and currency disputes.

“When you have conflicts, international geopolitical conflicts, even allies do not want to hold each other’s debt. They prefer to go to a hard currency. This is logical and it’s factual, and it’s repeated throughout the world history,” he said.

Mr Dalio reiterated the importance of diversification, arguing that investors should not rely too heavily on any single asset class or country. He highlighted gold as a key hedge in periods of financial stress, recommending it make up between 5 per cent and 15 per cent of a typical portfolio.

“It does very well when other assets don’t do well,” Mr Dalio said. “It is an effective diversifier.”

Spot gold rose to an all-time high of $US4689.39 on Tuesday as investors flocked to safe-haven assets on intensifying tensions.

CNBC