Late Monday, Ray Dalio returned to his favorite publishing platform, LinkedIn, to opine on what Donald Trump's emerging vision America might mean for markets and the economy. The exercise in radical transparency came to one central takeaway: Dust off your copy of Atlas Shrugged.
Regarding economics, if you haven’t read Ayn Rand lately, I suggest that you do as her books pretty well capture the mindset. This new administration hates weak, unproductive, socialist people and policies, and it admires strong, can-do, profit makers. It 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.
With his White House quickly filling with billionaires and generals, Trump is set to unleash the powers of capital with greater force than anyone since Reagan and Thatcher, the Bridgewater Associates founder wrote. In fact, Dalio had to plumb the historical record even further to find a suitable analogy: “You might reflect on China’s political/economic shift as marked by moving from ‘protecting the iron rice bowl’ to believing that ‘it’s glorious to be rich.’”
Gloriously rich Dalio has apparently become more convinced of the Trump administration's ability to kickstart economic growth since his last letter, in which he tentatively concluded, “They probably won’t recklessly and stupidly drive the economy into a ditch.” It's not just tax cuts and deregulation that will get the profit machine humming, though. Trump is set to bring back everyone's favorite stimulus policy: animal spirits.
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. Remember how quickly money left and came back to places like Spain and Argentina? 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.
Not all is peachy keen, however. Dalio warns that Trump's policies “will also have shocking negative impacts on certain sectors.” To keep us on our toes for his next LinkedIn missive, presumably, Dalio does not name what those sectors are.
But foreign policy might be a risk, given Trump hair-trigger Twitter finger. Whether the Trump administration is “aggressive and thoughtful” or “aggressive and reckless,” Dalio wrote, “it won’t take long to find out.”