Ray Dalio believes the tension between U.S. and North Korea should be accounted for when considering the markets.
Over the last few weeks, the back-and-forth between President Trump and Kim Jong Un, North Korea’s leader, has been widely publicized. Billionaire hedge-fund manager Ray Dalio has found the tension between these two leaders to be a seriously concerning situation that should be accounted for when considering the markets.
Dalio believes that the impact of this situation has been overlooked by the markets, which should be pricing in the elevated risk from a situation that threatens to boil over and potentially lead to an all-out war.
“The emerging risks appear more political than economic, which makes them especially challenging to price in,” said Dalio. “Two confrontational, nationalistic, and militaristic leaders playing chicken with each other, while the world is watching to see which one will be caught bluffing, or if there will be a hellacious war.”
Trump’s stance is even more worrisome when taking into account North Korea’s flaunting of military power, the latest being a statement of finalizing plans to launch four intermediate-range missiles that would land near the U.S. Pacific territory of Guam. For many, these statements highlight the possibility of a North Korean attack on U.S. cities, which caused already wary investors to pull back from further risk.
Dalio sees other problems with the administration as well, such as an increasing resemblance to populist governments of the 1930s, Congress’ potential inability to increase the debt ceiling due to fighting with Trump and the risk of a government shutdown later this year.
With these issues in mind, Dalio finds gold to be the most attractive asset in an environment of continuously-increasing mounting risk. A long-time advocate of the yellow metal, the famous investor recommends a 5% to 10% portfolio allocation to gold, whether to protect yourself against uncertainty or to deal with the consequences of a global economic or military crisis.
“We can also say that if the above things go badly, it would seem that gold (more than other safe haven assets like the dollar, yen, and treasuries) would benefit,” he explained.