"Modern Mercantilism" Poses Threat to U.S. Assets
On April 24 (local time), three co-Chief Investment Officers (CIOs) of Bridgewater Associates, the world's largest hedge fund, warned that the economic policies of the Donald Trump administration could trigger a recession in the United States.
According to CNBC and other media outlets, CIOs Bob Prince, Greg Jensen, and Karen Karniol-Tambour expressed their concerns in a newsletter the previous evening. They stated that the Trump administration is rapidly shifting toward "modern mercantilism," which is increasing the possibility of a U.S. recession and heightening risks for U.S. assets that rely on foreign capital flows.
The CIOs stated, "We expect a recession caused by policy, and the likelihood of a recession is increasing."
After President Trump initiated a trade war, U.S. stock markets plummeted, a wave of Treasury sell-offs followed, and the dollar hit its lowest level in three years. Concerns are mounting that President Trump's pressure on Jerome Powell, Chair of the Federal Reserve, to resign could deal a significant blow to assets. The S&P 500 index has fallen by about 8.3% so far this year as of this date. On Wall Street, some suggest that this broad-based decline could be a sign that foreign investors are pulling out of the United States.
The CIOs predicted that assets such as U.S. stocks, which have benefited from strong economic growth and an active Fed in the past, will soon face risks.
In the newsletter, the CIOs noted that such changes in asset allocation could pose risks if the future differs from the past. They pointed out that many investment portfolios are becoming increasingly vulnerable due to four factors: a slowdown in growth; central banks' inability to respond to problems with easing policies; poor performance in the stock market; and the underperformance of the U.S. market compared to other countries.
They explained that although investment returns on U.S. assets have outperformed other regions over the past decade, this trend may not be repeated due to the impact of Trump administration policies. Karniol-Tambour, one of the CIOs, had described U.S. stocks as "good assets to hold" after President Trump's election victory in November of last year. However, her latest comments represent a reversal of her previous stance.
CNBC predicted that the combination of a potential recession and moves to exit the U.S. could upend the traditional investment wisdom that U.S. financial assets and economic growth have outpaced other countries over the past decade.
Bridgewater Associates, founded in 1975 by "hedge fund legend" Ray Dalio, is the world's largest hedge fund by assets under management. The firm gained its reputation by predicting the 2008 global financial crisis and protecting its fund assets even in turbulent market conditions.
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