No Weakness Here

Yesterday, yet another Billionaire Bear issued a stark warning. This time it was Bridgewater Chief Investment Officer Ray Dalio who penned a piece comparing the current environment to 1937.

This was after an earlier in the month letter where Bridgewater warned that risks were rising, and that clients should have 5% to 10% of their portfolio in gold:

“Most immediately, during the calm of the August vacation season, we are seeing 1) 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, and 2) the odds of Congress failing to raise the debt ceiling (leading to a technical default, a temporary government shutdown, and increased loss of faith in the effectiveness of our political system) rising. It’s hard to bet on such things one way or another, so the best that one can do is be neutral to such possibilities.

“When it comes to assessing political matters (especially global geopolitics like the North Korea matter), we are very humble. We know that we don’t have a unique insight that we’d choose to bet on … 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, so if you don’t have 5-10% of your assets in gold as a hedge, we’d suggest you relook at this. Don’t let traditional biases, rather than an excellent analysis, stand in the way of you doing this (and if you do have an excellent analysis of why you shouldn’t have such an allocation to gold, we’d appreciate you sharing it with us.)”

Although I am sympathetic to Ray’s view that the dysfunction in Washington will cause American financial assets to underperform in the coming quarters, I wonder if we aren’t maybe overthinking the whole situation.