The difference the Trump and Obama administration? 83 years of business experience
A Trump presidency will be a boost for financial markets: this is the opinion of Ray Dalio, an internationally acclaimed investor and founder of the world’s largest hedge fund (Bridgewater Associates, with assets under management of over 10 trillion yen). Dalio is one of the world’s foremost investors. The cumulative returns of his fund since its inception exceed those of George Soros himself. He is known as the man who predicted the Lehman crisis, and positioned his funds accordingly, thereby avoiding the large-scale losses suffered by so many of his peers.
When Dalio speaks, even the politicians take notice. So why does he believe that Donald Trump will be good for financial markets? We take a look at his thoughts.
He considers five key points about Trump’s administration, from the perspective of what concerns financial markets and what they pay attention to. So far, with large-scale infrastructure investment and tax cuts viewed as stimulative for the US economy, stock markets around the world have risen in response to Trump’s election as President.
Dalio is as interested in Donald Trump’s personal qualities, as much as his policies and outspoken remarks. In particular he thinks Trump’s business skills are a defining characteristic.
1. Ambition and a desire “to get things done”
Dalio sees Trump as a “deal maker” and someone who does not flinch from the challenge of tough negotiations. His view is that the senior officials in the Trump cabinet are similarly driven with a “can do” attitude, and a desire to undertake major reform of the economy and of foreign policy. The driving characteristic of the Trump administration appears to be its determination to bring about significant changes in politics, the economy and the financial markets.
2. Business experience dwarfs that of previous administrations
In addition to the characteristics of the Trump administration, Dalio also looks at its business and political experience. The business experience of Trump’s top 8 officials by far outweighs that of previous governments. The sum total of their business experience is 83 years, while their combined experience in politics is 55 years. By contrast, the total years of business experience in the original Obama government was only five years, while its political experience totaled 117 years. The Obama cabinet focused in particular on selecting people with a high degree of political experience.
Although Trump’s cabinet has limited political experience as compared with previous administrations, its combined total of business experience and political experience at 138 years stands out as being high compared with previous regimes.
3. The most conservative administration out of recent US administrations
Dalio also looks at the ideology of Trump’s administration. He points out that ever since Ronald Reagan was president, the Republicans have had a conservative bias to their economic policy, whereas the Democrats have tended to lean more to the left in their economic approach. Trump’s administration is perceived as being conservative, and that is how Dalio expects its policies to unfold.
Dalio points out although Trump’s administration is the most conservative government in immediate history, it is only slightly more conservative than the average Republican congressman (as measured by voting records).
However, within the Republican Party, there are still major differences of opinion between Trump and some of his colleagues, with respect to free trade and tariffs for example.
4. Aggressive foreign policy
Dalio’s view is Trump's foreign policy will be relatively aggressive. The unknown is whether this aggressive stance is considered and well thought out or whether it is just reckless. The basis of this foreign policy will become clear soon.
5. A cabinet of business leaders
The Trump administration is effectively a group of successful businessmen, an ostensibly aggressive cabinet with high ambitions in the way it tackles issues and challenges. This will make for a very interesting next four years under Trump, given that he looks to be a President who is completely different to any other.
Trump is reawakening “animal spirits” in the financial markets
We have taken a look at Dalio’s analysis of the Trump administration. His view is that Trump will reawaken “animal spirits” (exuberance and ebullience) in the financial markets. The likelihood of a fundamental change in what America means and stands for under Trump, rather than just tax cuts and fiscal expansion, is what can really reinvigorate the financial markets and attract capital.
If Trump is successful in creating a virtuous circle of economic growth, Dalio sees the possibility of a significant shift in sentiment to “risk on” in financial markets (an expression used to describe investors’ increased tolerance of higher risk in search of higher returns and profit).
Trump's policies could have a huge impact
These days, capital can be moved around instantly. As far as the financial markets are concerned, unfavorable policies and regulations can have a major adverse effect on specific sectors, so money flows quickly in or out of these sectors in response to investors’ perception of the investment climate and environment.
So far, the Trump administration has been well-received, with financial markets starting to boom again. The impact of Trump on the economy, politics, and the financial markets, with his vastly different ideology and range of experience compared with his predecessors, could be very far-reaching indeed. Dalio’s view is that the effect of this fundamental change could be highly positive for financial markets.