News: The storm clouds in Ray Dalio’s crystal ball

Thursday, August 1, 2024

The storm clouds in Ray Dalio’s crystal ball

Aug 01, 2024

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QUICK FIX

Bridgewater Associates Founder Ray Dalio likes to use evocative language when he describes how he thinks the U.S. could begin its slide from global dominance.

The billionaire founder of the world’s largest hedge fund pegs the likelihood of “some sort of civil war” befalling the U.S. at anywhere between 35 percent and 50 percent over the next year. Deep political divisions, coupled with rising levels of debt and growing geopolitical uncertainty have created a dangerous mix that could — depending on how the public responds to the outcome of the election — cause a breakdown of our legal system, he told Sam.

It would “be a rule-breaking conflict between those of the left and those of the right,” he said.

Warnings about the dangers of partisan factions have been a staple of American political discourse since President George Washington delivered his farewell address. U.S. history is dotted with periods when divisions led to tremendous upheaval and violence. To be sure, Dalio writes often and extensively about the historical forces that could cause the global order to shift in the coming years.

But a big reason the domestic risks are particularly acute is the possibility that many of former President Donald Trump’s supporters have come to believe he is “a God-sent savior who they follow [with] fanatical devotion and a win-at-all-costs mindset,” according to Dalio.

If Trump loses a tight race to Vice President Kamala Harris, there is a good chance those followers won’t accept the outcome, he says.

“So, when you ask me my odds of some type of civil war, I ask myself whether people will follow the rules — like the election results and court decisions over the next few years — and I would say that the odds of people choosing not to follow the rules is 35-50 percent given everything that is happening,” he says. “I am surprised that people think that my odds of that sort of breakdown of our system are high.”

He cautioned that a civil would not necessarily translate into a violent domestic conflict. And even though he views Trump’s cult of personality as a risk in regard to the upcoming election, he does not see a positive market reaction if Harris and the Democrats succeed.

Democrats “tend to be in favor of less free market capitalism, more government regulations, more redistribution of wealth, smaller pay gaps based on performances, and less traditional social values,” he said. That characterization isn’t strictly black or white, he said, but generally speaking, “the capitalists and the markets will likely react more favorably to a Republican win and less favorably to a Democratic one.”

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Driving the day

Second-quarter productivity will be released at 8:30 a.m. … The ISM Manufacturing Index for July will be released at 10 a.m. … The SEC has a closed meeting at 2 p.m.

Fed poised for September cut — Federal Reserve officials held borrowing costs steady Wednesday but suggested that price spikes are no longer their sole concern for the economy, in a sign that they could cut interest rates as soon as September, Victoria Guida reports.

In a statement following two days of meetings, the central bank's rate-setting committee acknowledged that the unemployment rate has moved up — though at 4.1 percent, it remains low — and that inflation has moved closer to its 2 percent target.

"The economic outlook is uncertain, and the Committee is attentive to the risks on both sides of its dual mandate," according to the statement, a reference to the Fed's statutory goals of price stability and maximum employment.

The wording shift is significant. For many months, the statement said instead that the committee was "highly attentive to inflation risks."

As Victoria writes in a new story, the Fed’s moves could be a boon for Vice President Kamala Harris: “The Biden administration has struggled to convince voters that the economy is doing well, despite low unemployment and rising pay. That's largely because Republicans have hammered the Democrats over consumer prices, which are up roughly 20 percent since President Joe Biden took office, outpacing wages.

“Now, with the prospect of a rate cut in the coming months, Harris and Democrats can at least argue that the economy is finally turning the corner on inflation.

“‘Lower interest rates will be doubly positive news to consumers,” said Ernie Tedeschi, a former Biden White House official. “They’re welcome news in their own right, but lower rates will also punctuate the better inflation data throughout the economy.’”

Harris’s crypto conundrum — Kamala Harris is unleashing a burst of unity among Democrats. But as Jasper and Eleanor Mueller write in a new story, a fight over cryptocurrency is threatening the good vibes.

Competing factions of Democrats are pushing Harris to adopt their position on crypto policy, an issue that’s taken on outsize political importance because of the industry’s massive spending on this year’s elections.

Pro-crypto Democrats are lobbying Harris to start taking a friendlier approach to digital asset firms, which have faced tough enforcement actions from President Joe Biden’s regulators. The push risks alienating prominent skeptics like Sen. Elizabeth Warren of Massachusetts who have argued that crypto poses major risks to consumers, the financial system and the fight against money laundering. A softer approach would also be a break from Biden.

A finreg wish list for the left — What would Democrats' financial regulation agenda look like in the next administration? Graham Steele, a former Biden Treasury Department official, is out this morning with a new Roosevelt Institute policy brief on what progressives should be pushing for. Among the ideas: increasing capital and leverage requirements for the biggest banks, creating a new regulatory framework for "domestic systemically important banks," regulating volatile deposits and limiting banks' powers to engage in crypto and commodities trading.

Regulatory Corner

Credit card late fee mix-up — From our Michael Stratford: The Biden administration’s $8 cap on credit card late fees has been on pause for months in response to a lawsuit by bank industry and business groups.

But a few lenders have voluntarily gone along with the CFPB rule in the meantime: MM earlier this year reported that PNC quietly reduced its credit card late fees to $8; and Wells Fargo unveiled a new credit card without any late fee.

Another large lender, Citizens Bank, similarly displayed an $8 late fee on its website as recently as Tuesday evening. But on Wednesday, a few hours after POLITICO inquired about the lower fees, the bank changed its website disclosures to list late fees were “up to $41.”

Michelle King Savio, a Citizens spokesperson, said in an email that the earlier regulatory disclosures were “incorrect” and had now been “updated reflecting the accurate information related to late fees.” It wasn’t clear how long those disclosures were available online. “I can confirm that Citizens has not implemented the $8 late fee,” she said.

The mix-up comes as Vice President Kamala Harris vowed this week to expand the Biden administration’s fight against bank fees if she’s elected. “We will ban more of those hidden fees and surprise late charges that banks and other companies use to pad their profits,” Harris said at a rally Tuesday in Atlanta.

Crypto

Crypto spends big on lobbying — POLITICO’s Influence newsletter has a look at the crypto industry’s lobbying efforts in the first half of 2024. The sector poured almost $13 million into federal influence efforts through the first half of the year, according to a PI analysis of lobbying disclosures. (H/t Caitlin Oprysko.)

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Climate

Dems press CFTC on carbon trading — Nine Democratic lawmakers are urging the CFTC to finalize “rigorous” guidance for carbon credit trading and are weighing legislation to bolster the agency's authority, our Jordan Wolman reports.

In a letter led by Rep. Doris Matsui (D-Calif.) and Sens. Cory Booker (D-N.J.) and Sheldon Whitehouse (D-R.I.), the lawmakers warn CFTC Chair Rostin Behnam that the voluntary carbon market is riddled with fraud and lacks transparency.

2024 CAMPAIGN TRAIL

Harris vows to continue bank fee crackdown — Vice President Kamala Harris is promising to expand the Biden administration’s fight against bank fees as part of her economic agenda to lower costs for families, Michael reports.

“On day one, I will take on price gouging and bring down costs,” Harris said at a rally Tuesday night in Atlanta. “We will ban more of those hidden fees and surprise late charges that banks and other companies use to pad their profits.”

VCs for Harris — More than 200 venture capitalists, startup founders and tech leaders pledged on Wednesday to support Harris’s run for the presidency, Brendan Bordelon and Jeremy B. White report.

Signatories include venture capitalists Mark Cuban, Vinod Khosla and Ron Conway, LinkedIn founder Reid Hoffman (who has already donated $7 million to the Harris campaign), and many other tech leaders in a list that lengthened during the day. The group appears to be led by Conway, a longtime Harris donor who had pledged his support for the vice president last week.

Jobs report

People moves — Chris Maneval is joining the public affairs firm Porterfield, Fettig & Sears. He was previously Deputy Chief of Staff in House Majority Whip Tom Emmer’s office.

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