The rhetorical battle between the U.S. and Russia has heated up during Russia's war against Ukraine. Both Russian President Vladimir Putin and U.S. President Joe Biden have launched harsh criticism against each other.
The U.S. has applied harsh economic sanctions against Russia, and Putin has put Russia's nuclear forces on high alert. The relationship between the U.S. and Russia is returning to the Cold War footing of the 1950s through 1980s.
So what are the odds that this Cold War could turn into a hot war?
Hedge fund star Ray Dalio, chief investment officer at Bridgewater Associates, sees a small chance that the Russia-Ukraine conflict could morph into a war between Russia and NATO countries.
“My experiences over my lifetime have been that when push came to shove, all sides, when faced with the choice of pulling back or experiencing mutually assured destruction, chose pulling back from hot wars,” he wrote in a LinkedIn post.
“For that reason, I believe it’s too early to consider the movement to a hot war between Russia and NATO countries likely.”
But the probability is more than zero, Dalio said.
“At the same time, I believe that they [the odds of a hot war between Russia and NATO] aren’t low enough for me to not consider and protect myself against the possibility,” Dalio said.
As for financial protection, Dalio had some insights there, too.
“When hot wars happen, classically it pays to sell out of debt and buy gold,” he said. That’s “because wars are financed by borrowing and printing money, which devalues debt and money, and because there is a justifiable reluctance to accept credit.”
One crucial issue is how supportive China will be of Russia, Dalio said.
“Most interesting are the questions related to using the Chinese currency and its clearing system, (most importantly the development and increased usage of the [digital yuan] and the reduction in U.S. sanction powers via its control over SWIFT),” he said.
“To be clear, I’m not saying that China will help in this way. I think a more compelling argument can be made for China not helping.”
So if there is a hot war, who would prevail?
“Those who are most likely to win hot wars aren't the most powerful,” Dalio said. “They are the ones who can endure the most pain for the longest amount of time. In this regard the Russians and the Chinese are stronger than the Westerners.”
