Bridgewater Associates, the world’s largest hedge fund, is warning investors that the global financial system is on the brink of a “once-in-a-generation” paradigm shift with potentially destabilizing consequences.
In its latest memo to clients, the fund's three co-CIOs, Bob Prince, Greg Jensen, and Karen Karniol-Tambour, wrote, “We are now facing a radically different economic and market environment that threatens the existing world order and monetary system.”
The hedge fund cited macroeconomic and geopolitical changes under President Trump, erratic investor behavior, and the disruptive rise of artificial intelligence as key catalysts driving the transition.
In this new environment, Bridgewater argues, the Federal Reserve’s traditional toolkit — cutting rates and printing money — may backfire by fueling stagflation, a toxic mix of rising inflation, high unemployment, and slowing growth.
According to the firm, this paradigm shift could spell trouble for portfolios concentrated in U.S. assets. “We see exceptional risks to U.S. assets, which are dependent on foreign inflows,” the CIOs warn.
This outlook echoes Bridgewater founder Ray Dalio's recent warning that the U.S. economy is barreling toward something “much worse than a recession,” as tariffs, ballooning debt, and fraying China ties destabilize the global monetary system.
Markets remain on edge
Stocks have rebounded this week after speculations that the Trump administration may ease up on its most aggressive trade war proposals.
The bond market has also stabilized. The 10-year Treasury yield, which spiked to 4.58% earlier this month — its biggest weekly jump since 2001 — has since pulled back to 4.31%.
Still, uncertainty looms large. Whiplash after whiplash in trade policy have left investors rattled, and April is shaping up to be the most volatile month for stocks since the March 2020 pandemic crash.
Despite signs of return to normalcy in policy, recession fears remain front and center. Major banks now peg the odds of a U.S. downturn between 40% and 60%.
The International Monetary Fund also joined the recession camp this week, with IMF Managing Director Kristalina Georgieva calling a 2025 U.S. recession “a self-inflicted injury that I guarantee you we would regret.”
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