Bridgewater Associates, the world’s largest hedge fund, has issued a stark warning to investors, pointing to a significant global shift that is altering economic and geopolitical landscapes. In their latest client letter, the firm’s three co-chief investors—Bob Prince, Greg Jensen, and Karen Karniol-Tambour—highlighted the dangers of being overexposed to US assets and urged investors to adapt to a new paradigm. According to the trio, the post-World War II era of globalization and free trade is giving way to a period of "modern mercantilism." This shift is characterized by greater government intervention in economies, using trade, foreign, and industrial policies to support specific companies and sectors. These policies aim to enhance national wealth, strength, and self-sufficiency, a trend exemplified by the Trump administration’s "America First" approach, which includes disrupting multinational corporations and upending trade and security agreements. The Bridgewater executives predict that this transition will pose an urgent threat to investors’ portfolios. They anticipate slower economic growth, reduced flexibility for the Federal Reserve to cut interest rates due to the risk of inflation, and potential underperformance in US stocks compared to foreign assets. They also noted that the current mix of global assets, heavily skewed towards US equities, reflects the beneficiaries of the previous economic order, and many portfolios are ill-prepared for the changes ahead. Additionally, they flagged the vulnerability of US assets, which rely heavily on foreign investment. This dependency, combined with the policy-induced slowdown and the increasing risk of recession, makes US assets particularly susceptible. The stock market, they suggested, is still pricing in strong earnings for companies despite these threats looming large. Dalio, the billionaire founder of Bridgewater and mentor to the co-chief investors, echoed similar concerns in a recent LinkedIn post. He described the current trade imbalance between the US and China as unsustainable, noting that the US has become overly dependent on inexpensive manufactured goods from countries like China, which has weakened its own manufacturing base and adversely affected a significant portion of its population. Conversely, China has grown too reliant on selling to and investing in the US and other developed nations. Dalio proposed a "beautiful rebalancing" of the trade relationship, which would involve the US reducing its deficit, boosting domestic manufacturing, curbing consumption, and lowering its debt burden. He emphasized the importance of a coordinated and well-managed approach to addressing these issues, ideally through cooperation with China. The Bridgewater leaders also touched on artificial intelligence (AI) as a transformative force. However, they caution that it is too early to determine the ultimate winners and whether those winners can sustain their success. They drew parallels to the early days of the dot-com boom, where initial promises were eventually realized, but US stocks underperformed Treasurys, gold, and emerging market equities for over a decade post-boom. Many leading tech stocks of that era also trailed the broader market. The warnings from Bridgewater are significant in the investment community, signaling a major shift in global economic dynamics. Industry insiders note that Bridgewater’s reputation for insightful and often prescient analysis means these predictions carry substantial weight. The firm is known for its rigorous research and strategic foresight, making its warnings a call to action for investors to reassess their portfolios and strategies. Bridgewater Associates, founded in 1975, manages around $150 billion in investments and is renowned for its unique corporate culture, transparency, and data-driven decision-making. Ray Dalio, the firm’s founder, has a long history of accurately predicting major economic trends, which further underscores the importance of his and his team’s current outlook.