Bridgewater Associates, the world's largest hedge fund, has issued a stark warning about a fundamental shift in the global economic and geopolitical landscape. The firm's top investment executives - Bob Prince, Greg Jensen, and Karen Karniol-Tambour - have alerted clients to what they describe as a transition from an era of globalization and free trade to one of "modern mercantilism."

In their latest communication, the investment chiefs highlight several key points:

1. The world is moving away from post-war globalization towards increased government intervention in economies.

2. This shift poses an "urgent threat" to markets and investors' portfolios, particularly those heavily weighted towards U.S. assets.

3. There's a growing risk of a policy-induced economic slowdown, with an increasing probability of recession.

4. The Federal Reserve may face constraints in implementing interest rate cuts due to inflation risks.

5. U.S. assets are seen as particularly vulnerable due to their dependence on foreign capital inflows.

6. While acknowledging the potential of AI, they caution against assuming clear winners in this sector, drawing parallels to the early stages of the dot-com boom.

The Bridgewater team suggests that many current investment portfolios are ill-prepared for this new paradigm, as they reflect winners from the previous era, such as U.S. equities. They anticipate weaker growth, reduced central bank flexibility, and potential underperformance of stocks, particularly in the U.S.

Ray Dalio, Bridgewater's founder, has been vocal about these changes for some time. He emphasizes the need for a "beautiful rebalancing" in U.S.-China trade relations, pointing out unsustainable imbalances that must be addressed to avoid potential economic crises.

This warning from one of the world's most influential investment firms underscores the need for investors and policymakers to carefully consider the changing global economic landscape and its potential impacts on markets and investment strategies.