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Wall Street:
Many players in the financial market are currently betting on falling prices and a recession in the USA
Photo: ANGELA WEISS / AFP
According to Bridgewater, the most recent weakness in the financial markets will not be the last this year.
"We're in a radically different world now," Greg Jensen, one of the fund's chief investment officers, told the Financial Times.
In particular, inflation in the USA and Europe is likely to prove to be much more stubborn than currently hoped.
The US Federal Reserve will then be forced to raise interest rates even more than previously assumed in order to get inflation under control.
This could push the economy into recession.
Numerous weaker but heavily indebted companies are then likely to suffer damage.
"We are approaching a significant slowdown in the economy," said Jensen.
The US corporate bond market is worth around $23 trillion.
US investment-grade bonds have already lost around 12 percent of their value this year due to the expected rate hike.
In Europe, corporate bond losses have been around 10 percent since the beginning of the year.
According to Jensen, the central banks in the USA and in Europe have no choice but to withdraw liquidity from the markets again after many years of cheap money.
Many highly valued companies, which are dependent on fresh liquidity, are then likely to come under pressure.
Jensen estimates that a "liquidity hole" will open up.
"In such a scenario, one should not be invested in assets that rely on liquidity."
Overall, hedge funds in the US are currently around 250 billion dollars on falling markets, reports the Handelsblatt, citing data from the financial data provider S3 Partners.
The behavior of the hedge funds is a warning signal with a view to an approaching economic slowdown.
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