Billionaire investor and hedge fund manager Ray Dalio on Monday warned that markets may be underestimating the political forces now shaping the value of money, as the United States heads toward a period of intensified conflict over wealth, inflation, and economic power.
In a year-end reflection on global markets, the founder of Bridgewater Associates said the most important story of 2025 was not the rally in U.S. stocks or enthusiasm around artificial intelligence, but the erosion of fiat currencies and the growing divide between political ideologies that could further destabilize the dollar.
Dalio described a “big fight brewing” between pro-capitalist policies championed by President Donald Trump and a resurgent democratic socialist movement on the left, a clash he said is increasingly centered on who bears the cost of inflation and who benefits from rising asset prices.
Currency Risk May Eclipse Growth Narratives In 2026
Dalio said the most important lesson from recent market behavior is that asset prices must be evaluated through the lens of purchasing power rather than nominal returns.
While U.S. equities and artificial intelligence-linked stocks captured investor attention, Dalio noted that fiat currencies broadly weakened, altering the real distribution of wealth.
Gold, which Dalio describes as the only major non-fiat currency and the world’s second-largest reserve asset, substantially outperformed stocks and bonds.
He said this divergence signals a growing preference for assets perceived as stores of value as investors reassess the long-term sustainability of debt-driven monetary systems.
Looking into 2026, Dalio expects currency movements to play a more central role in investment outcomes, particularly if fiscal expansion and monetary easing persist across major economies.
Capital Flows Could Continue Shifting Away From U.S. Markets
Dalio also highlighted a trend that may intensify in the year ahead, which is, the reallocation of global capital away from U.S. assets.
Despite strong headline returns in dollar terms, U.S. equities underperformed international markets when measured in stronger currencies and against gold.
European, Chinese, Japanese, and emerging market equities all delivered superior relative performance, a pattern Dalio attributed to diversification away from U.S. policy risk, rising debt levels, and geopolitical uncertainty.
He warned that foreign appetite for U.S. bonds, cash, and equities could remain subdued in 2026 as investors continue to hedge against currency depreciation and political fragmentation.
Debt Markets Face Structural Pressure
Dalio expressed particular caution toward debt assets in the coming year.
He noted that bonds represent claims on future money, making them vulnerable when the value of money declines.
With a significant volume of government debt scheduled for refinancing and credit spreads already compressed, he said the margin for further gains appears limited.
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While the Federal Reserve is expected to favor policies that suppress real interest rates, Dalio questioned whether monetary easing alone can offset supply-driven pressures in the bond market.
He suggested that yield curves may steepen further, reflecting rising risk premia and concerns over long-term debt sustainability.
Politics And The Big Cycle Come Into Sharper Focus
Dalio framed the outlook for 2026 within what he calls the “Big Cycle,” where monetary, political, and geopolitical forces converge.
He said U.S. policy under President Trump has amplified these dynamics through aggressive fiscal stimulus, protectionist trade measures, and a shift toward government-directed capitalism.
These policies, Dalio argued, have supported asset prices but also widened wealth disparities and intensified political polarization.
He warned that affordability and the declining value of money could emerge as central political issues, with potential implications for markets as election cycles approach.
At the global level, Dalio said the transition from multilateral cooperation to unilateral power-based decision-making is likely to drive higher military spending, increased borrowing, and continued demand for alternative reserve assets.
A Different Market Playbook For 2026
Dalio cautioned that many liquid assets now appear fully priced after years of reflation, leaving limited upside unless productivity gains materially exceed expectations.
He also noted that illiquid markets such as private equity, venture capital, and real estate remain under strain, as higher financing costs challenge prior valuation assumptions.
For investors, Dalio’s message is less about specific trades and more about mindset.
He suggests that 2026 may reward strategies focused on preserving real wealth, managing currency exposure, and diversifying across geopolitical regimes rather than chasing growth narratives alone.
In his view, the central question for markets in the year ahead is no longer which assets will grow fastest, but which forms of money will hold their value as the global financial order continues to evolve.