Ray Dalio's co-chief rang the alarm on inflation, recession, and a global financial bubble this week. Here are the 10 best quotes.

• Greg Jensen warned the Fed's rate hikes could spark a market downturn and a deep recession.
• The Bridgewater Associates boss predicted stubborn inflation, slower growth, and weaker earnings.

Investors are delusional if they think the Federal Reserve can vanquish inflation without tanking asset prices and plunging the US economy into a major recession, Bridgewater Associates' Greg Jensen has warned.

The co-chief investor of Ray Dalio's hedge fund predicted stubborn price increases, slowing growth, and a decline in corporate earnings, speaking at the SALT hedge fund conference in New York this week.

He also said the US is at the heart of a global financial bubble, argued the pandemic has permanently transformed the world, and highlighted regions and markets where he sees bargains.

Here are Jensen's 10 best quotes, lightly edited for length and clarity:

1. "The biggest mistake priced into markets right now is the belief that we're going to return to pricing similar to pre-COVID. That inflation is expected to come down to a little under 3% over the next 18 months or so, and that will happen without much of a recession."

2. "The markets aren't pricing in how constrained policymakers are — how impossible it will be to have the markets' expected combination of reasonably good earnings growth and low inflation."

3. "It's a mistake to think things can revert to normal, that we've had the drawdown, and the worst is behind us. We're still in the early phase of dealing with a radically different world than pre-COVID." (Jensen highlighted examples of what's changed: less globalization, a shrinking role for financial markets, and more government influence.)

4. "You're going to have inflation staying stubbornly higher than markets are expecting, as growth starts to turn down. That's when it gets really tricky, and that's what's going to create the more risky part of the downturn — when it becomes clear that earnings are falling, and rates are still rising."

5. "The downturn feels big, but asset prices are still quite high by historical standards. The decline is quite small, relative to the change in the underlying fundamental conditions. There's a lot more to come, and it'll get scary when everybody thinks it's not a temporary blip, but a more permanent phenomenon. That's when the bottom will start to come in."

6. "The recession will probably be longer, more grinding than a crash. It's not easy to say if it will be three years or one year, but the magnitude of it is likely to be large and difficult."

7. "There's a decent chance that the market isn't going to react to the European crisis until it's deeply upon us, which I think will be in the next couple months." (Jensen was referring to Russia's invasion of Ukraine driving up food and energy prices, eroding economic growth, and heaping political and fiscal pressure on European governments.)

8. "The worst thing for the US is it's priced to be the greatest economy going forward, and not to have major problems. The US is the center of a financial bubble, and it's the most at risk from liquidity being pulled." (Jensen noted that assets that don't generate cash flows to support their valuations — such as cryptocurrencies — are most at risk of declining when the Fed hikes interest rates and reduces the money supply.)

9. "Bear markets can go on for a long time. You can be in Japan and you can have a 25-year bear market. You have to know that's a possibility, and you have to prepare for that now."

10. "There are places in the world that are having very different cycles than the US, UK, and Europe. It's difficult in a tightening world of rising risk premiums and declining liquidity, but there are areas that look relatively attractive." (Jensen pointed to parts of Latin America, and commodities that haven't received sufficient investment and are less growth sensitive than other assets.)

Read more: Wall Street is warning that stock valuations are too high after August's 8.3% inflation reading — meaning the market faces more pain ahead