• 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.

• Jensen said the US is at the center of a global financial bubble that may be about to burst.

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."