A former executive at the hedge fund founded by billionaire Ray Dalio says she’s closely monitoring the sentiment of Corporate America’s top executives as earnings season picks up speed.

In a new CNBC Television interview, ex-Bridgewater chief investment officer Rebecca Patterson says this earnings season will offer key insights into the trajectory of the US economy in the months ahead.

Patterson says that while strong bank earnings reflect the health and sentiment of US consumers, she notes that it’s now time to keep a close eye on the outlook of America’s C-suite executives.

“I’m watching more than anything else is the qualitative assessment by the executives of where we go from here. I don’t really care about the backward-looking.

I want to know: are input costs going up yet? Are they investing more or less? 

Because their sentiment will drive corporate activity over the next six months, and that’s going to be a big factor for the broader macro view.”

Patterson also believes that America will soon feel the brunt of Trump’s tariffs, as the forces that have helped to keep inflation in check begin to fade.

“I think going forward, the inventories that had helped us have been wound down. Trans-shipments helped, and that’s something the government is going to get tough on. So I do think there’s a greater chance that we’re going to see more of the tariff impact come through on prices. 

And then it’s a question: how much does a consumer bear? How much do corporates absorb? 

We don’t know what that exact mix would be, but directionally, I think the risk is that we have higher inflation in the second half of this year. That means that two Fed cuts by January are at risk.”

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A former executive of the hedge fund founded by billionaire Ray Dalio is warning that the market for US debt will soon hit a rough spot.

In a new CNBC Television interview, ex-Bridgewater Associates chief investment strategist Rebecca Patterson addresses how the US dollar has lost about 10% of its value year-to-date, its worst performance in over 50 years.

“I think there are three main things driving the dollar [devaluation]. One is slightly lower frontend rates, interest rates over this period because currencies trade on rate differentials. 

But I think more importantly and what’s different this time is that you’re seeing both re-allocation out of the US both by Americans diversifying and foreigners pulling back slightly. And then third and really importantly is hedging. So let’s say I’m a large overseas pension fund, and I have a tech equity exposure, and I want to keep it because I believe in the structural story, but I’m nervous about the dollar, I’m nervous about the Fed’s independence, I can hedge out that currency risk. 

So even if money stays in US equities, which helps explain where we are today, you can still see that dollar weakness.”

Patterson, who is now the chair of the Council of Economic Education, warns that the dollar devaluation will continue as investors hedge and move their capital elsewhere. She also notes that the ongoing capital re-allocation will negatively impact demand for US debt.

“This isn’t going to be a one-off. This is going to be a slow bleed out of the dollar, and I believe slowly out of US Treasuries.”

Looking closer at US Treasuries, Patterson warns that she sees the bond market facing a demand shortage in the coming months.

“I think this is rather a slow bleed. Most of the foreign investors who have US Treasuries have them in very short tenure bonds, so three years and less. They just have to let them expire and not replace them, so let them roll off. 

Again, it’s not going to be a one-and-done event, I think, without a trigger. It’s just going to be: we don’t have the demand to meet the supply that’s going to be coming, I think early next year.” 

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