"In this new modern mercantilist world, the US is looking at choke points around the world of places where it can garner resources that China might need. China on the flip side has built out choke points themselves knowing things that we need." - Bridgewater Speaker [00:00:49]
"AI of course going through the biggest capex buildout since World War II." - Bridgewater Speaker [00:01:21]
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"The only thing growing faster than compute supply right now in the world is compute demand. And that's creating shortages and rationing." - Bridgewater Speaker [00:07:00]
"The Barnes & Noble moment in 1998 was the recognition by books and more like bricks and mortar companies that they had to get online... Today's version of that right you've got this concept being priced in now where AI is eating the world and it's starting with software." - Bridgewater Speaker [00:09:02]
"By the end of the year... the gap between supply and demand is going to be so large that it's like missing all of the AI buildout over the last year." - Bridgewater Speaker [00:12:12]
"By generating AI faster we're exasperating winner take all dynamics and the odds that you end up in a winner take all situation because the best models aren't fully distributed is increasing." - Bridgewater Speaker [00:13:03]
Speakers & Credentials
Bridgewater Associates Co-Chief Investment Officer / Senior Research Analyst: Institutional experts operating at the apex of global macroeconomic asset allocation, systematic portfolio construction, and quantitative market analysis. The speakers deliver synthesized macro perspectives drawn from Bridgewater's private "Daily Observations" client briefings spanning late 2024 through mid-2026.
1. Executive Summary
Global capital markets are currently being fundamentally reordered by the convergence of two macroeconomic megatrends: a disruptive, transactional era of modern mercantilism and an unprecedented capital expenditure boom in Artificial Intelligence [00:00:13].
The United States and China are actively engaged in a zero-sum, cross-border resource grab, weaponizing strategic geopolitical choke points and pursuing aggressive commodity blockades across the Americas, Greenland, and Venezuela to starve adversaries of industrial inputs [00:00:49].
The AI infrastructure push represents the single largest capital expenditure deployment since World War II, fundamentally altering systemic growth trajectories, driving core structural inflation higher, and forcing global sovereign interest rates upward [00:01:21].
A profound structural deficit has emerged where global compute demand expands faster than hardware manufacturing capacity, resulting in immediate infrastructure rationing via aggressive price structures, access throttling, and research suspension within top-tier AI laboratories [00:07:00].
In public equity markets, this infrastructure strain has triggered a structural repricing analogous to the 1998 "Barnes & Noble moment," forcing an extensive de-rating of legacy software sectors to incorporate a permanent multi-decade disruption risk premium [00:09:02].
This imbalance violently reinforces winner-take-all operational dynamics, handing an unassailable advantage to hyper-capitalized enterprises with direct compute partnerships while permanently locking out under-capitalized legacy competitors [00:13:03].
2. Chronological Table of Contents
[00:00:03] Introduction to Modern Mercantilism and AI Interconnections
[00:01:16] Macroeconomic Impacts of the Post-WWII Historical AI Capex Boom
[00:02:03] Navigating Tail Risks vs. The Modal Outcome in Asset Management
[00:03:47] The Historical Evolution of Modern Mercantilism and National Wealth Paradigms
[00:04:51] 2025 Liberation Day Tariffs and Shifting Cross-Border Asset Allocations
[00:05:36] Geopolitical Weaponization of Commodity Channels and the Strait of Hormuz
[00:06:14] The Compute Supply-Demand Mismatch and Structural Rationing Dynamics
[00:07:13] Transitioning from the 'Science Bet' to Commercial Software Revenue Engines
[00:08:46] Parallels to the 1998 Barnes & Noble Moment and Software Sector Repricing
[00:11:41] Strategic Institutional Implications of Winner-Take-All AI Access Loops
3. Detailed Thematic Summary
Theme 1: The Macroeconomics of the AI Capex Boom and Modern Mercantilism [00:00:13]
The global macro landscape has evolved into an integrated theater shaped by twin secular disruptions: state-driven modern mercantilism and the rapid rollout of artificial intelligence [00:00:13]. Rather than operating in isolation, these forces are deeply interconnected, with each actively accelerating aggressive, competitive cross-border resource grabs [00:00:42].
The ongoing AI technology buildout represents the largest concentrated physical capital expenditure (capex) boom witnessed globally since the reconstruction era following World War II [00:01:21]. Historically, massive infrastructure capex cycles trigger highly predictable macroeconomic vectors: they initially push corporate profit margins upward across the supply chain, because one company's capital investment registers as a vendor's immediate revenue before structural depreciation hits corporate balance sheets [00:01:38].
In the short term, this intense push elevates aggregate economic growth while simultaneously exerting severe upward pressure on secular inflation [00:01:45]. The compounding need for financial capital to fund these massive data centers and hardware arrays drives up global long-term sovereign interest rates, while the currencies of the specific nation-states leading the technological capex boom experience meaningful structural appreciation [00:01:51].
While this systematic "modal outcome" represents the single most probable trajectory for global markets, Bridgewater emphasizes that its absolute statistical probability is likely below 50% due to the compounding presence of highly volatile, non-linear tail risks [00:02:03]. This requires institutional asset allocators to abandon single-track forecasting and build anti-fragile portfolios: allocations designed to extract yield from the modal path while deploying strict capital survival guardrails against chaotic geopolitical escalations and institutional degradation [00:03:18].
Theme 2: The Evolution of Modern Mercantilism: Tariffs, Choke Points, and Portfolio Allocation Shocks [00:03:47]
Modern mercantilism represents a deliberate structural policy pivot that began formalizing in late 2024, anchored by Bridgewater's foundational research briefing "We're all mercantilists now" [00:03:53]. This paradigm shift emerged as a direct US domestic political backlash to decades of aggressive Chinese industrial mercantilism, which successfully hollowed out the American middle-class manufacturing core and fueled structural domestic populism [00:04:10].
Within this zero-sum framework, nation-states abandon the post-Cold War consensus of cooperative, rules-based global trade. Instead, sovereign governments actively intervene in free markets to maximize explicit national wealth and raw military-industrial power [00:04:30]. Trade deficits are no longer interpreted as efficient capital flows or expressions of comparative advantage, but are explicitly branded as uncompensated direct transfers of sovereign wealth to foreign adversaries [00:04:36].
This transactional posture achieved full legislative and operational reality during the "Liberation Day" policy enactments of 2025, which introduced the highest sweeping cross-border tariff walls implemented globally since World War II [00:04:57]. Parallel diplomatic pressures were applied uniformly to traditional allies—demanding explicit financial compensation for American security umbrellas (such as security expenditures in Ukraine)—which structurally eroded international trust and fractured long-standing post-war G7 alliances [00:05:04].
Because an overwhelming concentration of global capital resides within US dollar-denominated assets, these shifting geopolitical alliances have triggered a severe allocation dilemma for foreign institutions (such as Canadian and European sovereign wealth and pension asset managers), who are forced to question the long-term systemic safety of overallocating to US capital markets [00:05:24].
Through 2026, the mercantilist resource grab has rapidly escalated into direct physical and economic interventions across the Americas, Greenland, and Venezuela, aimed at severing critical commodity access lines vital to Chinese industrial production [00:05:36]. Parallel US maneuvers in Iran have culminated in the severe weaponization of maritime shipping lanes, specifically the Strait of Hormuz [00:05:54]. These intentional bottlenecks permanently degrade long-term global productivity while introducing structural, supply-driven inflationary shocks into the global economy [00:06:06].
Theme 3: The AI Infrastructure Deficit: Compute Mismatch, Commercialization Loops, and the 'Barnes & Noble' Paradigm Shift [00:06:14]
A profound structural mismatch has emerged within the digital infrastructure landscape: the absolute growth rate of global compute demand is radically outstripping the historic expansion rate of compute hardware supply [00:06:14]. This severe imbalance is driving widespread supply rationing, manifested via aggressive infrastructure price hikes, the strict throttling of frontier model access, and leading AI labs being forced to deactivate internal research projects due to an absolute lack of physical computing power [00:06:30].
Bridgewater's proprietary modeling reveals that by the close of the year, the absolute gap between global compute supply and demand will expand so drastically that the deficit alone will equal the aggregate size of the entire global AI buildout executed over the preceding year [00:12:12].
The underlying economics of AI development shifted dramatically around December 2025 [00:08:00]. Previously, expenditures were driven by a speculative "science bet"—the core conviction that scaling models would unlock general intelligence and geopolitical leverage [00:07:20]. However, the arrival of highly profitable commercial coding applications (e.g., Claude Code and Codex) established an immediate, high-margin software revenue engine, closing the loop between basic research and commercial self-sustainability [00:08:05].
This rapid commercial adoption has triggered a market dynamic analogous to the 1998 "Barnes & Noble moment," when legacy brick-and-mortar enterprises suddenly realized they had to deploy massive capital to transition online or face extinction by Amazon [00:08:51]. In 1998, this sparked a massive capital flight into the NASDAQ/dot-com complex while hollowing out the legacy Dow Jones industrial sectors [00:09:18].
In the current macro environment, public equity markets are aggressively pricing in an "AI eating the world" narrative, focusing intensely on legacy software valuations [00:09:49]. At the peak of the market, software equities were priced under the implicit assumption that 100% of major software firms would sustain un-disrupted free cash flow over the next decade [00:10:56].
Following recent market corrections, equity pricing has adjusted to imply that only roughly 82% of legacy software companies will successfully survive this technological transition over the next 10 years [00:11:11]. This contraction represents the introduction of a permanent disruption risk premium into equity markets, a phenomenon poised to rip through other legacy industries as AI tools are rationed and weaponized by well-capitalized market leaders [00:11:25].
Because advanced AI capabilities are being rationed due to compute shortfalls, a structural "winner-take-all" dynamic is being violently accelerated [00:12:58]. Enterprises capable of securing exclusive compute partnerships and funding high-margin inference demands are building unassailable operational advantages, permanently out-competing legacy peers who lack access to top-tier frontier tools [00:13:24].
The Reference Vault
4. Data & Figures
Data Point
Value
Context
Timestamp
Temporal Frame of Reference (Mercantilism Note)
November 2024
Date when Bridgewater published its defining "We're all mercantilists now" Daily Observations report.
The Post-WWII Capex Boom Linkage Framework: This framework maps out the non-linear macroeconomic mechanics of massive capital expenditure waves, viewing them as cyclical engines that alter structural economic variables. In the current environment, the AI hardware buildout represents the largest physical capital deployment since the reconstruction era following World War II. The strategic irony embedded within this framework is that front-loaded capex inherently generates a temporary corporate profit illusion: because one enterprise's capital deployment immediately registers as a vendor's top-line revenue before downstream operational depreciation costs hit balance sheets, aggregate corporate profitability surges artificially. Consequently, this immense capital hunger drives up global real interest rates, fuels short-term GDP acceleration, and generates systemic inflation, structurally strengthening the domestic currency of the technological hegemon while tightening liquidity for the rest of the world [00:01:21].
The Systematic Modal Outcome vs. Tail Risk Paradox: This asset allocation framework establishes that the single most mathematically probable economic trajectory—the "modal outcome"—frequently commands an absolute probability of less than 50% when a complex global system faces multiple overlapping structural breaks. In today's macro environment, while the modal path points toward sticky inflation, higher interest rates, and tech-driven productivity gains, the sheer volume of unpredictable tail risks (such as unhinged transactional mercantilism or sudden institutional deterioration) renders an exclusive reliance on modal positioning highly dangerous. Institutional alpha is therefore achieved not by accurately guessing the modal path, but by structuring anti-fragile portfolios that can harvest risk premiums within the baseline state while maintaining robust capital survival guardrails against highly unpredictable, volatile political escalations [00:01:32].
Modern Mercantilism as a Zero-Sum Wealth Transfer Engine: Moving away from the post-Cold War consensus of cooperative, rules-based global commerce grounded in Ricardo’s comparative advantage, this framework treats international trade exclusively as a zero-sum conflict for national survival and explicit state dominance. Under this paradigm, persistent trade deficits are not viewed as capital account balances or consumer optimization, but are explicitly condemned as an uncompensated transfer of sovereign national wealth to foreign adversaries. The framework operates through the aggressive weaponization of supply-chain choke points, the enforcement of sweeping tariff walls, and the unilateral prioritizing of domestic self-sufficiency. This transactional posture forces an unwinding of hyper-efficient global supply networks, structurally dragging down global productivity while introducing permanent, supply-driven inflationary pressures into sovereign bond markets [00:03:53].
The 'Barnes & Noble' Disruption Paradigm: This mental model uses historical tech migrations to capture the precise moment a legacy industry realizes an existential technological shift is no longer a distant theoretical threat, but an immediate operational mandate. Named after the 1998 realization by traditional brick-and-mortar retail giants that they had to match Amazon’s digital architecture or perish, this model highlights a violent bifurcation in capital markets. When an industry hits its "Barnes & Noble moment," public markets rapidly price in a narrative where a new technology "eats the world." This triggers severe capital flight out of legacy operations and into front-line infrastructure supply chains. The deep strategic lesson of this paradigm is that even if the initial rush takes on the characteristics of a speculative bubble, the underlying structural reorganization of corporate investment behavior remains entirely permanent [00:06:56].
The Multi-Decadal Disruption Risk Premium Pricing Framework: This framework quantifies how public equity markets discount long-term corporate valuations when confronted with structural technological shocks. In stable macro environments, leading equities are priced under the implicit assumption that 100% of major market participants will sustain uninterrupted free cash flows across a multi-decade horizon. However, when an existential technology like AI introduces generalized disruption, public markets introduce a permanent "disruption risk premium." This shifts equity pricing models to discount structural failure rates across the sector—such as adjusting the implied survival rate of a sector down to 82%. This valuation adjustment reflects a permanent increase in equity cost of capital for legacy players, forcing asset managers to meticulously distinguish between structural survivors and legacy value traps [00:10:43].
The Rationing-Induced Winner-Take-All Infrastructure Loop: This framework outlines the self-reinforcing competitive advantages that occur when demand for an existential, productivity-multiplying resource vastly outstrips its physical supply capacity. When compute hardware deficits trigger systemic rationing through aggressive price hikes or model access throttling, advanced technological capabilities cease to be open-source utilities and instead become highly concentrated geopolitical assets. The strategic irony is that this compute scarcity violently accelerates a winner-take-all dynamic: only the most heavily capitalized corporate giants and national labs can secure access to top-tier frontier tools. This creates an unassailable operational feedback loop where those with access continuously out-innovate, out-earn, and lock out legacy competitors who are rationed out of the computing power required to survive [00:12:58].
6. Anecdotes
The November 2024 'We're All Mercantilists Now' Insight: The speaker references authoring a specific Bridgewater Daily Observations report in November 2024 to illustrate that the current chaotic macro reality was a highly predictable structural shift rather than a series of isolated geopolitical surprises. The anecdote is shared to demonstrate how the US government officially abandoned the decades-old consensus of global free trade in direct response to Chinese mercantilist policies that had eroded the American domestic manufacturing core. By detailing this context, the speaker emphasizes that mercantilism has transitioned from a fringe populist rhetoric into an institutionalized, bipartisan baseline strategy governing modern international commerce [00:03:53].
The 2025 Liberation Day Tariff Shock: The speaker recalls the aggressive implementation of the "Liberation Day" policy packages in 2025, which enacted the most punitive, sweeping tariff regimes observed globally since the end of World War II. This historical milestone is cited to demonstrate how quickly theoretical political mandates can translate into volatile economic realities that upend global supply chains. The speaker highlights this moment to explain the origin of deep geopolitical trust erosion between the United States and its traditional G7 allies, showing that modern mercantilism applies intense transactional leverage uniformly across both adversaries and historic partners [00:04:57].
The 1998 Amazon vs. Brick-and-Mortar Capital Realignment: The speaker recounts the 1998 "Barnes & Noble moment," during which traditional physical retail chains were struck by a sudden, late-stage realization that they had to rapidly reallocate capital toward digital internet architectures to counter the existential expansion of Amazon. The speaker utilizes this historical narrative to provide a structural parallel for current market behaviors, demonstrating how equity markets systematically react to foundational technological disruptions. It illustrates that during such structural migrations, capital flows exhibit an aggressive, highly concentrated flight to supply chain leaders while legacy operators face severe valuation de-ratings [00:09:06].
The Great AI Software Valuation De-rating of 2026: The speaker presents an analytical post-mortem of the massive repricing wave that hit software equities, explaining that at peak valuations, public markets were pricing in a mathematically impossible 100% survival rate for legacy software companies over a ten-year horizon. The speaker shares this specific market correction to explain the real-world mechanics of a "disruption risk premium." By showing that current market prices have rationalized to expect only an 82% survival rate, the anecdote serves as a warning to asset allocators that valuation risks must be systematically re-engineered to account for structural technological displacement rather than relying on historical cash flow stability [00:10:56].
The Deactivation of Research in Frontier AI Labs: The speaker highlights a striking operational reality occurring within top-tier artificial intelligence research institutions, where elite labs are actively being forced to shut down or throttle advanced internal research projects due to an absolute lack of physical computing power. This anecdote is shared to ground the abstract concept of a "compute deficit" into a stark, tangible operational constraint. It underscores the severity of current infrastructure bottlenecks, showing that compute has become so scarce that even its creators are suffering from rationing, which further accelerates winner-take-all dynamics among those who command immediate access to hardware [00:12:42].
7. References & Recommendations
Companies & Labs
Bridgewater Associates: Brought up as the institution generating the fundamental macroeconomic models, "Daily Observations" research reports, and asset allocation strategies discussed throughout the video [00:03:53].
Amazon: Mentioned as the original disruptive e-commerce force in 1998 that triggered the structural collapse and forced digital transformation of brick-and-mortar retail [00:09:12].
Barnes & Noble: Referenced to establish the historical "Barnes & Noble moment" analog, symbolizing legacy firms suddenly waking up to existential technological threats [00:06:56].
Technologies & Models
Claude Code: Cited as a primary real-world example of a highly profitable commercial AI coding breakthrough that fundamentally altered the economic landscape of AI development in late 2025 [00:06:56].
OpenAI Codex: Mentioned in passing alongside Claude Code to highlight the specific automated coding models driving commercial monetization and massive enterprise adoption [00:08:05].
People
President Donald Trump (Trump Administration): Brought up to analyze the specific shift toward a highly transactional, un-cooperative, and unpredictable brand of chaotic modern mercantilism on behalf of the United States [00:02:18].
Geopolitical Entities & Regions
China: Mentioned continuously as the primary systemic competitor to the US, whose long-term domestic mercantilism hollowed out western industries and prompted the current global resource grab and choke point weaponization [00:00:49].
Greenland: Cited as a key geographical target in the recent 2026 commodity resource grabs orchestrated by the US to lock down critical raw material supply chains [00:05:36].
Venezuela: Referenced alongside Greenland as a strategic target for commodity interventions aimed at cutting off resource access lines critical to Chinese industrial production [00:05:36].
Iran: Brought up to highlight the aggressive US geopolitical maneuvers that directly resulted in the escalatory weaponization of maritime shipping lanes [00:05:54].
Ukraine: Mentioned within the context of US transactional diplomacy, where the administration demanded explicit financial reimbursement from allies for continuing security commitments [00:05:04].
Strait of Hormuz: Cited as a critical international maritime choke point that has experienced direct weaponization, driving up global inflation and degrading structural productivity [00:06:00].
Historical Events
World War II: Referenced twice—first to scale the magnitude of the current AI infrastructure capex boom as the largest since WWII, and second to match the 2025 tariff levels as the highest implemented since that conflict [00:01:21].
The Dot-Com Bubble (1998 Market Disruption): Used as a core historical market parallel to illustrate the violent capital rotation out of legacy Dow Jones industrial stocks and into the NASDAQ supply chain during foundational tech transitions [00:09:18].
Liberation Day (2025): Enacted as a structural milestone in 2025 that marked the total embrace of modern mercantilism via unprecedented tariff walls [00:04:57].
8. The Bottomline (by AI)
The confluence of weaponized modern mercantilism and an insatiable, rationed AI compute boom has permanently shattered the legacy post-Cold War macroeconomic baseline, injecting a structural disruption risk premium across global asset classes. Institutional asset allocators must immediately shift capital away from highly vulnerable legacy software value traps and rebalance portfolios to withstand sticky supply-driven inflation and rising structural interest rates. Moving forward, the critical metric to monitor is the widening global compute deficit alongside the operational stability of key maritime choke points like the Strait of Hormuz, as access to high-margin infrastructure becomes the ultimate differentiator of corporate survival in a highly polarized, winner-take-all global economy.
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Historical Software Survival Valuation
100%
The percentage of major software firms previously priced by equity markets to maintain un-disrupted cash flows 10 years into the future.