Stockholm (HedgeNordic) – Legendary hedge fund manager Paul Tudor Jones, widely known for calling the October 1987 crash, shared his market views in a rare interview with Goldman Sachs last week.
Jones blasted President Donald Trump´s corporate tax cut and Congress’ recent budget spending bill.
“We’re in the third-longest economic expansion in history. Yet we have somehow managed to pass a tax cut and a spending bill, which together will give us a budget deficit of 5% of GDP – unprecedented in peace time outside of recessions… I think the recent tax cuts and spending increases are something we will all look back on and regret”, he was quoted as saying by CNBC.
Jones’ view is that we are setting the stage for accelareting inflation as a result of these stimulative measures.
“This reminds me of the late 1960s when we experimented with low rates and fiscal stimulus to keep the economy at full employment and fund the Vietnam war. Today we don´t have a recession let alone a war. We are setting the stage for accelerating inflation, just as we did in the late 60s.”
With regards to interest rate markets, Jones said that bonds are “the most expensive they’ve ever been by virtually any metric” and called them “overvalued” and “over-owned”. He sees US 10-year treasuries rising to 3,75% and 30-years to 4.5%, by year end, and refers to these targets as “conservative”.
Regarding the current low interest rate environment he says:
“Sitting where we are today, this grand experiment with negative real rates might seem successful: We have the strongest economy in 40 years, at full employment. The mood is euphoric. But it is unsustainable and comes with costs such as bubbles in stocks and credit. Navigating these bubbles will be one of the most difficult jobs any Fed chair has ever faced.”
The legendary investor recommend investors to stay in cash or buy commodities and “hard assets”.
“I want to own commodities, hard assets, and cash. When would I want to buy stocks? When the deficit is 2% not 5%, and when real short-term rates are 100 bp, not negative. With rates so low, you can´t trust asset prices today.”
Picture source (C): Eduardo Munoz, Reuters