How does Paul Tudor Jones see the world now?
Paul Tudor Jones is one of the great investors of all time and he’s renowned for macro calls. His latest market outlook highlights the coming waves of direct debt monetization that will reshape the economies and financial markets of the world.
“There will be many assets that will move as a result of this money creation. So what is an investor to do? Traditional hedges like gold have done well, and we expect investors to continue to seek refuge in this safe asset. One thing I have learned over time is the best thing to do is let market price action guide your decision-making and then try to understand the fundamentals as they become more evident and comprehensible,” he writes in a note with Lorenzo Giorgianni.
That’s an odd thing for one of the great macro traders of all time to say, but if you look back over his (rare) public comments, it’s a familiar theme. Here’s what he said back in 2009:
When trading macro, you never have a complete information set or information edge the way analysts can have when trading individual securities. It’s a hell of a lot easier to get an information edge on one stock than it is on the S&P 500. When it comes to trading macro, you cannot rely solely on fundamentals; you have to be a tape reader, which is something of a lost art form. The inability to read a tape and spot trends is also why so many in the relative-value space who rely solely on fundamentals have been annihilated in the past decade. Markets have consistently experienced ‘100-year events’ every five years. While I spend a significant amount of my time on analytics and collecting fundamental information, at the end of the day, I am a slave to the tape and proud of it.
In the current environment, he highlights the growth of money supply and the perils of debt monetization. He notes that Japan is the poster child for debt monetization and dismisses it by noting that:
- M2 money supply has never grown by more than 5% a year — it’s likely to grow by 20%-40% this year in the US, he says
- Inflation expectations were already unanchored in Japan when these policies were introduced
- The banking system was already hobbled
The US is likely to be very different than in the post-financial crisis because:
- A Tea Party is unlikely to re-emerge
- Preferences for liquidity in the banking system internally and via regulation aren’t coming
- The Fed’s elimination of the reserve requirement means the theoretical money multiplier is now infinite
Ultimately, he expects a return to inflation after a near-term drop in prices due the pandemic.
Historically, he notes that 9 different trades have worked in inflationary periods. Evaluating them over the past week, month, 3 months and year; he ranks them as follows:
- Steepening yield curve
- Nasdaq 100
- Long US cyclicals/short defensive
- Goldman Sachs Commodity Index (a basket of 24)
- JPM emerging market currency index
He then writes about Bitcoin, while noting that he doubled his money in 2017 but it was likely a very small amount (at least by his standards):
I doubled my money and got out near the top when it was apparent to any market technician we were blowing off. It is amazing how well one can trade when there is no leverage, no performance pressure and no greed to intrude upon rational reflection! When it doesn’t count, we are all geniuses.
He compares Bitcoin to gold in the 1970s with this chart:
On gold, he says it could rally to $2400 and as high as $6700 and is a “very attractive hedge” against monetary inflation.
Reverting back to technicals, he said this back in 2009 and with so much of price action inexplicable at the moment, it’s worth remembering:
I see the younger generation hampered by the need to understand and rationalize why something should go up or down. Usually, by the time that becomes self-evident, the move is already over. When I got into the business, there was so little information on fundamentals, and what little information one could get was largely imperfect. We learned just to go with the chart. Why work when Mr. Market can do it for you? These days, there are many more deep intellectuals in the business, and that, coupled with the explosion of information on the Internet, creates the illusion that there is an explanation for everything and that the primary task is simply to find that explanation. As a result, technical analysis is at the bottom of the study list for many of the younger generation, particularly since the skill often requires them to close their eyes and trust the price action. The pain of gain is just too overwhelming for all of us to bear!