Headwinds are coming. A recession is looming over the American economy, and the question is no longer “if,” but “when.”
Money Examiners has stayed atop the story for months and switched from wondering to predicting about two months ago. Now, Paul Tudor Jones has weighed in, and he agrees with the voices that say, “Look out.”
“Who is Paul Tudor Jones, and why should I believe him? Surely, I can find someone who says everything is going to be fine.”
Perhaps, but your “someone” probably doesn’t have the gravitas of Paul Tudor Jones. Mr. Jones, 63 years of age, started trading commodities in cotton during the 1970s. Later, he transitioned into macro trading before starting his namesake hedge fund and personal wealth machine, Tudor Investment Corporation. He came to global notoriety when he predicted the October 1987 crash that we call “Black Monday.” We don’t need to remind you of what that led to.
What drives Paul Tudor Jones’ thought processes? “The one thing I’ve learned over the past 40 years — these price patterns it’s the same old story so often just with different characters, different times, different plots,” he said.
In 1988, Jones started Robin Hood. It’s a nonprofit bent on combating stubborn poverty in New York City and the surrounding area. Since its inception, Robin Hood has distributed over $3 billion to those who need it most.
Those are his bona fides. What does Paul Tudor Jones say about the coming recession? To begin with, he believes we need to know that asset prices are way too high.
Tudor rarely goes public with his comments concerning the markets, but he broke his silence on this issue. To be exact, Jones said, “You have to be thinking this is a highly dubious sustainable price.”
He also doesn’t believe the easy money low-interest rate policy we have been experiencing is sustainable in the long term, calling it “crazy,” in his no-holds-barred pronouncement. Finally, Jones lowered the boom on the Trump Administration, calling its stimulation-heavy fiscal policy “unsustainable.”
“You look at prices of stocks, real estate, or anything,” Jones said. “We’re going to have to mean revert to a normal real rate of interest with a normal term premium that’s existed for 250 years. We’re going to have to get back to that and get back to sustainable fiscal policy, which means the price of assets go down in the very long run.”
Jones’ statements are not without historical precedent. A new Administration wants a warmed-up stock market ready to take flight. Some of this is cosmetic, due to the millions of Americans who only know the Dow number as their financial health frame of reference.
Add to that, during the last financial crisis the central banks were given wiggle room while the government stimulated the economy however it chose.
Today, there is less room along with less flexibility. But, the keepers of the economy don’t seem to know it. Therein lies the crux of Paul Tudor Jones’ hypothesis. In his words:
“The next recession is really frightening because we don’t have any stabilizers. We’ll have monetary policy, which will exhaust really quickly, but we don’t have any fiscal stabilizers.”
One of the top financial minds in the world warns us. Look out, indeed.