Stocks are basically toxic right now, and the only things worth holding are commodities and hard assets—or just cash—legendary hedge fund manager Paul Tudor Jones told Goldman Sachs, amid a major market sell-off that saw the Dow plunge another 420 points at close on Thursday.
In early morning trading Friday, things were looking even worse in the wake of Trump’s announcement that he plans to unveil hefty tariffs on imported steel and aluminum next week, despite what economists say will be a severely negative backlash for the economy.
No one’s even thinking of steel in this equation: the fear is of the broader implications of a protectionist world for multinational companies—and Jones’ negative stock sentiments came before the tariff issue send the market spiraling downward, again.
Speaking to Goldman, Tudor Jones placed the blame on what investors fear most right now: inflation.
“We’re setting the stage for accelerating inflation, just as we did in the late ‘60s,” Jones said, blaming the corporate tax cut and Congress’ budget spending bill. The combination of the two will mean a budget deficit of 5 percent of GDP, Jones said, calling it “unprecedented in peace time outside of recession”.
Unless we’re funding a war like Vietnam, this isn’t how things should go, the hedge fund legend told Goldman, predicting a rise in inflation that should have stock investors running for the hills.
Jones said he would only buy stocks when the deficit is 2 percent, not 5 percent, and when real short-term rates are not negative.
Instead, he wants to own commodities, hard assets, and cash.
And as both bulls and bears are losing big on stocks, hard assets are looking increasingly attractive.
And new Fed Chairman Jerome Powell has his work cut out for him. Jones likened him to General George Custer in the run-up to the Battle of Little Bighorn, “looking down on an array of menacing warriors”.
“On the left side of the battlefield are the stocks—the S&P 500s, the Russells, and the NASDAQs—which have grown, relative to the economy, to their largest point not just in US history, but in world history. … Look to the middle and there awaits the army of Corporate Credit, which is also larger than ever relative to the economy … and then on the right are the Foreign Currency Fighters, along with the Crypto Tribe … All of these forces have been drawn to the battlefield because of our policy experiment with sustained negative real rates. So Powell looks behind him to retreat. But standing there is none other than Inflation Nation, led by the fiercest warmongers of them all: the Commodities.”
By Jan Bauer for Safehaven.com
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