Paul Tudor Jones Predicts Inflation to Rise, Bonds Fall
Paul Tudor Jones, a well-known name in the financial world and a hedge fund manager who had predicted the crash in 1987, gave a serious warning about the financial market.
“We (the United States) have the strongest economy in the last 40 years, full of labor. The current atmosphere is encouraging. But this condition is not sustainable and raises costs such as the bubble in the stock and credit sector, “Jones said in an interview with Goldman Sachs. Jones also said that bonds are currently very expensive and overvalued.
Jones criticized the tax reform law and the US Congressional budget plan.
The proposed tax adjustment offered by the Republicans, which was later passed by President Donald Trump into law in December 2017, lowered corporate tax to 21 percent from 35 percent. Jones estimates this step will result in an increase in the inflation rate.
“I think the tax cuts and spending increases lately will be something we will regret. This will cause a budget deficit of 5% of GDP, which is unprecedented in peacetime except during a recession, “Jones said.“This reminds me of the era of the late 1960s when we experimented with low-interest rates and fiscal stimulus to keep jobs and finance the Vietnam war,” he continued.
To conduct transactions in these conditions, Jones recommends that you keep holding the currency and buying commodities.
This is not the first time Jones has warned about investing in the bond sector. In his notes for his customers in early February, he wrote, “We are at risk of a growing financial bubble. If I am asked to choose whether to hold US Treasury bonds or coal that is burning in my hand, I will choose coal. “
Another big name that also voiced overvaluation in the fixed-income market and the risk of rising inflation was the world’s richest investor, Warren Buffet. In its annual letter to Berkshire Hathaway shareholders released on February 24, the “Oracle of Omaha” recommended that investors keep holding shares to anticipate the negative effects of inflation due to the purchasing power of fixed-income ownership.
This increase in inflation seems to have been anticipated by the Federal Reserve. In its first official statement as Fed Chair, Jerome Powell signaled that the Fed is likely to raise interest rates four times in 2018. This expectation will usually be followed by a significant strengthening of the USD.
Let’s wait, while paying attention to the opportunities that will appear on the market.