Paul Tudor Jones warns of a major shift, which could have serious consequences for markets.
Paul Tudor Jones is one of the most feared market bears on Wall Street, and he is now growling on stage about the extraordinarily high valuations of US stocks.
“Paul Tudor Jones is one of the most feared market bears on Wall Street, and he is now growling on stage about the extraordinarily high valuations of US stocks”
WEALTH TRAINING COMPANY
Paul Tudor Jones refers to the Buffett Indicator, the food for thought feeding his bearish view
The Buffett Indicator is the ratio of total US stock market valuation to GDP. As of January 6, 2022, we calculate the aggregate US market value at $50.7 trillion US dollars and the annual GDP, a measure of economic activity, at $24.0 trillion US dollars.
Scribbled on a paper napkin here is the Buffett Indicator: 50.7T/24T, which is 211%.
The Buffett Indicator is flagging stocks strongly overvalued as they trade 211% above GDP
So Paul Tudor Jones warns of a major shift is timely as minutes from the Federal Reserve’s December meeting indicating an aggressive transition to monetary policy normalization in the wake of soaring inflation concerns. An inflation fire is burning while the consumer price index (CPI) increased 0.4% in December, bringing the year-ago inflation rate up from 6.8% to 7.0%, the inflation rate in basic human needs is a lot higher. The cost of food, heat, shelter are soaring; global food prices are up 27% YoY. US heating costs up: 30% for natural gas, 43% for oil, 54% for propane. Lumber prices have been up 40% over the past four months. Moreover, US rents are up 12% and house prices up 18%.
“Paul Tudor Jones warns of a major shift is timely as minutes from the Federal Reserve’s December meeting indicating an aggressive transition to monetary policy normalization in the wake of soaring inflation concerns”
WEALTH TRAINING COMPANY
Inflation is a political hot potato, as Paul Tudor Jones warns of a major shift in monetary policymaking
Basic human needs insecurity often results in governments in power losing the election and, in the worst-case scenario, civil unrest, which in the past led to revolutions.
“Let them eat cake,” replied France’s Queen Marie-Antoinette, during the French Revolution, who was informed that her starving peasant subjects had no bread.
So the Fed is likely to address inflation concerns, but they could take a revolutionary approach to tackle the spiraling cost of basic human needs.
“Paul Tudor Jones warns of a major shift, but perhaps the Fed will choose the path of least resistance” – Peter Schiff
With so much debt in the system, there is not much room to hike rates and let treasury yields rise to a level that would make the ballooning US public deficit soon reach 30T USD unaffordable to service. Moreover, labor force participation rates remain low at 61.9 in December 2021, which is still 1.5 percentage points lower than in February 2020 before the pandemic started.
So, in other words, the working population has declined by 1.5% compared with two years ago.
Meanwhile, real hourly wages have declined over the year, with weekly earnings fearing worse, dropping 1.6% during the same period. To make matters worse, the US is experiencing inflationary pressure, which has not been seen in decades.
In short, without fiscal stimulus, the world’s largest economy could stagnate in a backdrop of declining numbers of people economically active and falling real wages.
So how can the Fed start tightening monetary policy to tackle inflationary pressures in an economic stagnant cycle?
Perhaps we will see symbolic rate rise, but will the Fed do more and send financial markets into a freefall?
Paul Tudor Jones warns of a major shift, but perhaps the Fed will choose the path of least resistance
The recent appointment of left-leaning Fed Brainard, who sits more in the Keynes camp rather than Friedman, underscores a policy shift toward modern monetary theory MMT.
So the Fed is surrounded by thinkers who believe M2 data, the money supply, is no longer relevant for forecasting inflation. They argue that it is not the money supply, but the velocity of money, which determines the inflation rate.
So the Fed has ceased printing weekly money supply data because the school of MMT believes the data is no longer relevant. In other words, the Fed can say that they will implement quantitative tightening, but they can reverse quantitative easing, and nobody would know outside the committee walls.
“Commodities will outperform financial assets by a wide margin”
– Paul Tudor Jones
Paul Tudor Jones warns of a major shift, but the only change could be a lack of transparency
The Fed’s path of least resistance is doing more of the same where everyone in the neo-feudal society will be content.
The modern serf’s bread will be UBI, a kind of people’s QE administered under a watchful surveillance state. The wealthy class with assets will continue to enjoy an epic melt-up in asset prices as the Fed extends and pretends. There will be a handful of trillion-dollar big tech companies driving the economy.
Where are the investment opportunities as Paul Tudor Jones warns of a major shift?
Paul Tudor Jones believes the best investment opportunities are in commodities, as he thinks they are so undervalued compared to other financial assets. “Commodities will outperform financial assets by a wide margin,” he said. Paul Tudor Jones also thinks US stocks are pricey. “Another way to think of it is that the stock market relative to GDP is 210 215%, the stock market to GDP to the rest of the world is 54%,” he said.
Nevertheless, Paul Tudor Jones remains bullish on US stocks in the medium long term.
“Capitalism and democracy go hand in hand. It is because we have that dynamism is one reason that if you ‘re going to make a bet on an economy clearly you bet it here in the US rather than any country in the world,” said Paul Tudor Jones.
But what is perplexing is how one-party rule communist China is creating more newly-minted super wealthy anywhere in the world. 1,61 million millionaires in 2020, which could double by 2025, according to Credit Suisse. 307 billionaires were created in China last year, more than anywhere else.
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