Paul Tudor Jones Bearish on Bonds; Prefers Cash, Commodities and Real Assets

Goldman Sachs latest Top of Mind publication is about the bond bear market, and there are a number of opposing views on whether yields are going to continue climbing, or if inflation is going to accelerate or stay under control.

One of the most bearish views on bonds came from Paul Tudor Jones, the founder, CIO and principal of Tudor Investment Corporation, which has c$11 bn of assets under management according to Pitchbook.

Here are some of the most interesting quotes in the interview.

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No Sign Yet of Central Banks Balance Sheets Declining

sea, wave

Total assets held by major central banks are above $20tn. While Fed’s balance sheet has stabilized, the balance sheets of ECB, Bank of Japan and Bank of China have been increasing steadily.

Of course, the reduction in Fed’s balance sheet, expected to effectively start in 2018, will have a material impact on financial markets – the recent spike in volatility might be seen as a sort of recognition of that fact.

But global monetary base is still growing, which will in the end limit the potential for higher rates going forward and sustain high valuations in financial markets.

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Putting Recent Market Sell-off in Perspective

Source: Pixabay

Markets have been unnerved by rising interest rates in the US, with ripple effects around the world. The most staggering event has happened on the VIX market with a number of funds/ETNs making the headlines after having lost tons of money. What should investors take from these events ? A couple of reflections and interesting comments seen here and there. Continuer la lecture de « Putting Recent Market Sell-off in Perspective »

Low Vol Regime In Perspective

Volatility is the most disturbing factor in financial markets and it’s something people should always keep an eye on. Measured by popular metrics like VIX or VSTOXX, it’s assimilated to the « fear indicator » of investors.

Looking at the long past of the US equity market (S&P 500 in chart below), you can see that volatility goes in regimes that can change widely but rely mainly on macro environment (expansion/recession) and it’s impact on the psychology of investor (P/E or valuation).

Volatility in equity market in perspective

Source: Goldman Sachs

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FOMO

Better growth, low inflation. It’s the perfect backdrop for risky assets. But in a late cycle environment, one of the driver of financial markets people should always be fearful about is the « fear of missing out », especially when the rise in stock market accelerates and relies more on multiple expansion than fundamental improvement.

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Real Rates Are the Real Problem – DBk

US 10 year yield is around 2.5% which is quite low. But if you take inflation into account, the situation is far worse. But real rates should be higher, based on the current fundamentals of the economy. This means that central banks should have ended QE some time ago already, but they can’t because they are prisoners of financial markets. They are just stuck in a mess they helped creating in the first place, because they never got the guts to stop banks around the world, and especially in the US, from doing stupid things.

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