‘Tough sledding’ ahead for high-flying inflation trades, says investor who called ’87 stock-market crash

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,‘I know I think it’s going to be a tough sledding for the inflation business going forward. So the things that have performed the best since March 2020 are probably going to be the worst performers as we go through this tight cycle.,

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–Paul Tudor Jones, Tudor Investment Corp.

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Billionaire hedge-fund manager Paul Tudor Jones expects it to be an interesting tightening cycle as the Federal Reserve and Chairman Jerome Powell play catch-up after inflation surges above the central bank’s 2% target, where it is expected to stay for some time. have hope.

Jones, in an interview with CNBC, said that, on a relative basis, he does not know whether these assets will go “down or up” but if the fed-funds rate rises to 2% over the next two years. ,

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Jones, who rose to fame for predicting the stock-market crash in October 1987, has been a sharp critic of Powell and the Fed, previously complaining that policymakers were “inflation makers not inflation fighters.”

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Now that the Fed has moved on to tightening monetary policy, Powell and his fellow policymakers are going to scramble to catch up, Jones said Tuesday.

Last time the unemployment rate was 3.9%, fed funds peaked at 1.75% and 2.5%, Jones said, while the 10-year Treasury yield stood at 3%. The fed-funds rate is now in the 0% to 0.25% range, while the 10-year yield has recently tested the 1.80% range.

Powell is “going to play catch-up. And he has a lot to do, and I think that’s why you see him talking about quantitative tightening, because I don’t think he can catch up fast enough to tackle the inflation problem. Try what he has right. Now,” Jones added.

The Fed is closing its monthly asset purchases as it brings the latest episode of quantitative easing to a close. Minutes of the Fed’s December policy meeting showed that officials had discussed moving quickly to close the balance sheet after the QE halt, a topic that Fed officials also raised in public comments.

Shares have been volatile in the new year as investors pencil in for a more aggressive Fed, but equities appeared to regain their footing on Tuesday. Dow Jones Industrial Average DJIA,
+0.22%
was up about 115 points, or 0.3%, while the S&P 500 SPX,
+0.53%
0.7% and Nasdaq Composite Comp,
+1.10%
jumped 1.3%.

Powell, who has been nominated by President Joe Biden for a second term as Fed chief, told the Senate Banking Committee on Tuesday that the central bank’s plan to raise interest rates should not lead to a crackdown in the economy or job markets. should not be harmed. Powell was testifying at his confirmation hearing; He is expected to get approval from the full Senate.

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