Goldman Sachs have released a fantastic interview between legendary trader/investor Paul Tudor Jones and Lloyd Blankfein. PTJ talks a little about how he started and shares some of his views on the current markets.
Here are some of our key take-aways:
In February 2018 the markets were a “bomb ready to explode” with the “first break all derivative-inspired”.
“Looking at the greatest financial crises over the past 30 years they, generally speaking, are derivative-inspired because that’s where all the leverage is.”
Right now “when looking at any current asset price you have to be thinking that this is a highly dubious sustainable price and I say that for a couple of reasons. One, first and foremost I don’t think monetary policy and the way it’s currently conducted is sustainable over time.”
“Interest rate policy is crazy and if you just parachuted in and said we have 3.8% unemployment and 2.8% CPI” and asked “what are rates? 4.5%, 5% something like that. So you know rates ultimately are not sustainable… you had operation twist in the 50’s and 60’s where interest rates were manipulated and had “low real rates and everyone in the 60’s got used to zero rates, zero real rates and that set us up for the 70’s and so I think we are doing the same thing again”
“And clearly fiscal policy, are you kidding me, we are going to be 4% this year adding half a percent every year for the next five and six years and be at 7% in three years, that’s not sustainable.”
“You look at the prices of stocks, real estate, anything and you know in the long run that we have to mean revert back to normal real rate of interest with a normal term premium that has existed for 250 years”
“We are going to have to get back to sustainable fiscal policy and that probably means the price of assets go down in the very long run”
In the short term markets “are jacked up ready to go”.
“Just imagine the next recession comes, oh my god, it’s going to be interesting.” When that comes “hopefully I will be really short”
“The next recession is really frightening because we don’t have any stabilisers. We will have monetary policy which will exhaust very quickly but we don’t have any fiscal stabilisers and in 2000, the last time we were at 3.8% unemployment we had a 2.5% budget surplus”