Paul Tudor Jones, founder of $7.2 billion global macro hedge fund firm Tudor Investment Corp., said Thursday that global credit markets are in bubble territory — and that the Trump tax cuts may act as a pinprick.
“From a 50,000-foot viewpoint, we are probably in a global debt bubble,” said Jones, who surfaced concerns about the global bond markets earlier this year. “Global debt-to-GDP is at an all-time high. I don’t know whether you are supposed to run for the exits, but we are at a point in time that is really challenging to the paradigm of ever-growing debt relative to the carrying capacity of the economy” underlying it, he said, speaking at the inaugural Greenwich Economic Forum.
Jones pointed to major credit dislocations over the past few days, including a sharp drop in General Electric Co.’s bonds, which ratings agencies recently cut to a rating just three levels above junk.
“Real estate and mortgage credit got us in so much trouble in 2007,” he said. “Next it’s going to be corporate credit, and the breakdowns are something we have to pay attention to.”
Jones is one of the hedge fund industry’s best-known managers, but his firm had fallen on hard times in recent years amid a turbulent time for global macro funds. Last year Jones shuttered one of his funds and moved his head office from Greenwich, Connecticut to Stamford. But his funds turned a corner earlier this year, with flagship Tudor BVI up 9.14 percent through October, according to a document from investment bank HSBC that tracks hedge fund performance.
Jones said President Trump’s sweeping corporate tax cuts may ultimately cause the bubble to pop, noting that the cuts were promised before the U.S. Federal Reserve started hiking rates.
“We may look back and say that may be what pricked the bubble,” he said. “Do you really think we’d have had that tax cut if we knew where rates would be today? I doubt it — that’s why we are in such a perilous time right now.”
Jones expects the Fed to hike rates again when it meets in December, but he expects it will “begin to equivocate” at that meeting.
“Just looking at what happened in last two or three months, the east and west both weighing on the U.S. economy and a breakdown in credit in the U.S. We’ll hike again, and then you’ll hear these guys talking about a pause,” said Jones, who noted that, given low interest rates globally, policymakers are running out of ammunition to use in the next crisis. “It’s going to be a really challenging time for policymakers going forward.”
But Jones, who famously predicted the 1987 stock market crash, said he doesn’t see another one imminent.
“Stocks are intriguing, because even though we are going to have challenging economic times, probably going to have slower growth next year, that doesn’t mean we have to enter a bear market yet,” he said.
But he concluded with an important caveat.
“Times are different,” he said, “and who the hell knows what’s going to happen?”