Paul Tudor Jones Has A Message For Janet Yellen: "Be Terrified"

Tyler Durden's picture

Billionaire investor Paul Tudor Jones has a message for Janet Yellen and investors: Be very afraid.

Echoing a number of recent high profile managers' warnings...

Guggenheim Partner’s Scott Minerd said he expected a "significant correction" this summer or early fall,  citing as potential triggers President Donald Trump’s struggle to enact policies, including a tax overhaul, as well as geopolitical risks.


Philip Yang, a macro manager who has run Willowbridge Associates since 1988, sees a stock plunge of between 20 and 40 percent, according to people familiar with his thinking, citing events like a severe slowdown in China or a greater-than-expected rise in inflation that could lead to bigger rate hikes.


Seth Klarman, who runs the $30 billion Baupost Group, told investors in a letter last week that corporate insiders have been heavy sellers of their company shares. To him, that’s “a sign that those who know their companies the best believe valuations have become full or excessive."


Larry Fink, whose BlackRock Inc. oversees $5.4 trillion mostly betting on rising markets, acknowledged this week that stocks could fall between 5 and 10 percent if corporate earnings disappoint.


Another multi-billion-dollar hedge fund manager, who asked not to be named, said that rising interest rates in the U.S. mean fewer companies will be able to borrow money to pay dividends and buy back shares. About 30 percent of the jump in the S&P 500 between the third quarter of 2009 and the end of last year was fueled by buybacks, according to data compiled by Bloomberg. The manager says he has been shorting the market, expecting as much as a 10 percent correction in U.S. equities this year.


Even billionaire Leon Cooperman -- long a stock bull -- wrote to investors in his Omega Advisors that he thinks U.S. shares might stand still until August or September, in part because of flagging confidence in the so-called Trump reflation trade.

Their views aren’t widespread. They’ve seen the carnage suffered by a few money managers who have been waving caution flags for awhile now, as the eight-year equity rally marched on.

But the nervousness feels a bit more urgent now, as Bloomberg reports,  legendary macro trader Paul Tudor Jones, who runs the $10 billion Tudor Investment hedge fund, says that years of low interest rates have bloated stock valuations to a level not seen since 2000, right before the Nasdaq tumbled 75 percent over two-plus years.

That measure - the value of the S&P relative to the size of the economy - should be “terrifying” to a central banker, Jones said earlier this month at a closed-door Goldman Sachs Asset Management conference, according to people who heard him.


In fact Total US Market Capitalization-to-GDP is struggling to bust above its 2007 highs...

While the billionaire didn’t say when a market turn might come, or what the magnitude of the fall might be, he did pinpoint a likely culprit.

Just as portfolio insurance caused the 1987 rout, he says, the new danger zone is the half-trillion dollars in risk parity funds. These funds aim to systematically spread risk equally across different asset classes by putting more money in lower volatility securities and less in those whose prices move more dramatically. Because risk-parity funds have been scooping up equities of late as volatility hit historic lows, some market participants, Jones included, believe they’ll be forced to dump them quickly in a stock tumble, exacerbating any decline.

“Risk parity,” Jones told the Goldman audience, “will be the hammer on the downside.”

Indeed, with all that low-vol leveraged, it wouldn't be the first time.


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zzzz88's picture

after 8 years of bull market, just a few people believe there is any down risk there. 


here some data, check it yourself. 

google factset buyback report, you will see, 

about 20% of SP 500 companies' earnings are less than buyback+divident.  they are borrowing the time to survive. if anyone believe this can last for ever, then it is different this time. remember, they are the biggest compnies. 

yogibear's picture

A while back Joe Grandville  predicted a downturn. Bernanke snickered. It ended up helping the demise Grandville. Probably could have lived a couple more years otherwise.

The money-printers can out last almost everyone, especially if it's the reserve currency.

HRH Feant's picture
HRH Feant (not verified) yogibear Apr 20, 2017 9:29 PM

Sure. Until the old WRC is replaced by a new WSC / SDR and the petro dollar dies.

small axe's picture

Ms Yellen and the Fed's insane policies are the reason Wall Street whores like Mr. Paul get he threatening to bite the hand that feeds him?

Burr's 2nd Shot's picture

We have crossed the event horizon and are now within the singularity.  How deep?  It doesn't matter, really. A new set of poorly understood rules now define reality.  Proceed with caution.

HRH Feant's picture
HRH Feant (not verified) Apr 20, 2017 9:27 PM

No shit Sherlock.

Skeered yet?

Arrow4Truth's picture

I ain't skeered. Hold my beer and watch this.

Ban KKiller's picture

Waiting for the one domino to fall on the black swan. Deutsche bank gets my vote....fraud on such a scale it can't be hidden.

Knobbius's picture

I'd be careful going anywhere near a short position on DB.  I got my ass reamed out 4 years ago with a highly-levered short / options position on DB that went horribly wrong.  Suffice it to say that Mario Draghi cost me 40,000 dollars.  

We may all know it's fraud, the financial world knows it fraud, but if the ECB says the word "Bazooka" in the context of European banking DB will just sky-rocket again.  If there's any hint that DB may actually have to declare a problem, the German government will step in, even if they have to violate EU banking regs.  Just the way it is.  

My advice is to find a safer knock-on play.  Who else, preferably not in the banking sector, will get slaughtered when DB's problems become obvious?  Who else is too big to avoid getting creamed, but not so big that Euro governments will bail them out?  That's what you short.

Jimmy Jimmereeno's picture

I knew Paul when:  when we both shared desks in the fifteenth floor boardroom at 1 Battery Park Plaza.  Nothing in this brief post suggests that there is anything out of the ordinary in prospect for stock market indexes (or if you prefer, indices).  The article headlines Paul but doesn't really deal with the fact that most cyclical bear markets in U.S. securities can retrace 50% of their previous gains without all securities prices falling 50%.

One needs to recognize that when articles such as above are talking about "declines", "bear markets", and in the popular press, "crashes" they fail to differentiate between the loss that an index suffers and the loss that your individual security suffers.  The former usually dwarfs the latter when the latter is a quality enterprise.

Here's an example:  in the 1960s the Dow Jones Industrial Average dropped from approximately 1000 to 750 - a 25% decline.  During that period so-called "conglomerate" and airline stocks declined from above $100/share to $3/share (check out Litton Industries and Delta Airlines.  That prompted me at the time to coin the phrase, "everything (excess valuations) goes to 3".  The market capitalization of those combined companies - not just LIT and DAL - was small compared with the total market "cap" but the overall market gets the bum rap when people talk about the "bear market".

View the 2000 - 2002 S&P declineof 51% and the 2007 - 2009 S&P decline of 58%:  a unique circumstance when a typical 50% index correction was followed by a similar decline within a 10-year period.  What occurred?  The prices of many securities declined substantially but not 50%.  The 50% number is index related and it does not reflect the reality. 

If a long-term investor cannot suffer a 50% decline in some of his holdings during a 2-3 year period, then he should not be investing in securities; his money should be in alternatives like annuities and corporate and sovereign debt.  Paul knows that and you can bet money that he is not terrified about a possible 50%, or even more, decline in stock market indexes.

There is nothing "terrifying" about any potential message that Paul might want to convey to Yellen or any other FRB head.  What's terrifying is in the air head of the editor.

Sonya B59's picture

I knew him when he was on the 16th floor.  I rememeber you. YOu were the januitor, right?

Secret Weapon's picture

Back then there were markets.  These are no longer markets but manipulated casinos.  Ask yourself one simple question.  Why does the Federal Reserve need a trading desk? Fuck you and have a good day.  Cheers.

mkkby's picture

When parasites on wall street say "be scared", it means they are long and they want the fed to lower rates for them.  They are never really scared because they play with YOUR money.

reload's picture

With the increased popularity of `Index tracking funds` the number of `passive` investors that will feel the full force of the index decline is probably much higher now than in 2000-2001 ot 2007-2008.

Every Index has its laggards, dogs and problem children - the ones with real potential to `go to 3`. Yet even the most respected active managers have failed to beat the performance of the main Indexes over most recent time frames, in part because they have not managed to hold a higher % of the best performing constituents than their benchmark index holds. Does that make it fair to assume that a lot of active managers are in fact overweight the constituents that may `go to 3`?, I dont know. Add the extremely plausible argument tht PTJ makes about the risk parity funds becoming distressed sellers, and it is quite immaginable that a large washout could affect the valuations of even robust enterprises.


Knobbius's picture

Terror not required.  I will offer instead a couple of investing ideas, which follow in the theme of Jimmy's post by suggesting things you can do other than just sitting long in equities and getting pummeled this summer.

The reflation trade got ahead of itself pretty substantially after the election, and that popped 10+ yr paper up 100 basis points for no good reason.  Look at being in the TLT ETF, which is mostly inversely correlated to large cap equities.  TLT traded at about 140 when the 10-yr was yielding 1.6%.  It traded down to about 1115 when the 10-yr was trading at 2.6%.  If the equity "market" is going to swoon, then long-dated treasury paper will sky-rocket.  You also get pretty decent yield by writing short-dated covered calls on the TLT, which is what I'm doing.  

I also like USO, the oil ETF.  The mechanics of the USO seem to imply pretty strongly that the floor is about 9.00 a share.  This makes some sense when you consider that the new marginal swing producer is shale oil in North America.  With oil at 50-55 dollars, the North American rig count goes up.  With oil at 40 dollars, the break-evens don't look so good, rig counts decline.  And shale operations can scale up or down in a matter of weeks.  Saudi production wells typically take months to bring up once they've been taken off-line; Russian production wells can't be turned off at all in the winter.  I see USO being range-bound for a long time to come, probably trading from 9.50 to about 12.50.  I see it bottoming around 10 bucks some time in the next couple of weeks.  I'm going to buy some, and probably write some covered calls against it.

Bottom line:  You can stay macro, use some options, and make money even if and when the "market" fizzles.  I'm staying away from individual equities, or anything in the ETF or options world where the liquidity is questionable.


ebworthen's picture

Remember, the last crash was an "anomaly" just like the 2001 crash.

"Pay no attention to the man behind the curtain!"

Sid Davis's picture

What looks reasonable to me is for the Nasdaq Composite to peak out at about 6,000 mid August of 2017 and then lose about 20%, hitting a bottom of 4,700 at the end of 2018. Of course it should then move back up to 6,000 by the end of 2020.


Sonya B59's picture

You may be4 rifght but a lot of good your gueses do. A lot of people have been guessing on here for many years and they are now broke and gone. 

Seasmoke's picture

I look forward to the next time Yellen belches, pukes and shits her pants at the podium.

0valueleft's picture

Everything is fine, until it's not.

StocksWayUp's picture

Exactly.  The market shoulde be selling off according to a lot of articles on ZH. In fact over the past 6 years I would say that 99% of the articles on ZH show legitimate reasons why the markets should be selling off.  But they have not.  They will not sell off until all of the weak traders and investors have been shaken out of bearish positoins and have finally bought the rally and then the marekets will sell off.


I have been in this business for many years. I am retired now for about 20 years and nothing has changed. 

Singelguy's picture

Actually one thing has changed, and that is the intervention by the Fed. The Fed's balance sheet has grown from $800 billion to at least $4.5 trillion. Most of that cash found its way into equity markets. The Fed is now the market. This is all new territory and the markets have a difficult time dealing with it. The old rules no longer apply. It is no wonder that hedge funds are closing their doors or significantly reducing their portfolios. The market has become a big casino where the direction is determined by the whims of the Fed which have no basis in economic fundamentals.

northern vigor's picture

Tyler, why don't you kick Schlep's sorry arse off ZH? 


StocksWayUp's picture

PaulTudor has a lot of good points. But until the market gives the signals the rally is on.  I am retired but in all of my years in the industry there is only only analysis group who makes legitimate market calls in bull and bear markets.  Their record speaks for itself and most analysts won't even show you their record. The guys at Shepwave rotate old calls and charts on their blog and on their FB pages 

Sonya B59's picture

They are good but the only problem is you are wasting your breath. There are no real investors left on here. There has been an onslaught of spammers on here that has been increasing over the last year and they are nothing but vulgar. I hardly come on here anymore. 

Hongcha's picture

By the looks of it PTJ has established yet another put position ... I stopped trying to short this market in 2011.  Well, not entirely; but needless to say I got burned most  times.  My best historical short has been the GDX; the "gift that keeps on giving".  Not short anything now, would rather buy contrarian like "cash - rich" Chinese companies or the Russian ADRs.  I have owned 7-8 issues in those categories in the last two years and they all paid their dividends.  All of them.

All the major indices will bust a nut to newerer highs again very soon.  There is no top in sight  :0)

divingengineer's picture

Keep jerking it, you'll come sooner or later.

Not My Real Name's picture

"I hardly come on here anymore." 

You've been here 17 weeks. You Shlepwave dildos are a hoot.

Relayer74's picture

I was going to say we aren't ALL gone, but then I got honest with myself.

I haven't been an investor for a couple decades or so, more of a 'trying to stay alive-er'.

redbird's picture

What do Hugh Hendry and David Rosenberg say ?

They seem to be the only two who can make sense of it all.

I thought they were crazy when they flipped to bulls, but history says diferently.



redbird's picture

Short-term capitol gains tax rate = same as income tax-rate.   How is that fueling the market ?   Real economies are not based on interest rates. 

If the bank pays you effective 0% interest, where else you gonna "try" to make an extra buck.   Clearly low interest rates are the driver of the stock market.

Bunga Bunga's picture

Calm down, the billionaires just want more money from the Fed.

alpha-protagonist's picture

Yup. I'm under no illusion that these "pundits" care about anything except their own self interests.

Ali blabla's picture

Amen Brother! .... You can always short the stock ;)

sinbad2's picture

It's been 8 years since the last recession, the next one is due.

farmboy's picture

Wake up Paul. Capital markets deceased 10 years ago after 2008.

GooseShtepping Moron's picture

Happy Hitler Day, Hedgers!

zzzz88's picture

no one can deny that next recession will come some day. it is law of nature. economic cycle is just like our life cycle. central banks can delay it , but can not change it 

what is difficult is exact timing the peak. fortunately, we do not need to, because once the big tide changes direction , we will not miss it. so just lay back and wait. 


very likely, this time, the burst starts from corpration debt default. in china, there were more and more default since 2014, it soared since 2016. it is very similar in usa. even the market darlings like AMAZON will have big problem. do not believe it? check its details carefully. every big bear market had some big victims, like enron in 2000s, leman in 2008. 

putbuyer's picture

Someone needs to audit Facebook. How can they be making money when they have no product and no one clicks those ADs. Most of their users are sitting home playing video games and have no money. Something aint right

AE911Truth's picture

Advertisers (who buy ads on facebook in an attempt to control my buying behavior) are totally wasting their money targeting me.

I'm getting ads from Jinpeng, a seller of copper ore crushers, and RevSense automated AdOps. These corporations are clueless and wasting money since I won't be buying any copper ore crushers, or advertising analysis. I'll just be buying beans and rice from small local sellers; and growing broccolli and carrots. 


blindfaith's picture



Priceless.... Ineeded a good snicker this morning.

Anon2017's picture

These advertisers are wasting their money on a lot of users. But they are desperate for more suckers to buy their investment newsletters and gold coins. Use a free download called AdBlock Plus to make your viewing experience online much more pleasant.

Singelguy's picture

Facebook makes it easy. They click on the ads for you and thrn send you the bill.

blindfaith's picture



A friend at State says they have two computer screens.  One is for uckbook and they have to click on the ads or their paycheck gets dunned.

Batman11's picture

What went wrong with globalisation?

The same problem that was there at the start, when no one really knows how to run a national economy, how was anything larger ever going to work?

A new scientific economics and handing control to technocrats has made no difference what so ever.

US – Even Jamie Dimon has acknowledged there is something wrong with the US, but he doesn’t really know what it is.

Euro-zone – Staggers from crisis to crisis and no one really has any solutions to put it right, Mario tries to paper over the cracks by throwing money at its problems.

Australia, Canada – Hit by the slowdown in demand for natural resources and have engineered massive real estate bubbles that will soon crash with devastating consequences.

UK – There is no money, we must implement austerity and Osborne’s cuts are just being phased in.

Japan – Blew itself up with a massive real estate bubble in 1989 and has never really recovered, Government debt levels are astronomic.

China – Has used debt to keep itself going after 2008 and everyone is now worried about its debt problems.

Batman11's picture

Good economics is the foundation of a successful economy, but we don't have it.

Why is economics so bad that no one can run a national economy successfully?

Let’s start with the basics.

“Why is Economics not an Evolutionary Science?” (1898) Thorstein Veblen

Someone with a rudimentary grasp of real science spotted the problem some time ago.

Why isn’t economics evolutionary?  

“Income inequality is not killing capitalism in the United States, but rent-seekers like the banking and the health-care sectors just might” Nobel-winning economist Angus Deaton

 Today’s Nobel prize winning economists are just catching up with 18th and 19th century economists on rent seeking.

“…banks make their profits by taking in deposits and lending the funds out at a higher rate of interest” Paul Krugman, 2015.

Monetary theory was better in the 19th Century.

Real sciences build on established foundations that develop over time as new and better theory comes along to replace older, less accurate theory. Over time this methodology perfects itself and the errors in the reasoning gradually get smaller over-time.

This is why we can build space craft that can accurately get to the outer reaches of the solar system.

Francis Fukuyama in 1992 said it was “the end of history” and Capitalism had been the only successful economic system to stand the test of time.

But we had just changed the fundamental assumptions about capitalism.

1) 40 years ago, most economists and almost everyone else believed the economy was demand driven and the system naturally trickled up.

2) Now most economists, and almost everyone else, believes the economy is supply driven and the system naturally trickles down.

These assumptions are the total opposite of each other.

This random jumping about on fundamental assumptions would have any real scientists in fits of hysterics.

If economics ever wants to be a real science, it needs to behave like a real science and be evolutionary.

You can’t just go forgetting about rent seeking and coming up with a model for global, free trade that ignores the cost of living.

Imagine a Chinese wage covering a Western cost of living.

Why the West can't compete internationally, its labour has been priced out of the global market place. 

All known in the 19th Century when they repealed the Corn Laws to usher in the era of Laissez-Faire. You have to get the price of corn down, to lower the price of bread, to lower the cost of living, so employers can pay internationally competitive wages.

As there are so many schools of economics about, economics hasn’t even reached that first stage where there is a base of fundamental assumptions that are ready for everyone to start building on.

Until you reach this stage, economics is little better than astrology for predicting the future.

If you ask enough astrologists about the future one of them will have an accurate prediction, economists are pretty much the same.

Batman11's picture

Professor Werner has carried out a more technical analysis: 

Classical and neo-classical economics, as dominant today, has used the deductive methodology: Untested axioms and unrealistic assumptions are the basis for the formulation of theoretical dream worlds that are used to present particular ‘results’. As discussed in Werner (2005), this methodology is particularly suited to deriving and justifying preconceived ideas and conclusions, through a process of working backwards from the desired ‘conclusions’, to establish the kind of model that can deliver them, and then formulating the kind of framework that could justify this model by choosing suitable assumptions and ‘axioms’. In other words, the deductive methodology is uniquely suited for manipulation by being based on axioms and assumptions that can be picked at will in order to obtain pre-determined desired outcomes and justify favoured policy recommendations. It can be said that the deductive methodology is useful for producing arguments that may give a scientific appearance, but are merely presenting a pre-determined opinion. 

“Progress in economics and finance research would require researchers to build on the correct insights derived by economists at least since the 19th century (such as Macleod, 1856). The overview of the literature on how banks function, in this paper and in Werner (2014b), has revealed that economics and finance as research disciplines have on this topic failed to progress in the 20th century. The movement from the accurate credit creation theory to the misleading, inconsistent and incorrect fractional reserve theory to today's dominant, yet wholly implausible and blatantly wrong financial intermediation theory indicates that economists and finance researchers have not progressed, but instead regressed throughout the past century. That was already Schumpeter's (1954) assessment, and things have since further moved away from the credit creation theory.”

 “A lost century in economics: Three theories of banking and the conclusive evidence” Richard A. Werner

Understanding money and debt are the most fundamental aspects of capitalism and monetary theory has been regressing for the last one hundred years. An evolutionary methodology would stop this sort of thing from happening.

Globalisation never stood a chance.



opport.knocks's picture

Oh sure, try to bring intellectual rigor to a discussion about Ponzinomics ;-)

"I will gladly pay you Tuesday for a hamburger today" 

Singelguy's picture

The biggest fundamental problem with economics is that it cannot quantify human behavior. It is unpredictable beyond a certain point as humans often make irrational and illogical choices based on emotions. A particular theory may prove to be true over a short period of time but when the mass psycology changes, the theory no longer holds. Government is also made up of humans and they too make irrational choices in terms of taxes and regulations, for political expediency and personal gain with little attention or appreciation for what the impact will be on consumer behaviour and ergo the overall economy.

However, there are certain principles that always apply. Supply and demand need to be in balance. An economy has to produce at least as much as it consumes and if it is to prosper, it has to produce and export more than it consumes. If that is not the case, the gap can be bridged in the short term with borrowing and currency creation but it is unsustainable. There are a few more but they are all common sense.

I totally agree with Angus Deaton. Wealth from the economy is being vaccuumed up by taxes and interest. Everything has been financed leaving the consumer with higher living costs and continually declining purchasing power. The only way off this road is the elimination of a great deal of the current debt and restrictions put in place to prevent it from happening again, such as balanced budget amnendments, artificial manipulation of interest rates, and the end to fractional reserve banking.

overmedicatedundersexed's picture

sorry to tell you: the west is a mess because we are all insane..

the leadership is much worse..psychopaths bent on destruction wrapped in "hope and change"