Paul Tudor Jones: "This Market, Which Is Reminiscent Of The 1999 Bubble, Is On The Verge Of A Significant Change"

Just hours after Neil Chriss announced that his $2.2 billion Hutchin Hill hedge fund is shuttering due to underperformance and admitted that "we fought hard, but did not deliver the performance that you expected from us", another legendary hedge fund announced it was undergoing a significant restructuring as a result of relentless investor withdrawals: citing a November 30 letter, Bloomberg reported that Paul Tudor Jones' Tudor Investment Corp, which lost 1.6% YTD,  was closing its Discretionary Macro fund "and letting investors shift assets to the main BVI fund as of Jan. 1" with the letter clarifying that "Jones will also principally manage Tudor’s flagship BVI fund, which will be the firm’s only multi-trader fund next year."

The restructuring took place as clients pulled half a billion dollars from Tudor in the third quarter, leaving the firm’s assets at $7 billion, roughly half the level it managed in June 2015, Bloomberg News reported previously.  As part of the sweeping overhaul, Andrew Bound and Aadarsh Malde, formerly co-CIOs of the Tudor Discretionary Macro Fund, would depart. In a move reminiscent of George Soros' recent return to more active management, Jones, who ran the BVI fund with a team of managers, would now have a smaller team and will assume a more dominant role in the fund. 

"I will be the largest risk taker and will manage a notional capital account equal to the AUM of the Tudor BVI strategy itself," Jones said in the letter, referencing assets under management. "This means that my results will have a one-for-one performance impact on Tudor BVI. I relish this challenge."

Jones and other Tudor partners are the largest investors in the BVI fund, which unlike the soon to be shuttered TIC, is up 0.8% through Nov. 3. More details from Bloomberg:

The firm opened the Tudor Discretionary Macro Fund in 2012 with $500 million. It had 14 portfolio managers and was seeded with $150 million from the firm. At the time, funds that bet on macroeconomic themes were a big draw for investors who expected the strategy to benefit from events such as the European sovereign debt crisis.


Those expectations were dashed as the strategy has produced lackluster returns in recent years. Hedge funds betting on macroeconomic themes climbed an average of 3.8 percent this year through October on an asset-weighted basis, to rank as the worst strategy globally, according to Hedge Fund Research Inc.

Yet while the internal reorganization of multi-billion hedge funds are hardly of material interest to ordinary retail, or even institutional, investors, PTJ's outlook on the market always is, and it was concerning: frustrated by the collapse of market vol as a result of record central bank monetary easing, Jones said "the environment is on the verge of a significant change" and that the current market is reminiscent of the bubble of 1999.

"That was a year in which Tudor BVI’s macro book was basically flat while U.S. equities experienced one of the greatest bubbles in history,” Jones, 63, wrote. “The termination of that bull market kicked off a three-year macro feast.” adding that "the plot is much the same today but we can substitute Bitcoin and fine art for the Nasdaq 100 of 1999."

Of course, critics will be first to point out that this is simply yet another prominent trader lamenting the end of markets as we knew them before the takeover by central banks, and Jones himself seems to partially agree, observing in a November 30 market note that the low volatility market environment has been an "anathema" to traditional macro funds and is becoming a "dangerous place," lulling investors into a false sense of complacency. 

"In the face of a shock, investors may be surprised to find themselves jammed running for the exit," he wrote. However, as Howard Marks has repeatedly cautioned in the past 3 years, this will be a problem as "the amount and quality of liquidity is lower than people recognize", and "hidden leverage in the market will make a mass exit even more challenging."

At a loss how to trade a market that appears to have little logic to it, Jones, a pioneer in the industry, has recently turned to more computer-driven trading and hired scientists and mathematicians to help revamp the firm. As Bloomberg reported previously, Tudor raised $300 million for a new macro fund, which started trading in October, that uses machine-learning algorithms to help its manager make trades.

It is unclear if that particular fund has had more success than more traditional, "fundamental" investing approaches.

As for PTJ's warning that a 1999-style blow up is imminent, while many of his macro peers would be the first to agree, the real question is how will central banks react: after all in the face of trillions in liquidity created out of thin air, if there is one thing the past decade has taught us is that fighting central banks is not only hazardous for one's health, but destructive to one's professional financial career. Then again, amid countless such warnings from the "legends of investing" crowd, this may finally be the proverbial moment when the broken clock is right...


christiangustafson Sun, 12/03/2017 - 17:20 Permalink

Good summary from the 4chan:For the illiterate; Saudi Prince was in Las Vegas, several assassins are trying to kill him - they make an arrangement to buy guns from Paddock on the floor below the Princes suite. Little do they know the Prince slipped away in disguise to enjoy night life. The FBI discover the plot to kill him, are trying to escort the Prince to the airport for an evac but keep encountering assassins. Paddock was just an arms dealer, and assassins were buying guns from him when they discovered the Prince wasn't in the suite. They panic and kill Paddock to make him look like a lone gunman. When Campos shows up, they freak and shoot over 200 rounds out the door. Campos escapes and alerts the authorities. FBI shows up in the room and disposes of the two bodies, and takes a picture of Paddock dead on the floor to help push their narrative.

pigpen Sun, 12/03/2017 - 17:25 Permalink

PTJ needs to short the online advertising attention market which is biggest fraud on planet.What is advertising worth when the very demographic everybody is targeting has opted out of advertising? They use adblocking and aren't served advertising, don't view advertising and can't be tracked to measure advertising.Brave browser is my personal favorite as out of the box by DEFAULT it blocks advertising, malware and tracking on any device and operating system.The biggest black swan will be major CPG company slashing advertising budget and keeping money for shareholders. The biggest idiots at companies are CMOs, time for CFOs to find them to account for irr on their advertising budgets.Cheers,Pigpen

GoldHermit Sun, 12/03/2017 - 17:26 Permalink

I was in the thick of things in 2000, helping manage several billion dollars.  This ain't even close.  2000 was some of the wildest shit I ever saw.

Wilcox1 Sun, 12/03/2017 - 17:29 Permalink

Are you talking about trying to get out of an upside down Titanic type "challenging", or just a push the women and children out of the lifeboat sort of thing?

Tugg McFancy Sun, 12/03/2017 - 18:04 Permalink

Why don't these clowns just be honest and say "we know nothing" instead of forever trying to invoke some past event that really has no relation to present day.

VW Nerd Sun, 12/03/2017 - 18:10 Permalink

Markets used to be a venue for money earned in the economy.  Now it's a venue for money hot off the press!  In today's economy, working a job is for chumps.  hardly a harbinger for a strong economic future.

LaugherNYC Sun, 12/03/2017 - 20:34 Permalink

Low vol means real asset traders accustomed to manipulating finite markets can no longer push them to generate alpha returns. If nobody cares about your markets,, there’s no one to leave holding the bag. PTJ, Soros, Moore — they need big players on the other side to make their plays work. When the only place money is going is into equites, and all on the buy side, there’s no money for them to take,

Sit on the sidelines while the Dow goes up 30% on air, and Bitcoin goes up 10,000% on a self-contradictory premise, How does a crypto act as a store of value against Armageddon-like meltdown of fiat money and hence the functioning of markets, governments, utilities etc when all it takes is a power failure, or the shutdown or hacking of internet servers to render cryptos inaccessible, or wipe them clean? Cryptos are only valuable as a trading vehicle in a normative world, subject to insane bets and manipulation, or as a money laundering scheme until “the authorities” take it down, as take it down they must.

If the macro guys stopped fucking around with stuff no ne cares about anymore - gold, energy, grains, currencies — and did a massive collusion run on the cryptos, maybe 2018 could be a good year for them.

In a world in which asset prices are supported on an ocean of central bank air, unless there is actual deflation, it’s either get on board or get out. The air is pretty thin up here for sure.

besnook Sun, 12/03/2017 - 20:38 Permalink

nothing happens until the punch bowl is removed. there is still plenty left as long as the fedbojboeecb pump is still on. with a lag of 6 months from the spigot cutoff june of next year is the earliest if they stopped today.

Harry Lightning Sun, 12/03/2017 - 20:50 Permalink

Here's the problem with turning to computers when the markets no longer exhibit any logic : the computer program basically is written to show you what has been working, and the belief is that what has been working will continue to work. Its like a strategy that says at the beginning of each year, buy the best performers of the last year. How do we know that the best performers of last year will conrtinue to be good this year ? The mathematical law of large numbers would say to but the worst performers from last year because at some point the law of averages will cause them to outperform. This is how the computer trading applications work. They dentify existing correlations between the price activity of two or more financial instruments and use that correlation information to establish trades based on the historical price performance. Of course if the correlation breaks, the strategy blows up.So the answer to how to protect against such blow-ups is to stop the trade whwnever the correlations stop working in predictive ways. But there again is a new problem : how much leash to give the strategy before pulling the plug ? This is the real difficulty driving market investment today...because the markets are manipulated by entities who can greatly increase the money available to push prices higher of all instruments, traditional valuation models cannot serve a purpose. So traders who need to earn money trading in order to get a paycheck have tried to find other means by which to predict price performance, to little avail. The people at the central banks who pull the strings do not know what strings they will pull and for how long more than a month at a time. How is anyone else supposed to know what the market will do going forward if the people manipulating it don't know what they will do after the next month ?The bad part of the story is that inevitably the investment community will tire of the uncertainty, and they wll give up on investment. Take the money out of the markets and give it back to the investors who own it, who will promptly flood the banks with deposits for which there are no loan demands. Markets will drop not for any good reason other than no one knows where they will go in the future so conservation of capital will be the safest route. At that point the central manipulators will have a real proble, for if they create even more money to stop the fall in prices as investors run to the sidelines, they will be the only buyer. When they finish the moarket will drop even more. Conversely if they suck up the excess liquidity in the system, they will add further fire to the selling pressures. Indeed that is what the Central Banks should fear most at this point : a buyer's strike. Which is why the days ahead will be tough sailing for hedge funds until downside momentum is firmly and finally established. Its the mo ment that everyone is waiting for yet no one has seen, and my guess is when it comes the computers won't recognize it until long after the new downtrend has established itself. Computers are very good with the past, pretty good with the present, but clueless about the future. Because after all, the best they can do is predict the future based on the past, and for what is coming there is no past to depend on or learn from.

Don Sunset Sun, 12/03/2017 - 21:36 Permalink

WRT the 1999 bubble, the 2017 bubble is the EVERYTHIING bubble.  Debt, bond, real estate, health care costs, rent, property taxes, corp debt, NZIRP, workers not in the workforce, etc.  We did not have a bond, debt, health care cost, rent, corp debt or NZIRP bubbles in 1999.  Also, we have a boatload of workers on the sidelines with many folks making a lot less than they did before.  The situation is a lot worse now.PONZI or no ponzi, there's no way out of this mess.Public debt in 1999 was $5.7T.  Today's (admitted) debt is $20.6T.  What could you have done with those funds over 18 years?Public Debt / GDP was 58% in 1999.  It's 104% in 2017.Corp Debt levels are through the roof.  P/Es improved with share buybacks.  P/E doesn't reflect debt.  P/E is an insufficient indicator today wrt to the performance of any company.The FED has lost control with low interest rates and exploding stock prices.  Good luck trying to clear their balance sheet or raising interest rates much more. They can do nothing except wait for it all to implode.You wish you can play in a sane world based on fundamentals, but these are obviously desperate times whether you realize it or not.  This is partly why politicians can't govern these days.  Between the economic outlook and the growing liberal political environment in the USA, where do you put the USGs chances of survival?