Paul Tudor Jones: "This Market Feels Like Japan In 1989 Or The US In 1999"

After years of stock and bond markets moving primarily in one direction (higher), Paul Tudor Jones say inflation is about to re-emerge "with a vengeance" and revive volatility from its yearslong slumber.

And while the explosion of volatility this week has pushed Fed funds futures traders to price in fewer interest rate hikes, Tudor believes the alarming pace of rising prices - after eight years of tumbling unemployment accompanied by nonexistent wage growth - will force the Federal Reserve to pick up the pace - leaving traders wrongfooted once again.

Tudor, who wrote a letter to investors obtained by Bloomberg earlier this week, before the US stock market's second "bloodbath" of the week said policy makers have been too permissive, leading to a general air of complacency across markets.. Instead of expressing their befuddlement over why PCE refused to markedly rise, they should've been hiking rates. Now, the "impropriety" of President Donald Trump's tax cut - which will vastly expand the Treasurys debt offerings, causing rates to spike - is going to catch investors off guard. Going into the year, many had expected stocks to "melt up" as corporations rushed to buy back shares and expand capex.

By leaving rates low, the Fed has inadvertently blown a financial bubble that, apparently, even the PPT can't handle. Jones says the present situation reminds him of the US market circa 1999.

“We are replaying an age-old storyline of financial bubbles that has been played many times before,” Jones, founder of Tudor Investment Corp., wrote in a Feb. 2 letter to clients.

“This market’s current temperament feels so much like either Japan in 1989 or the U.S. in 1999. And the events that have transpired so far this January make me feel more convinced than ever of this repeating history.”

In his letter, Jones says he sees a parallel between Jerome Powell - who took over as Fed chair on Monday - and Bank of Japan Governor Yasushi Mieno, who joined the BOJ in December 1989 amid a boom driven by speculative investment in land and stocks. Within a week, he began raising interest rates.

And given the events of the last two days, Jones's call is almost eerily prescient.

Mieno “was ultimately blamed for pricking a bubble over which he had no control,” Jones said.

“While the messenger always gets the blame, the real fault lies at the feet of the policymakers of the late 1980s who allowed systemic imbalances to build up in the Japanese stock and real estate markets.”

Jones isn't the only one who has been warning about the dangers of a sudden inflationary shock reawakening volatility.

Ken Griffin, founder of Citadel, said earlier this month that he’s concerned about quickening inflation globally amid "general complacency" around the risks of such a shock.

Jones said his $27 billion hedge fund was "carefully positioning for the possibility that inflation surprises to the upside."

He added that, when Trump made his State of the Union last week, he didn't mention how Treasury auctions will increase this year from the current projection of $583 billion to almost $1 trillion.

“It is incredible that at full employment we have passed a tax cut that will push our deficit to 5 percent of GDP,” Jones said. “Can you imagine what will happen to the deficit and debt in the inevitable downturn? This is what the dollar is sensing.”

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With that in mind, we'd like to remind readers who are old enough to remember of Jones' famous interview with FNN after the close of trading on Oct. 19, 1987 - a day that will live in market's infamy.


Endgame Napoleon BennyBoy Fri, 02/09/2018 - 09:05 Permalink

All the time elites have been cheerleading the economy through several administrations, spreading the big lie, the economy has been awful, hence the results of the 2016 election, which shocked said elites.

  • Fifty million working-aged citizens are not in the workforce, but not counted as unemployed. 
  • Forty-three million so-called “employed” people cannot even afford groceries from their earnings and are getting free EBT groceries, in addition to other monthly freebies and the now-doubled, refundable child-tax-credit welfare up to $6,444–available to those whose wages won’t cover groceries if they irresponsibly have sex and produce a bunch of kids they can’t afford in single-earner households, whether they are citizens or noncitizens. 
  • The US government is supporting to the tune of $116 billion per year hordes — millions — of illegal aliens by paying them, too, to have sex, reproduce and work part time so that their traceable earnings do not exceed the earned-income limit for monthly welfare and the cut off for refundable child tax credits, when they are not working under-the-table.
  • Tax revenues are down, surprise.

In reply to by BennyBoy

GreatUncle Endgame Napoleon Fri, 02/09/2018 - 11:04 Permalink

The system if you combine the borrow from the future and inflate today in the same space and time is NIRP.

We have all been had by those running the economy for themselves.

So you either junk it or continue with it ... make your call.

At this point the only room they have now is to start aplying the future NIRP today!

This is on top of the money you never received because the past has already NIRPED it.

In reply to by Endgame Napoleon

JasperEllings BennyBoy Fri, 02/09/2018 - 09:24 Permalink

Holy cow, this guy is a sage.

He was the only one wise enough to recognize a bubble. Well, ... him, my mailman, the bartender, a car wash attendant, 4 guys at my pinochle club, my kid's entire 4th grade class, and a monkey I saw on TV who predicts weather and market bubbles.

In reply to by BennyBoy

Non-Corporate Entity Fri, 02/09/2018 - 08:20 Permalink

Yeah, except the market today isn't the market of the 90's, which wasn't the market of the 80's...


We are detaching from globalism and realigning America First. Did anyone really believe it was going to be a seamless transition??? DOW to 30G!!! I'm not budging!

copernicuson Fri, 02/09/2018 - 08:23 Permalink

This is not Japan 1989.  Everybody and his brother thought we should do things the Japanese way.  Today every country and their brother thinks we should not do things the American way.  We may go down to Dow 18150-18500 or so, but that is about it.

Brazen Heist Fri, 02/09/2018 - 08:23 Permalink

Behold the stawk market bubble, the greatest illusion of wealth. A massive redistribution racket about to recycle some folks through the meat grinder again.

FEDbuster Yellow_Snow Fri, 02/09/2018 - 09:24 Permalink

Being early, doesn't make you wrong, just early.  He called the housing bubble in 2004, it popped in 2008.  Now he says the FED (and most other central banks) have blown the mother of all bubbles with artificial low interest rates, direct stock and bond market purchases, etc...  Now that ZIRP is ending, the Piper will be paid.  To ignore Schiff or the above PT Jones warnings is foolish.

In reply to by Yellow_Snow

Honest John Fri, 02/09/2018 - 08:35 Permalink

Happy to say that I saw that one coming and went to the Domincan Republic for three months.  Everyone thought I was a fool for predicting the crash.  Like today, there was nothing that wasn't overvalued.

juggalo1 Fri, 02/09/2018 - 08:37 Permalink

Funny how the GOP was able to hold the line against Obama, but now that it is their man in office, they lose all sense of balance.  It's sad to think that we could have done infrastructure investment by pulling the unemployed off the sofa.  Now we're developing a consensus that we will do it, but with unemployment at 4-5% the cost to the economy will be about double.

venturen Fri, 02/09/2018 - 08:50 Permalink

I disagree....this one is this market is 100% built on central banks printing their entire soul. Heck even Trump owns this market....there is much more up before it blows. 


At this point there is nothing to stop these criminals from printing another $100 they are ALL ON WALL STREET's SIDE! And voters are too stupid to care.


Think end of Soviet Union...the bankrupting of France before the revolution, or other failed countries where the banks and state conspire against their people!

Not if_ But When Fri, 02/09/2018 - 08:54 Permalink

I (love) the way people say things like "inflation to re-emerge with a vengeance".  And just what is their working definition of inflation in the first place?  Do they believe the correction in a stock market over-valuation caused by ZIRP, QE, etc is going to unleash massive inflation here, there and everywhere?  That after years of (supposedly) paying no more for groceries, cars, heat & energy, education, healthcare, and other necessary expenditures - now the cost is suddenly gonna explode upward since it had remained basically the same for years?  What kind of existence are we living in?

eclectic syncretist Not if_ But When Fri, 02/09/2018 - 09:25 Permalink

If you think of inflation as just another way of saying the value of the dollar is going to drop it makes sense. If things go according to plan the Fed will be issuing somewhere around 1.5 trillion in new dollars this year alone. Additionally, other countries are moving away from using the dollar for trade purposes, meaning that the dollars they have will be coming back to America. In this way the amount of dollars in circulation increases, so the unit value goes down, and you need more to make your purchases. 

In reply to by Not if_ But When

eclectic syncretist Iconoclast421 Fri, 02/09/2018 - 09:31 Permalink

The market roared back after the 1987 crash. I'm sure if Paul Tudor Jones was re-interviewed about the interview shared here he would say that he didn't anticipate how heavy-handedly the FedGov would intervene to blow the next bubble. Of course, technological advances in internet and wireless helped carry the next bubble for another decade, but the government has always been too heavily involved. 

The problem now is, the Fed is running out of wiggle room to blow bubbles without causing inflation. Their only real tool, the dollar, can't be beaten ever downward forever without severe consequences at some point.

In reply to by Iconoclast421

Ron_Mexico eclectic syncretist Fri, 02/09/2018 - 11:53 Permalink

actually, if you had bought at the highs of roughly 9/1/87, it took a couple of years before the market regained all those losses that extended until 10/31/87. But if you bought on 10/31/87 and held for 10 years then you were a damn genius.

Takeaway message: It took a couple of months before the damage was completely done. It might take longer this time.

In reply to by eclectic syncretist

Hikikomori Fri, 02/09/2018 - 09:02 Permalink

It's easy to predict what the market has already done - what it will do, not so easy.  What was this fellow saying one, three, and six months ago?

PitBullsRule Fri, 02/09/2018 - 09:48 Permalink

If you had bought 3 days before that dip in 1987, and ignored this asshole, and stayed invested since then, you'd be a rich man today. His advice then, like today, is absolutely worthless.

GreatUncle Fri, 02/09/2018 - 10:59 Permalink

UP) Double down and repeat what you did in 2008.

DOWN) Trust the population to be kind to you in their suffering!

They decided not to flush the malinvestment in 2008 because ... IT WAS TOO FUCKING BIG! Well hello boys, all the money you pumped into the system just added to the malinvestment, so it is now malinvestment on steroids.

All that lovelty compound interest on debt!

Wake me up at dow 10K we might just be out of the bubble the CB's generated over the last decade alone.