Paul Tudor Jones: "The Next Recession Will Be Frightening"

With outgoing Goldman CEO Lloyd Blankfein clearly in a whimsical mood these days and happy to moonlight as a talk show host, in today's "Talks at Goldman Sachs", the hirsute CEO of the world's biggest incubator of central bankers interviewed hedge fund investing legend Paul Tudor Jones.

After a brief conversation about the early days of Jones' career, the conversation turned toward distortions in modern capital markets - of which there are plenty as Blankfein's own top trader warned over the weekend - which Jones said will likely trigger the next recession and attendant market crash, a far more pessimistic assessment than his CNBC interview last week when he told Andrew Ross Sorkin to expect a melt-up spike in stocks before the end of the year.

As Jones unveiled his view of how derivatives markets are masking the true extent of the debt in present the financial system, his commentary sounded surprisingly similar to famous permabear Albert Edwards, as he leveled the blame squarely at central bankers for creating "dubious", "unsustainable" asset prices.

Paul Tudor Jones

Early in the discussion, both men joked about how they were turned down for jobs at Goldman early in their careers: "what is it with these Goldman guys? They're so stuck up," Blankfein joked, prompting a smattering of laughs in the audience. 

Then Blankfein couldn't help but ask: "Do you see a lot of excesses in the current market?" to which Jones answered in the affirmative, saying that compared with history, real interest rates are so unbelievably low, that clearly the current monetary policy regime is "just crazy." In a way, history is repeating itself, as Jones compared the Fed's interventionist policies to a period of "manipulation" in the 1950s and 1960s that made investors accustomed to low real rates...before the dawn of stagflation hammered markets and the US economy.

But this time around, much of the danger is balled up in the derivatives market, which Jones blamed for February's "volocaust."

"That one week in February that was derivative-inspired. Some of the greatest financial crises of the last 30 years...they all are derivative inspired because that's where all the leverage is", PTJ warned, echoing Warren Buffett's famous "weapons of mass destruction" analogy.

"Right now, when you look at any asset price, you have to be thinking that this is a highly dubious sustainable price. First and foremost, I don't think that the way monetary policy is conducted is sustainable over time. If you think of history, the normal real 10-year rate is 200 basis points and right now we're probably negative 30 or 40...the normal real short-term rate is probably 120 basis points and we're probably negative 40 right now...so interest rate policy is crazy right now...you know rates aren't sustainable."

When asked about his long-term view on asset prices, Jones was clear: prices are going down:

"We're gong to be at 4% this year, add a half a percentage point every year, we'll be at 7% in three years...you look at The prices of stocks, real estate everything...you know in the long run we're going to need to mean revert to a real rate of interest with a normal term premium that's existed for 250 years...and that probably means that the price of assets will go down in the very long run."

There was better news for the "medium term" when PTJ says "we're going to be pouring lighter fluid on a fire...we're going to be jacked up and ready to go."

This is what Jones previously called the "all roided up" market.

However, as Blankfein points out, there are two problems with that. One is, you need flares, and two is you don't have any lighter fluid left when you really need it. Asked where PTJ thinks he will be when the next recession comes - PTJ had a very scary forecast:

"The next recession is really frightening because we won't have any stabilizers. We'll have monetary policy which we'll exhaust really quickly, but we won't have any fiscal stabilizers and in 2000, the last time we were at 3.8% unemployment we had a 2.5% budget surplus."

At which point Blankfein butts in again, pointing out that "the hope is that the rate of growth grows to the point that it solves the problem" - at which time the two men shared a laugh: "You could've said that to me when Reagan was president."

Of course, while the Kafkaesque state of markets is surely good for a laugh today, we are not so sure the two billionaires will be laughing when the "frightening recession" finally comes.

Watch the full interview below:

Comments

SWRichmond ???ö? Mon, 06/18/2018 - 22:07 Permalink

 

Paul Tudor Jones: "The Next Recession Will Be Frightening"

Given the fact that the American people have clearly seen there's a two-tier justice system, actually you know what that's not even true.  There's a justice system for the fucking plebs and no justice at all dealt to anyone above them.

Anyway given the fact the American people have clearly perceived the justice system to be something they're subject to but the elites are not, then yeah the next recession is going to be fucking terrifying... For the elites.

Your bunkers aren't deep enough or remote enough and you don't have nearly enough armed guards.  You think we don't know how to get to New Zealand?

Get used to the idea of living underground.  Briefly.

In reply to by ???ö?

mkkby wadalt Tue, 06/19/2018 - 00:31 Permalink

PTJ says no stabilizers... LOL.  In a year, short rates will be over 3%.

The stabilizer has always been letting bankrupt entities die, so new growth can take their place.  The weak get eaten by the strong.  Of course that will never apply for TBTF banks, but we must not be blinded by our envy.

In reply to by wadalt

cheeseheader house biscuit Mon, 06/18/2018 - 23:06 Permalink

Paul Jones.

Three names infers a serial killer...or, someone with a too-high opinion of himself...or, an author of an article about such person having an inflated opinion about his subject upon which the attendant article therefore becomes unreadable and time-wasting.

Just exactly how long ago did PJ become worthless as to what came out of his mouth?

In reply to by house biscuit

DownWithYogaPants Deep Snorkeler Mon, 06/18/2018 - 18:50 Permalink

I was looking for something in a Fourdoor.

Richard Snorkeler has spoken.  He won't be happy until he has snorkeled every tallywacker among us.  But I am sorry I do not swing that way.

Oh god now I recognize this douchbag.  He's into "just investing".  It's what results when SJW philosophy enters Wall St.  It's not bad enough they make all the money.  Now their going to virtue signal us to death with how wonderful they are.

In reply to by Deep Snorkeler

lookslikecraptome Lost in translation Tue, 06/19/2018 - 01:34 Permalink

snorkel lad.   This is one epic piece of writing from this thread.  

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Vote up!

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exartizo Mon, 06/18/2018 - 16:22 Permalink

Honestly,

what scares me most?

Is the Righteous Big Fat Ugly Old Black $8.48 an Hour Possibly A Woman Wannabe Police Officer Security Guard With A Gun who thinks she's a cross between Shaft and Dirty Harry sitting her Big Fat Ass On A Lawn Chair Outside my Planet Fitness Sweating Like A Stuffed Pig Squeezing Her 10x Fat Booty Into Petite size Six Black Corduroy Trousers and a Hot Air Balloon Size Neon Blue Short Sleeved Shirt that gives the Feminist Movement a New Rabid Look For Complete and Total Loss Of Anything Even Remotely Feminine sizing me up for her Late Night Mud Wrestling All Night Wallowing Dirty Wet Dreams as I try to squeeze completely unnoticed around her and get in for a workout.

America is Seriously In Trouble.

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That is how it is done snorkeler. Balls to the wall with imagery H S Thompson would be happy to say is his. 

In reply to by Lost in translation

two hoots Deep Snorkeler Mon, 06/18/2018 - 19:00 Permalink

What could the Federal Reserve possibly do with another serious recession?  From Greenspan to Powell it has fumbled and tested untold experiments to correct this constantly listing, debt ridden, juggernaut, many such list self-created.  Maybe issue more debt?  Given individual debt, government debt, corporate debt, it seems unlikely.  It also seems unlikely they would let economic situation take a nature course, the death of fiat capitalism?   So what is left?  Not debt but gifts/grants/universal income for as long as it will last, one last hoorah.  One way or another the other side of a recession is a different world for all. 

In reply to by Deep Snorkeler

Snout the First Mon, 06/18/2018 - 18:32 Permalink

"We're gong to be at 4% this year, add a half a percentage point every year, we'll be at 7% in three years. "

Just ponder for a moment what 7% interest rates mean to servicing a $20+ trillion national debt.

Ms No BandGap Mon, 06/18/2018 - 18:54 Permalink

They should also have their body parts removed piece by piece and sold.  Imagine how much a Rothschild pinky toe would go for.  It's not everyday that somebody gets the chance to buy a body part carved off Satan himself.  There is a market for that.  We could never hope to get retribution for the incalculable human suffering of the billions but that shouldn't stop people from trying. 

In reply to by BandGap

mkkby Snout the First Tue, 06/19/2018 - 00:39 Permalink

It will take 30 years for the low interest debt to roll off.  They'll only have to finance NEW DEBT at the higher rates.  So the effect is much less than you make it out to be.

And remember, when the fed finances the debt they REBATE the interest.  Meaning it's free.

Trump is trying to get europe to pay for their own military security.  He knows we can't keep up the spending forever.  He's also trying to keep out resource stealing spics and fake refugees.  He's also trying to get manufacturing back from china, so the money/jobs stay here.

It's the faggot left that is fucking everything up with their vote buying welfare programs.

In reply to by Snout the First

EndOfDayExit Mon, 06/18/2018 - 18:34 Permalink

No stabilizers my ass. In this country we have $70T of notional wealth, all of which could be confiscated if need be and then re-distributed in such a way as to keep consumption going for another 50+ years.

It is all BS and it is all scripted.

Ms No JRobby Mon, 06/18/2018 - 18:51 Permalink

That is always the plan with Marxists.  In the first wave they started 50 revolutions, harvested nations and populations to the bone to fund expansion and then killed a hundred million.  This is round two.  How in the ever living hell they were able make people so stupid as to get to round two nobody can explain.

In reply to by JRobby

shortonoil JRobby Mon, 06/18/2018 - 19:28 Permalink

Don't worry, we have 3 to 4 years before the Third World starts bombing us for stealing everything not nailed down, and most of what was! If we didn't have this Russian and China thing; we would have it made in the shade. Unfortunately, they are bigger thieves than we are.Trump had better make peace with them or we might get blown out of the water! In sort of a literal sense.

 

In reply to by JRobby

sandman3365 Cluster_Frak Mon, 06/18/2018 - 23:31 Permalink

 Well, as you see, the world is giving up on dollar already. And thats irreversible, since USA doesnt seems to stabilise. And yes, they already Found alternatives. Why there have to be only ONE monetary currency? Everything can be exchanged in local currency which can be backed in gold. Just like in good, old times. But thats a real economy, and thats why banking cartel and those used to gain for doing nothing doesnt like.

In reply to by Cluster_Frak

Ms No Mon, 06/18/2018 - 18:48 Permalink

Whatever happens just please tell me that these mofo's are drawn and quartered this time, all of them.  They cannot get away with this again.  The system needs to be erased from human memory.