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Stepan Lavrouk
Stepan Lavrouk
Articles (626) 

Paul Tudor Jones: We Are Living Through a Great Monetary Inflation

The famed macrotrader takes stock of recent monetary policies

July 31, 2020

Paul Tudor Jones (Trades, Portfolio) is a trader, as opposed to a value investor. But that doesn’t mean that value investors can’t learn a thing or two by listening to him, particularly when it comes to his explanations of what fiscal and monetary policymakers are doing in the world today.

Tudor Jones recently put out a research note entitled "The Great Monetary Inflation," in which he and co-author Lorenzo Giorgianni discuss the implications of recent measures taken by central banks around the world.

Too much free money?

The authors of the paper note that since February, $3.9 trillion (or 6.6% of global GDP) has been created out of thin air by central banks like the U.S. Federal Reserve, the European Central Bank (ECB), the Bank of England (BOE), the Bank of Japan (BOJ), the Swiss National Bank, the Reserve Bank of Australia and the People’s Bank of China (PBOC). This, of course, comes on top of all the money that had previously been injected into the global economy over the last decade.

Currently, the global debt of the nonfinancial sector (corporate debt, household and government debt) stands at 220% of GDP. We went into the current crisis at historically indebted levels, and now we have added to it in a huge way. At this point it seems almost a foregone conclusion that direct monetization of fiscal spending will only continue to accelerate. Modern monetary theory was a fringe economic doctrine just a few years ago - now it has been elevated to the status of orthodoxy.

Here at Gurufocus, we often talk about the inherent unreliability of economic forecasting. It’s important to note that Tudor Jones is not making some outlandish projection, or trying to pinpoint some economic variable. He is simply describing what is happening in the here and now and looks at how different assets have performed.

He notes that gold, the classic inflation hedge, has performed exceptionally well over the last half year. Since January, the price of gold has risen from around $1,500 per ounce to almost $2,000 per ounce as of today - a 33% increase, and a new all-time high.

When it comes to equities, Tudor Jones believes investors should be long the NASDAQ 100, as he reckons easy monetary policy will continue to boost these stocks higher. He is also long U.S. cyclicals and short U.S. defensive stocks - another typical inflation play. So far, his NASDAQ bet has worked out better than this long/short strategy.

History has shown time and time about that prolonged periods of cheap money lead to crises. The only thing that an individual investor can do is be prepared.

Disclosure: The author owns no stocks mentioned.

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About the author:

Stepan Lavrouk
Stepan Lavrouk is a financial writer with a background in equity research and macro trading. Specific investing interests include energy, fundamental geoeconomic analysis and biotechnology. He holds a bachelor of science degree from Trinity College Dublin.

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