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Bram de Haas
Bram de Haas
Articles (427)  | Author's Website |

Paul Tudor Jones: Asset Prices Are Highly Dubious

Guru chats with Goldman Sachs CEO

"If you look at any asset price you have to be thinking, this is highly dubious to be a sustainable price." -Paul Tudor Jones (Trades, Portfolio)

Investing legend Paul Tudor Jones (Trades, Portfolio) talked with Goldman Sachs (NYSE:GS) CEO Lloyd Blankfein last week. He not only discussed his non-profit efforts, but also the state of the market.

Capitalism must change

Jones tends to keep under the radar, but is on a mission to change capitalism. He believes inequality in society is a major risk. This is usually resolved by war, revolution or higher taxation. Jones would rather not see it resolved that way and prefers to drive toward a more just society proactively. Through the non-profit, he’s ranking companies on corporate justness. While I could critique the effort, since its top three companies are Intel (NASDAQ:INTC), Texas Instruments (NASDAQ:TXN) and Nvidia (NASDAQ:NVDA), it deserves props.

Coincidentally, because Jones wants to promote his index, he is stepping into the limelight much more, which gives us a chance to learn from him and get his take on the markets.

Jones on markets

As quoted in the introduction, Jones believes: "If you look at any asset price you have to be thinking, this is highly dubious to be a sustainable price." 

High prices for financial assets are driven by monetary policy. A policy that is not sustainable over time. Historically, real interest rates have been much higher. He views interest rates as crazy. He makes two observations:

"You know, in the long run, we have to mean revert back to a normal term premium."

"We have to get back to a sustainable fiscal policy."

He doesn't mention when it's going to happen, which is the problem with this stance. We are all dealing with it on a daily basis. Still, it's valuable to be warned once again.

Fears

Jones fears the next recession. He hopes to be positioned really short. A recession will be very frightening because there are no stabilizers. There is no monetary stabilizer. In practice, the Federal Reserve can lower rates a little, but it doesn’t have the same firepower it usually does. There isn’t any hope fiscal stabilizers will be there either. The U.S. has a deficit and a large debt load.

This is all especially unsettling because of the heightened social unrest. According to Jones, 90% of Americans owned 35% of the wealth back in 1985. Today, 90% of Americans own 23% of the wealth. He views this as an unsustainable level of inequality, quoting Adam Smith:

"If [justice] is removed, the great, the immense fabric [of human society] ... must in a moment crumble into atoms."

Jones refrains from talking about any specific investments or what to do in the current environment, but I pulled up his larger positions. It's always better to look at someone's actions rather than their words:

Jones seems to own quite a few merger and acquisition names. One, Time Warner,  recently closed. But NXP Semiconductors (NASDAQ:NXPI) is delayed pending regulatory review in China. Other than that, a heavy presence of aerospace and defense stands out as well as the large number of value investing favorites like Citigroup (NYSE:C), Micron (NASDAQ:MU), Orbital ATK (NYSE:OA) and HRG Group (HRG).

About the author:

Bram de Haas
Bram de Haas is managing editor of The Special Situations Report and Founder of Starshot Capital B.V.

Visit Bram de Haas's Website


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