Submitted by Taps Coogan on the 20th of June 2018 to The Sounding Line.
Paul Tudor Jones, founder of Tudor Investment Corp and the man who famously predicted the 1987 ‘Black Monday’ stock market crash, recently spoke with Goldman Sachs CEO Lloyd Blankfein about the current market conditions.
Mr Jones notes:
“Well I think right now, when you look at any asset price, you have to be thinking ‘this has to be a highly dubious sustainable price’ and I say that for a couple of reasons. One, first and foremost, I don’t think monetary policy, the way it is currently conducted, is sustainable over time. History is the normal real 10-year rates (are) 200 basis points and right now we are probably minus 30 or 40. The normal real short term interest rates (are) 100 to 120 basis points and we are probably negative 40 right now. So clearly interest rate policy is crazy. If you had just parachuted in and said we have a 3.8% unemployment, 2.8% CPI, what are rates? You would just (say) four and a half or five (percent) or something like that. So you know rates, ultimately, are not sustainable…”
“So I don’t think monetary policy is sustainable and clearly fiscal policy, are you kidding me. You are going to be four this year (4% budget deficit to GDP), add half a percent every year for the next five or six years and we’ll be at seven in three years. That’s not sustainable. So you look at the prices of stocks, real-estate, anything, you know in the long run… we are going to have to mean-revert to normal real rate of interest with a normal term premium that’s existed for 250 years. We’re going to have to get back to that. We’re going to have to get back to a sustainable fiscal policy and that probably means the price of assets go down in the very long run. Now in the short run it’s jacked up and ready to go… So just imagine (when) the next recession comes… It’s gonna be interesting… The next recession is really frightening because we don’t have any stabilizers. We’ll have monetary policy which will exhaust very quickly, but we don’t have any fiscal stabilizers. In 2000, the last time we were at 3.8% unemployment, we had a 2.5% budget surplus.”
There is more to the interview so enjoy it above.
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