Submitted by Taps Coogan on the 21st of January 2020 to The Sounding Line.
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Paul Tudor Jones, founder of Tudor Investment Corp and the man who famously predicted the 1987 ‘Black Monday’ stock market crash, recently spoke with CNBC about the ‘crazy’ mix of monetary and fiscal stimulus that reminds him of “early 1999” and the height of the Dot-Com bubble.
Some excerpts from Paul Tudor Jones:
“We are in… the craziest monetary fiscal mix in history. It’s so explosive, it defies imagination… It reminds me a lot of early 1999. So, early 1999 we had 1.6% PCE, 2.3% CPI. We have the exact same metrics today. The difference is Fed Funds were 4.75%. Today, they are 1.62%. Back then we had a budget surplus and now we have a 5% budget deficit. You just can’t make this up. We had an impeachment. We had just had three rate cuts because we had just had this external crisis. So crazy times…”
“I would say I think we have a curve ball with this Coronavirus. I think that’s a big deal. If you look at what happened in 2003 (the SARS outbreak), estimates range from 0.2 to 0.5% of GDP (reduction) for China, a half-percent (reduction) for South-East Asia. Stock markets sold-off double digits… There is no vaccination. There is no cure. We don’t even know what the incubation period is and obviously we are getting ready to go to the biggest travel period in China… I do think this epidemic is a big thing…”
“Clearly, clearly, clearly we’ve got monetary and fiscal conditions that would argue for some type of a blow-off (top) that will ultimately be ended by the Fed hiking a lot sooner than they would even begin to contemplate…”
“We are in such extraordinary times. We’ve never seen a fiscal monetary mix like this so it argues for some massive blow-off top and at the top, whatever that might be, remember between now and the top in 1999, the NASDAQ was up 130%. So at the top, I would argue that… rates theoretically would be substantially higher. They’re not going to be 1.67%, with this mix… Animal spirits will go, the stock market will go until at some point the Fed gets in the game from this insane monetary policy they are running…”
As we have recently noted, the Fed’s balance sheet has been expanding at the fastest pace since the Financial Crisis and federal spending is growing at the second fastest pace since 1985 (after 2009). This is the sort of monetary and fiscal stimulus that one would implement during depths of a major recession, yet it is happening with full-employment, the stock market at record highs, broad money growing at the fastest rate of the expansion, and most inflation measures near or above 2%. The Fed’s current policy stance only makes sense if one believes that the next recession should be delayed at any cost, regardless of how much worse doing so will make the next recession when it eventually arrives.
As it turns out, that is exactly what the Fed believes.
There is more to the interview, so enjoy it above.
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