PTJ warns FED may lose control
I've warned previously in a few of my articles that the FED and the ECB have backed themselves into a corner. The market obsesses over inflatiod, and rightly so, but what the Central Banks have done is stealth QE that leaves them stuck in a tricky position.
On one hand, risky assets and stocks have propelled higher bringing criticism of bubble blowing, whilst on the other, poor returns on fixed income have left savers and pension funds chasing those same higher prices to stay ahead.
Legendary investor, Paul Tudor Jones, has now sounded the bell on rising inflation and balance sheet contraction calling bonds a poor investment. His comments come alongside other market heavyweights that the bond market bull is over, which may leave the Central Bank unable to unwind in the gradual manner they had hoped.
ECB in worse shape
The stronger economy in the United States may fuel inflation but in Europe, Mario Draghi has been unable to raise rates once due to the fragile nature of the Eurozone economy. To add to his woes is the recent events where rate rise expectations and economic boosts simply lead to further Euro strenghth and a squeeze on the Eurozone economy.
The backdrop of risks in Europe is also worse with the recent bailouts in the Italian banking system and the woes of banking juggernaut, Deutsche Bank, mixing with the ongoing Brexit negotiations it is possible that Draghi may have to deal with a future shock.
In the interview, Tudor Jones noted that, "In my view, higher volatility is inevitable. Volatility collapsed after the crisis because of central bank manipulation. That game’s over. With inflation pressures now building, we will look back on this low-volatility period as a five standard- deviation event that won’t be repeated." This remark should be a concern for investors.
Asked what he was now investing in, Jones remarked, "I want to own commodities, hard assets, and cash... The S&P GSCI index is up more than 65% from its trough two years ago. In fact, relative to financial assets, the GSCI is at one of its lowest points in history. That has historically been resolved by commodities putting on a stunner of a show, stoking inflation. I wouldn’t be surprised if that happened again."
More and more heavyweight investors are coming out and calling an end to the bull market in bonds and low volatility. Investors need to stress test their portfolios for such events.