When an iconic investment legend speaks out on an important topic, it pays to listen.
So when I saw CNBC’s interview with PTJ on inflation, I turned the volume up and payed close attention!
PTJ — or Paul Tudor Jones — is a well known and highly respected hedge fund manager. Jones is best known for his “big picture” macro views. In other words, PTJ has an uncanny ability to understand big economic shifts and how to profit from them.
Perhaps his biggest market victory involved tripling his money during the 1987 “Black Monday” market crash. PTJ also turned an 87.4% profit shorting the Japanese market when a stock market bubble deflated in 1990.
But despite what you may think of PTJ from those two financial successes, the billionaire investor is also extremely generous.
In 1998, PTJ cofounded The Robin Hood Foundation. This foundation was created to help reduce poverty in New York City. And under PTJ’s leadership, The Robin Hood Foundation has done a tremendous amount of good in the city which can sometimes feel cold and heartless.
Any time I get a chance to hear what PTJ thinks on a subject, I listen carefully. And this morning, PTJ had some very important things to say about inflation, the economy, our investment markets and his beloved city of New York.
You can see a clip of CNBC’s interview with PTJ on inflation here. And I’ve got some personal thoughts on a few of his main points below.
PTJ on Inflation: The Single Biggest Risk…
“It’s pretty clear to me that inflation is not transitory. It’s here to stay. And it’s probably the single biggest threat to financial markets and to society in general.”
Strong words from a man who is intimately familiar with how markets and economies work.
PTJ believes that inflation will continue to be high, especially as oil prices continue to cause more challenges to our economy.
Higher energy costs don’t just hit us at the gas pump.
Instead, higher energy costs drive inflation for steel and industrial metals. After all, it takes a lot of energy to produce these important metals.
Higher energy prices drive transportation costs higher. So any goods shipped by truck, rail, boat or by other means will naturally cost more.
Labor inflation is also here to stay. Employees who jump from one job to another enjoy much bigger pay increases. That’s not going to change as long as job openings far exceed the number of workers available to fill the slots.
In short, PTJ was connecting the dots much like the Ernie and Bert market we talked about this weekend.
High inflation may not hurt workers who are able to jump to a higher paying job. But inflation is becoming a grave concern for retirees and those who rely on a fixed income to cover day-to-day expenses.
PTJ on the Market: No Meltdown in Sight…
Inflation may cause a challenge for certain stocks. But we’re not likely to see a widespread meltdown for the overall market.
Jones explained how various government and Federal Reserve programs have led to huge stashes of cash. An estimated $3.5 trillion dollars of “dry powder” is in play right now.
Dry powder simply refers to money available to be spent or invested. Businesses and individuals hold this money in bank and brokerage accounts.
Spending this money on goods and services will drive corporate profits higher.
And investing this money will support the stock market.
So even though stocks are expensive by some measures, money on the sidelines will keep the market from falling too much.
But that same money is a major force behind inflation. Because as spending drives prices higher, inflation will naturally follow.
PTJ’s Warning on Interest Rates
“You don’t want to own fixed income.”
(“Fixed income” investments are mostly bonds — or any other investment with a “fixed” return.)
As interest rates rise, fixed income prices fall. That’s just the economic reality based on math — and it’s a topic we can cover in more detail soon.
PTJ’s warning here is one you’ve hopefully heard from me as well. I’m very worried about investors who have been led to believe that bonds are “safe” because they give you a “guaranteed” return.
The problem is that when inflation picks up, that “guaranteed” return is like an anchor! You’ll never get more that that guaranteed return, and your return probably won’t keep up with inflation. So while prices (and your expenses) increase, your bond returns are stagnant. Meanwhile, if you try to sell a bond early, you’ll get a lower price.
PTJ mentioned the “60/40 portfolio” which is a ratio of stocks and bonds that many wealth managers use. While this approach may have worked in years past, it’s “absolutely dead” today according to PTJ.
You’ve been warned!
PTJ on Hedging, Gold and Bitcoin
With inflation on the rise, I would normally expect gold prices to be trading higher.
Instead, gold has traded in a wide range without giving investors much protection from inflation. That could change quickly but for now gold is rangebound.
Bitcoin on the other hand, has been an excellent hedge against inflation. The most popular cryptocurrency broke above $66,000 today and is up more than 125% so far this year.
PTJ told CNBC that he’s still interested in gold, but Bitcoin is his preferred hedge over gold at the moment.
PTJ on Gratefulness, New York and Giving Back
My favorite part of the PTJ interview got a bit more personal.
I loved hearing how Jones has taken on a “gratefulness challenge.” He wakes up each day and lists specific things he is grateful for.
PTJ clearly loves his city of New York. He’s grateful for the culture, the people and the resiliency of the city. And he’s also grateful for the pizza! (I’m not a huge fan of the big city but I can definitely appreciate the pizza!)
The Robin Hood Foundation is putting on a benefit tonight to raise money for those in the city who are less fortunate. The benefit comes on the 20th anniversary of the first benefit concert which took place shortly after the 9/11 attacks.
PTJ’s voice cracked as he talked about that tragic season, the first responders and his care for the city. It’s refreshing to see someone with his wealth, education, and social position truly caring about those in the community around him.
I would encourage you to listen to as much of the interview as you can. There’s a lot we can learn from this man who has so much market and life experience.