December 20, 5:00 pm EST
In recent days we’ve discussed the parallels between this year and 1994. In ’94 the Fed was hiking rates into a low inflation, recovering economy.
The Fed has done the same this year, methodically raising rates into a low inflation, recovering economy. And like in 1994, the persistent tightening of credit has sent signals that the Fed is threatening economic growth. Asset prices have swooned, and we have a world where cash is the best performing asset class (just as we experienced in 1994).
But remember, the Fed was forced to stop and reverse by early 1995. Stock prices exploded 36% higher that year.
With this in mind, over the past couple of weeks, several of the best investors in the world have publicly commented on the state of markets.
Among them, was billionaire Paul Tudor Jones. Jones is one of the great global macro traders of all-time. He’s known for calling the 1987 crash, where he returned over 125% (after fees). And he’s done close to 20% a year (again, after fees) spanning four decades.
Let’s take a look at what Jones said in an interview on December 10th …
He said the Fed has gone too far (tightened too aggressively). But he thinks the Fed is near the end of its tightening cycle.
With that, he expected to see more swings in stocks. He said he thinks we could be down 10% or up 10% from the levels of December 10th. But historically when the Fed ends a tightening cycle, after going too far, he says it has been a great time to be in the stock market.
The sentiment that the Fed has gone “too far” increased dramatically across the market this week — in the days up to yesterday’s Fed meeting. As such, because the Fed followed through with another hike yesterday, and telegraphed more next year, stocks continued to slide today. In fact, stocks have now/already declined 9.4% from the levels where Paul Tudor Jones made his comments about down 10%/up 10%. Again, he made those comments just 10 days ago.
With the above in mind, here’s what he said he would do if he saw itdown 10%: “I’m going to buy the hell out of ten percent lower, for sure. To me, that’s an absolute lay-up.”