Hedge-fund boss who predicted ’87 crash says get ready for some ‘really scary moments’
Paul Tudor Jones, a hedge-fund luminary, said he’s stress-testing his portfolio of corporate debt because he expects a tumultuous road ahead on the back of the Federal Reserve’s apparent commitment to normalizing interest rates and buttressed by corporate tax cuts from the Trump administration. Speaking at an economic forum in Greenwich, Conn., a hotbed for hedge funds, Jones said the Fed faces real challenges amid “the end of a 10-year run” of economic growth that many anticipate will soon come to a screeching, cyclical end. Jones is widely credited with predicting, and profiting, from the stock-market crash on Oct. 19, 1987, which saw the Dow Jones Industrial Average
lose nearly 23% of its value, marking the largest one-day percentage decline for the blue-chip benchmark in its history. The 64-year-old investor founded Tudor in 1980 and became known for trading everything from currencies to commodities. However, his record has also featured middling returns and an exodus of billions from his hedge fund in more recent years. In the past and during his talk in Greenwich, Jones said he believes that bonds and stocks are overvalued in an environment that had been underpinned by easy-money policies from central banks across the global. He’s not alone. The biggest threat to financial stability comes from the elevated level of the stock market and the sensitivity of bond prices to interest rates, says the conclusion of the Treasury Department’s Office of Financial Research, which on Thursday published its annual report to Congress. It called the overall threat to financial stability as “medium.” Conventional wisdom holds that if rates climb too rapidly it could create a headwind for many assets because rising rates mean increased borrowing costs for corporations and richer yields can also undercut demand for stocks, compared against the perception of bonds as risk-free assets. For a corporate debt perspective, a number of high-profile bonds have been in the news of late, including investment-grade debt issued by General Electric Co.
Although the situations with PG&E and GE are idiosyncratic, the Wall Street Journal reported that issues with high-profile companies like GE and boring utilities could reshape the junk-bond market, if those issuers and their debt slides beneath levels deemed investible by a wide swath of investors. On Thursday, stock investors were enduring a bumpy road, indeed, with the Dow swinging by hundreds of points before drifting deeper into the green, along with the S&P 500 index
and the Nasdaq Composite Index
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