Posted | by David Moenning |
When Tudor Jones Talks... image

Although his words did not move the markets the way other billionaire hedge fund managers such as David Tepper have in the past, legendary trader Paul Tudor Jones appeared to have some pretty positive things to say about the stock market on Tuesday. However, I think it is important to recognize that there is more to this story than the headlines lead on.

Known as much for his philanthropic efforts via the Robin Hood Foundation as his shorting stocks prior to the Crash of '87, Tudor Jones is usually a bit of a recluse. No, make that a fairly intense recluse - but also a very successful "macro guy." And while I don't unmute the financial networks often, when Mr. Jones speaks, I give him my full attention.

Tudor Jones Says It's Gonna Get Crazy

So let's get right to it. The headlines blared that Paul Tudor Jones says the stock market could go crazy to the upside this year. My first reaction was, wait, what?

While I watched the interview live, I also decided to go back and watch the replay because I felt the headlines might be a little misleading.

To be sure, the quote that everyone was talking about sure sounds bullish:

"I think the stock market also has the ability to go a lot higher at the end of the year. ... I can see things getting crazy particularly at year-end after the midterm elections ... to the upside."

But...

As is usually the case though, the devil is in the details. Or in this case, the timing.

You see, Jones was talking about how the year would end, not about what is going to happen in the near-term. In fact, Jones said he doesn't have significant exposure to the financial markets at the present time. Hmmm...

Another thing to know about Mr. Jones is that he like to "go big" when he takes a position. "I like to have significant leveraged positions when I think there is an imminent price move directly ahead," Jones said.

And for those folks hoping that the current rally is the real thing and that new highs lie ahead; Jones' view might be a bit troubling. "I have a feeling we're getting ready to go into a summer lull. ... I can't remember how many years it's been since I've been this light in my positions," he said.

Stringing Jones' comments together, it appears that he expects the market to struggle into the mid-terms and then to charge higher into the end of the year. While not exactly what I want to hear, I can certainly live with this prognostication. After all, I tend to be longer-term in my trading orientation, so this works for me.

But... And this is a pretty big "but," Jones doesn't expect the good times to last. In fact, he said the move he expects won't be sustainable and won't end well. He likened the current period to 1987 and 1999 in the U.S. and, wait for it... 1989 in Japan. Uh oh.

The Problem

Jones believes that rates are going to be the problem - eventually. But after an economic/stock market blow off. "I think this is going to end with a lot higher prices and forcing the Fed to shut it off," Jones said. "When you look at the stock market relative to GDP, we're at levels that historically in some other countries led to a blow-off and then some type of economic contraction. ... It's an old story, we'll probably play it again."

Summing Up

So, there you have it. One of the most respected macro traders around thinks that the current corrective phase will indeed be resolved to the upside (my words, not his). And once this upside resolution begins, the market could get jiggy for a while. Up until it falls apart, that is.

How does the average investor play this, you ask? For me, it means that we need to stay the course with the current trend and as I've said a time or twenty this year, give the bulls the benefit of any doubt (as long as the market models hold up, of course). But, if we do indeed get some really good times going into the end of the year, we need be ready to manage risk at some point. In other words, the "crazy upside" that Mr. Jones is looking for may need to be viewed as a possible blow-off to the current bull trend instead of the beginning of another 2017. Food for thought.

Publishing Note: I have early committments Thursday and Friday, so I won't be publishing morning market missives. Have a great weekend and I'll see you next week.


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Wishing you green screens and all the best for a great day,

David D. Moenning
Founder, Chief Investment Officer
Heritage Capital Research

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At the time of publication, Mr. Moenning held long positions in the following securities mentioned: None - Note that positions may change at any time.


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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any investment program.

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