"You don't want to own bonds and stocks in this environment" - Legendary Investor Paul Tudor Jones
Paul Tudor Jones sounds the alarms! Let’s face it – the market has not been good this year. The numbers look horrible. Today, as I write the S&P 500 is down 3%, erasing yesterday's dynamic gain. Here is what you have to consider:
Inflation – Everyone in the media is looking for the top of inflation. Once it starts to fall it will be okay, right? The problem is Wall Street is looking for the wrong scenario. It doesn’t matter whether or not inflation has topped out. The question is, how long will we sustain inflation at these levels? It is already high enough – it is the length of time that inflation sticks around these levels that matters.
A hurricane offers a good example. It is not about when the intensity of the hurricane tops out. It is about how long we have to deal with the winds and the flooding.
Recession – A recession is declared when we have two consecutive quarters of negative growth. This week, we found out that the first-quarter economic growth was negative. Wall Street immediately started to discount the validity of the number. In my mind, the disastrous economic numbers we received this morning with productivity at 40-year lows go to confirm the validity of that negative number on the economy. A recession would not be a good scenario in this environment.
Rising interest rates – The Fed is raising interest rates, which is not market-friendly. I don’t think that there has been a time when the Fed raised rates when we were seeing declining negative economic growth. There is a whole debate that goes along with the questionable tactics of the Fed.
The answer is yes – you should be concerned about the stock market, especially if the stock market falls into a bear market. Should you be concerned as Paul Tudor Jones? Maybe that warning is a little early.
Regardless, the key to that question is threefold –
Know your risk level
Be comfortable with your risk level,
If you are not comfortable, change your strategy until you are comfortable.
If you are concerned and want some ideas as to what to do or understand different strategies, email me at bob@prudentmoney.com and we can have a discussion. There is never a fee for an opinion or me pointing you to resources.