Paul Tudor Jones is well known as one of the best traders and hedge fund managers of our time. He rose to fame when he forecasted, and profited from the 1987 Black Monday crash, and has consistently put-up strong risk adjusted returns since then.
In an interview this week Paul Jones went over his broad view of the markets, covering the Fed, banking crisis, Equities, Bitcoin, and interest rates. We will go over his tactical view of the market and review his investment strategy and some of his timeless trading principles.
“This debt ceiling is going to be Kabuki theater… The real question is, where are we going to be a month from now after its all resolved.”
Jones thinks that there will be volatility heading into the debt ceiling deadline. But if there is a sell off going into the deadline, he is a buyer of equities.
“I think there will be some kind of indigestion into that, and yes I would buy that.”
He also thinks that the Fed is done raising rates, and that there will be a “halcyon period post last hike where asset prices do okay.” And that “6 months from now stocks are 10% higher and interest rates are 50-70 basis points lower.”
Paul Jones is a self-proclaimed technician, and you can see on the chart why he is bullish through the end of the year. The QQQ chart below has been very conducive to a bullish trader. After building a base going into 2023, the price broke out and traded through the 200 and then 50 day moving averages (Jones has referenced the importance he places on these indicators in many interviews). Price then built out a bull flag, and right when the 50DMA crossed over the 200DMA, the market got very bullish and broke out again.
Now price has again consolidated and broken out of a second bull flag, trading well above the 50DMA. Considering Jones sees volatility going into the debt ceiling deadline, investors should imagine that the price of QQQ may come back to test the 50DMA and maybe even the 200DMA, but that they shouldn’t be too scared if it does happen.
Image Source: TradingView
However, he isn’t wildly bullish, as he expects stocks to mostly grind higher and the economy may go into a recession by year end. Thinking in these terms is very typical of Paul Jones. He tries to game out the situation a few steps ahead and uses price action, technical analysis, and fundamentals to confirm his ideas.
Because Jones thinks interest rates have peaked, it is likely that he is bullish bonds, and rightfully so. The iShares 20-year bond ETF TLT is setting up just the way he likes it.
We can see TLT is building out a clean technical stage one base. Additionally, the 50DMA is crossing over the 200DMA right now, which is a bullish signal. However, because of his willingness to let the technicals confirm his fundamental view, he will likely wait for TLT to break out above the $108 level before going long.
Image Source: TradingView
Jones notes that the banking crisis is “troubling to me,” and that “bad monetary policy combined with bad fiscal policy created a situation that never had to happen.”
He thinks the Fed and central banks were far too over stimulative following the Covid pandemic. As is typical of macro traders like Jones, he is very critical of the Federal Reserve.
The interviewer points out that Paul was very bullish on Bitcoin right around the $8,000 level, and that he held it all the way up to $60,000+, and then all the way back down to where it is now at about $27,000.
Jones laughs and says, “I’ve never sat on a horse that long just so you know!” It’s funny to him because he is well known for utilizing trailing stops to get him out of trades after they have run up considerably like Bitcoin did.
But he notes, “from the beginning, I have always wanted to have a small allocation to it because it’s a great tail hedge. It’s the only thing that humans can’t adjust the supply in, so I’m sticking with it.”
He views Bitcoin as a hedge for his portfolio against a potential financial crisis, or something else like more reckless economic policy.
If focused on equities, and unsure about custody issues regarding Bitcoin, investors can consider owning the ProShares Bitcoin Strategy ETF BITO. It is the first Bitcoin-linked ETF giving investors the opportunity to get exposure through the stock market.
BITO is up 63% YTD, and if equities continue to rally into the end of the year like Jones thinks, BITO very likely will rally as well. Alternatively, if equities fall in response to a recession, and the financial system begins to look dire, Bitcoin and BITO may catch a bid as well.
Image Source: Zacks Investment Research
Even in this short interview Paul Jones covers a lot of interesting topics and can succinctly explain his thesis across assets classes. But he is also incredibly flexible if things don’t play out the way he forecasted. Jones always focuses on asset protection.
“The most important rule of trading is to play great defense, not great offense.”
“If I have positions going against me, I get right out.”
As a trader he has no problem staying nimble and to do so he focuses on price action.
“I always believe that prices move first and fundamentals come second.”
“My metric for everything I look at is the 200-day moving average of closing prices.”
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