Paul Tudor Jones Says Inflation Is Here To Stay

Billionaire hedge fund manager Paul Tudor Jones believes inflation is here to stay. This reality poses problems to US markets and the economic recovery efforts. 

RELATED: Atlanta Fed’s Bostic Says This Inflation Is Not Transitory

Tudor Jones Says Inflation Is Not Transitory

Speaking on CNBC’s Squawk Box, Tudor Jones doesn’t agree with the assertion that inflation is transitory.  “I think to be the No. 1 issue facing Main Street investors is inflation, and it’s pretty clear to me that inflation is not transitory. It’s probably the single biggest threat to financial markets and I think to society just in general,” he said. 

The billionaire investor first received prominence when he foresaw the 1987 stock market crash. As a result, Tudor Jones managed to profit from the crisis before the markets crashed.

Aside from being the founder and chief investment officer of Tudor Investment, he is also chairman of Just Capital. This is a nonprofit that ranks public companies based on social and environmental metrics.

Stimulus Money Will Keep Inflation Around Longer

In addition, Tudor Jones said the trillions of dollars in the fiscal and monetary stimulus is the driving force behind the increasing inflation rates.

The government's decision to flood money to offset the losses from COVID-19 shutdowns already reached more than $5 trillion.

Meanwhile, the Federal Reserve added more than $4 trillion to its balance sheet via its open-ended quantitative easing program.

“Inflation can be much worse than what we fear. We have the demand side of the equation … and that is $3.5 trillion greater than what it normally would have … just sitting in liquid deposits,” Jones said.

“They can go into stocks, or crypto, or real state, or be consumed, so that’s a huge amount of dry powder just sitting waiting to be utilized at some point, which is why inflation is not going away,” he added. 

Prices Will Continue to Rise

In addition, Tudor Jones believes price pressures will continue to affect goods and services in the coming months. Inflation rates registered a 30 year high last month.

Continued disruptions in the supply chain plus very strong demand are driving high prices across all items. In fact, the core personal consumption expenditures price index is already 3.6% compared to last year. The Fed’s preferred metric for inflation also increased 0.3% in August. 

“It’s absolutely dead for a 60/40 portfolio, for a long stock, long bond portfolio. So the real question is how you defend yourselves against it,” Jones remarked.

Consequently, Tudor Jone said it’s time to double down on inflation hedges. This includes commodities and Treasury inflation-proof securities.

At the same time, investors should avoid depending on a fixed income in this inflationary and low-rate environment.

Somebody Will Put The Hammer Down

The billionaire investor warned further against owning a fixed income. “You don’t want to own fixed income. You do not want to hold that whatsoever because what they’re saying, what they’re telling you by their actions, is that they’re going to be slow and late to fight inflation, and somewhere down the road, somebody will have to come in … and put the hammer down.”

Regardless, Tudor Jones isn’t shying away from stocks. Some companies could pay off against inflation. Any Fed movement to address inflation could compress equity multiples.

“Equities are interesting. Certainly in an inflationary world, they are a much better bet than fixed income,” Jones explained. 

Watch the CNBC Television video featuring Paul Tudor Jones: Inflation is the number one issue facing investors:

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Do you agree with Paul Tudor Jones that inflation is here to stay? Will you follow his advice to start investing defensively?

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