Billionaire investor Paul Tudor Jones said Thursday the world has loaded on too much debt which could bring trouble across asset classes.
“From a 50,000 feet viewpoint, we’re probably in a global debt bubble,” Jones said at the Greenwich Economic Forum in Connecticut. “Global debt to GDP is at an all-time high.”
“This is going to be a very challenging time for policymakers moving forward,” Jones said.
Jones is famous for making big macro calls. One of his biggest predictions came when he correctly called the 1987 crash. His hedge fund, Tudor Investment, reportedly manages $7 billion in assets.
The hedge fund manager believes it is the corporate bond market where we’ll see the first signs of trouble.
“I think this time it’s going to be corporate credit and I think the breakdowns are something that we have to pay attention to in the last day or two,” he said. “And they’re really scary because, one thing about this credit bubble [is] we’ve had liquidity absolutely dry up in so many markets.”
“There probably will be some really scary moments with corporate credit,” he added.
Jones also said the Trump administration’s corporate tax cut from late last year could hurt investors down the road by causing the economy to overheat and the Federal Reserve to keep raising rates.
“Clearly the tax cut and the economic activity that has come from it has caused the Fed to raise rates,” he said. “That tax cut was promised before the Fed began hiking, President Trump was running for office, and rates were zero. Do you really think we would’ve had that kind of a tax cut if we knew where rates were going to be? I doubt we would have.”
The Fed has raised rates three times this year, with one more hike expected before year-end. Rapidly rising rates can sometimes spook equity investors because they make it more expensive for companies to borrow money and fund buybacks and expansion.
“Zero rates and negative rates encourage excess lending. That’s of course why we’re in such a perilous time,” he said adding stocks are probably in the 70th percentile of overvaluation.
U.S. stocks reached an all-time high earlier this year, but briefly fell into a correction in October. Investors have been fretting over higher interest rates as well as a potential slowdown in the global economy.
