You might recall that Paul Tudor Jones became famous for predicting the 1987 stock market crash. People didn’t believe him then, but they’re listening to him now – and he’s got something to say about inflation in 2021.
There’s no refuting that inflation is a problem, even if the Federal Reserve tries to deny it. The numbers don’t lie: the U.S. consumer price index rose 5% year-over-year in May, the fastest pace since August 2008 and higher than Wall Street expectations.
And by the way, we all know what happened to the stock market right after inflation rose 5.3% in August of 2008. Could the current hyperinflationary environment be the canary in the coal mine that signals an imminent economic collapse?
Central bank officials will insist that the current inflation spike is due to “temporary” factors, but people who live in the real world see the prices of food, gasoline, and housing rallying with no end in sight.
This is all hitting the American consumer in the pocketbook just as U.S. states are about to end unemployment benefits for more than 400,000 people this weekend.
Echoes of 1970’s stagflation are ringing even as central bankers refuse to acknowledge the obvious. But of course, the Fed can’t course-correct now as it’s gone too far down the path of accommodation and they don’t want a “taper tantrum.”
It’s fair to say that Paul Tudor Jones isn’t buying the Fed’s narrative. “The idea that inflation is transitory, to me… That one just doesn’t work the way I see the world,” Jones said in a recent interview.
And if the Federal Reserve continues to treat the unsettling inflation data with nonchalance, Jones believes “it’s just a green light to bet heavily on every inflation trade.”
So, what exactly should investors consider to be an inflation trade? Jones offers some guidance on this: “I’d probably buy commodities, buy crypto, buy gold,” he recommends.
He even offered some insight into how much he would allocate into those asset classes. “The only thing I know for certain, I want 5% in gold, 5% in Bitcoin, 5% in cash, 5% in commodities,” Jones clarified.
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You might be surprised to see Jones expressing a favorable view on Bitcoin. However, even folks who have been in the financial markets for decades can appreciate new technologies and currencies.
BTC-USD Price Chart. Courtesy: Yahoo Finance
“I like Bitcoin as a portfolio diversifier… I look at Bitcoin as a story of wealth,” Jones stated in regard to the world’s most popular cryptocurrency.
If you agree with Jones, then you can add some Bitcoin to your portfolio today at a discount to the peak price of around $60,000 per Bitcoin. If the price returns to that peak, you’ll already have a sizable profit.
Jones also mentioned gold as part of his inflation trade, and I don’t blame him for wanting to diversify his portfolio with gold. A combination of Bitcoin and gold could offer substantial long-term returns in an inflationary economic environment.
So now, investors have to decide for themselves: listen to the Federal Reserve, or to the actual inflation data?
Paul Tudor Jones has been 100% right when nobody was listening. Now, he’s sending a signal on inflation and how to protect yourself – and we’re hearing him, loud and clear.
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