Investing legend Paul Tudor Jones has revealed that he is bearish on stocks and bullish on gold and Bitcoin (BTC).
The two main reasons he cited were the potential escalation of the conflict between Israel and Hamas and the poor financial situation of the United States. While Tudor’s comments did not mention an inverted yield curve, it is another important factor for investors to consider.
Geopolitical conflicts exacerbate macro uncertainty
in a recent interview CNBCJones cited factors he had been watching regarding the Israeli-Palestinian conflict before deciding market uncertainty had diminished. His overall thesis is that if things escalate further, there could be widespread risk aversion in financial markets.
Major U.S. stock indexes rose in the first two trading days of the week despite a possible escalation in geopolitical tensions in the near term. If Jones is right, this rally may be short-lived.
The yield curve remains severely inverted
One of the most important predictors of recessions historically is the yield curve.Every recession since 1955 has been preceded by a recession reverse The curve between 2-year and 10-year Treasury bond yields.
In July, the U.S. Treasury 2/10 Treasury yield curve hit a low of 109.5 basis points (BPS). This level has not been seen since 1981. While the inversion has since become steeper, the picture is still dire from a short-term Treasury perspective.
The one-month and three-month U.S. Treasury bond yields are currently near 5.5%, while the two-year Treasury yield is near 4.96%. The 10-year Treasury yield is 4.65%, which means the 2s/10s curve has inverted by 31 basis points.
A flat yield curve compresses banks’ profit margins because it limits their ability to borrow cash at lower rates and lend at higher rates, which could lead to restrictions on lending activity and a slowdown in the economy. It also means investors are less optimistic about the economy’s near-term future as they sell shorter-maturity debt, causing yields to rise.
See related content: Binance freezes Hamas-linked accounts at Israel’s request
The Fed’s attempt to fight inflation by raising interest rates at the fastest pace in modern history also played a role. Higher interest rates have put additional pressure on the banking system, which this year alone has seen three of the four largest bank failures in U.S. history, including Signature Bank, First Republic Bank and Silicon Valley Bank.
Some market observers speculate that even if inflation has not yet fallen to the level desired by the Fed, the Fed will have to start cutting interest rates as early as early 2024 to prevent further economic fallout.
Looser monetary policies and their corresponding increase in liquidity tend to be positive for the crypto market. If interest rates do drop heading into the 2024 Bitcoin halving cycle, there could be significant market volatility.
Bitcoin and gold remain safe havens of choice
Amid all this chaos, gold and Bitcoin remain resilient.
BTC has fallen 2% over the past two trading days and has been flat over the past 5 days, while gold has gained 2% over the same period.
Paul Tudor jones Summarizing his stance on gold and Bitcoin, he said:
“I don’t like stocks,” he said, “but I like Bitcoin and gold.”
The billionaire has publicly stated that he maintains a 5% allocation to Bitcoin and considers gold and Bitcoin to be safe-haven buys in uncertain times. Tudor first announced in May 2020 during the COVID-19 lockdown that he had a 1% allocation to BTC.
All things considered, Paul Tudor Jones is probably right. Time will tell whether his bearish calls for stocks will materialize, or whether risk-on sentiment will somehow prevail despite recent events.
This article does not contain investment advice or recommendations. Every investment and trading activity involves risks, and readers should do their own research when making decisions.
Svlook
