Paul Tudor Jones Supports Buying Crypto if Fed Stays on Path Tomorrow
When the Federal Reserve’s committee members meet this week, they will have to correctly interpret real-world data. Unfortunately, due to the state of the economy, whichever course they take, the consequences might spiral out of hand.
Upcoming FOMC Meeting
This week should be quite eventful when it comes to financial forks in the road. On Wednesday, the Federal Open Market Committee (FOMC) will gather to either respond to rising consumer prices, or not. Last Friday, the Tokenist reported on the worrying Consumer Price Index (CPI), rising to a level not seen since before Bitcoin saw the light of day, in 2008 at 5.4%.
Even before the latest CPI update at 5.0% for May, the Fed’s inflation rate was troubling enough for Deutsche Bank to issue a report warning about a looming time bomb that runaway inflation represents. The Fed had previously described such a scenario with the phrase “overheated economy”, driven by two key factors:
- Rising inflation
Both of which have already clearly manifested. The first one is represented by May’s CPI and the second one by widespread worker shortages. In an overheated economy, the fundamental chain of supply and demand is lopsided, causing prices to spike, even with the potential to lead to wage-price spiraling. Accordingly, how the Fed (FOMC) decides to respond to an overheated economy will be an important market signal.
Billionaire Hedge Fund Manager Advises Bold Action
Merely a month ago, the former Fed Chair and current Treasury Secretary, Janet Yellen, noted that price spikes will be “transitory”, owing to supply chain disruptions and oil price correction to the pre-pandemic level. If the current Fed Chair, Jerome Powell, takes the same stance, Paul Tudor Jones advises going all in on inflation hedging.
On CNBC’s Squawk Box, Jones said:
“If they say, ‘We’re on path, things are good,’ then I would just go all in on the inflation trades. I’d probably buy commodities, buy crypto, buy gold.”
The head of Tudor Investment hedge fund, Jones acquired much of his wealth and reputation similar to Michael Burry’s Big Short. In 1987, he figured out the stock market would crash, which made him $100 million. His advice is common enough, referring to assets that can be described as “real”. While Bitcoin has been dubbed many times as digital gold, its nature is not quite the same, nor was ever a real-world scenario present to test Bitcoin’s mettle as such.
Nonetheless, Jones at age 66 considers Bitcoin to be an integral part of one’s portfolio, equal to physical gold.
“I like bitcoin as a portfolio diversifier. Everybody asks me what should I do with my bitcoin? The only thing I know for certain, I want 5% in gold, 5% in bitcoin, 5% in cash, 5% in commodities. At this point in time, I don’t know what I want to do with the other 80% until I see what the Fed is going to do.”
In case the Fed decides to take the overheated economy seriously enough to change course by increasing interest rates, Jones foresees a stock market price correction. Interestingly, he shares this view with former President Trump who said he is not invested in the stock market because it is currently too high, i.e., inflated. Unlike Trump, however, who has always been antagonistic against Bitcoin, Jones sees it as a valuable asset.
Are Supply Disruptions Manageable?
There is no doubt that the pandemic, or more precisely lockdowns, created a global disruptor generator. Last November, the UN warned of 130 million people getting close to the brink of starvation, which is directly related to the suspension of economic activity across the world. Soaring inflation in Nigeria, accompanied by mass Bitcoin adoption, is just one manifestation of such turmoil.
Alone, this would be bad news, but it has been severely compounded with a series of events since, seemingly increasing in frequency and strategic value:
- Obstruction of the Suez Canal this March, blocking 369 ships from their deliveries.
- Colonial Pipeline cyber attack last month, responsible for delivering almost half of the fuel to the U.S. East Coast.
- February’s mass blackouts in Texas, which triggered a global plastic shortage.
- Cyber attack on JBS at the beginning of June, the world’s largest meat supplier.
- Global semiconductor chip shortage, which affects every other industry and is projected to last at least until Q2 2022.
To make things worse, the cascading effect we are seeing now has been embedded in the system. For decades, the global supply chain has been built around the just-in-time-production model (JIT). By cutting on the cost of keeping large inventories and staff, JIT has been a boon to businesses worldwide. Now, its vulnerability is clear for all to see.
Moreover, the Colonial Pipeline incident exposed another vulnerability – overreliance on automation and digitalization – meaning that workers who understand how the pre-automation system works have long retired. Taken altogether, a grim picture is coalescing of an economic bloodstream that has become so convoluted, globalized, and fragile that it is unlikely that price spikes will be just ‘temporary’.
As JIT tends to cause price and supply shocks, in addition to making corporations off-source labor, do you think such fragility was worth it to have slightly cheaper goods? Let us know in the comments below.