Investing legend Paul Tudor Jones has revealed that he is pessimistic on stocks and bullish on gold and Bitcoin (BTC).
The two main reasons he cites are the potential escalation of the conflict between Israel and Hamas, and poor financial conditions in the United States. While an inverted yield curve was not included in Tudor’s comments, it is another important factor for investors to consider.
Geopolitical conflicts exacerbate uncertainty at the macro level
In a recent interview with CNBC, Jones mentioned the factors he is monitoring regarding the Israeli-Palestinian conflict before deciding to reduce market uncertainty. His general hypothesis is that if things escalate further, risk-off sentiment may prevail in financial markets.
Despite the possibility of escalating geopolitical tensions in the near term, all major US indices posted gains in the first two trading days of this week. If Jones is right, this rally will likely be short-lived.
The yield curve remains deeply inverted
One of the greatest predictors of recessions historically has been the yield curve. Every recession since 1955 has been preceded by a recession coup The curve between the yields on two-year Treasury bonds and 10-year Treasury bonds.
In July, the 2/10 US Treasury yield curve reached a low of 109.5 basis points (BPS). This level has not been seen since 1981. Although this reversal has become more severe since then, things still look bad from the perspective of shorter duration Treasuries.
Yields on one-month and three-month U.S. Treasuries are currently around 5.5%, while the yield on two-year Treasuries is close to 4.96%. The 10-year bond yield is 4.65%, which means the 2s/10s curve is inverted by 31 basis points.
A flattening yield curve compresses banks’ margins because it limits their ability to borrow cash at lower interest rates while lending at higher interest rates, which can lead to restricted lending activity and a resulting economic slowdown. It also means that investors are less optimistic about the economy’s near-term future, as they sell off short-term debt, pushing up yields.
See related: Binance freezes accounts linked to Hamas at Israeli request
The Fed’s attempt to combat inflation by raising interest rates at the fastest pace in modern history also played a role. High interest rates are creating additional pressure on the banking system, which has seen 3 of the 4 largest collapses in US history this year alone with the failure of Signature Bank, First Republic Bank, and Silicon Valley Bank.
Some market watchers expect that the Fed will have to start cutting interest rates as soon as early 2024 to prevent further economic fallout, even if inflation does not fall to the Fed’s desired level.
Easy monetary policy and corresponding enhanced liquidity tend to be bullish for cryptocurrency markets. If prices decline heading into the 2024 Bitcoin halving cycle, the stage could be set for big market moves.
Bitcoin and gold remain the safe havens of choice
Amidst all this chaos, gold and Bitcoin have remained resilient.
Bitcoin is down 2% in the last two trading days, and has remained flat over the past five days, while gold is up 2% over the same time.
Paul Tudor Jones He summarized his position on gold and BTC by saying:
“I can’t like stocks, but I like bitcoin and gold,” he said.
The billionaire said on record that he maintains a 5% allocation to Bitcoin and sees gold and Bitcoin as a safe haven during uncertain times. Tudor first announced it had a 1% allocation to Bitcoin in May 2020 during the lockdowns due to the coronavirus pandemic.
All things considered, Paul Tudor Jones could be right. Time will tell whether his bearish call on stocks will materialize, or whether risk sentiment will prevail one way or another despite recent events.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.