Paul Tudor Jones II was clearly gearing up for a market selloff caused by the growing coronavirus pandemic shortly before the markets imploded late last month.
In a letter Tudor Investment Corp. sent to clients on February 24, the legendary macro manager warned of the near-term risks associated with the COVID-19 virus and predicted a big rally in bonds and a big selloff in stocks.
While Jones’ big macro expectations were quickly confirmed, Tudor has surprisingly not cashed in as significantly as one might have thought from these prescient pronouncements, however.
Tudor is positive for the year, though only slightly compared with some peers. The Tudor BVI Global Fund gained 1.25 percent in the first week of March and is now up 2.75 percent for the year, according to a person who has seen the results.
This compares with Andrew Law’s Caxton Global Investment, which gained 12 percent for the year over roughly the same period, Institutional Investor previously reported.
Bloomberg reported that Alan Howard’s Brevan Howard Fund, Brevan Howard’s flagship macro fund, surged 6.8 percent in the first week of March and was up 11 percent for the year through the period.
On the other hand, II recently reported that Bridgewater Associates’ Pure Alpha funds had lost money through the end of February.
Tudor declined to comment.
In the letter, signed by “Paul Jones and research associates,” the hedge fund firm warned clients about the growing risks stemming from the spreading virus. “Near term uncertainty over the outlook for the global economy and asset prices is especially high given the evolving COVID-19 epidemic,” they wrote.
They pointed out at the time that China “has been forced to shut a significant share of its economy” and South Korea and Italy “seem to be traveling down the same path.”
That observation turned out to be prescient.
“Until activity in these countries resumes in earnest, there likely will be a material disruption to global economic data,” the Tudor letter further warned.
“In this crisis environment,” traditional hedges like gold and U.S. fixed income are favored safe heavens, Jones and associates wrote.
Sure enough, bonds have sharply rallied since then, aided in part by the Federal Reserve’s 50-basis-point interest rate cut on March 3. (On Sunday, the Fed slashed rates to near zero in an emergency meeting and pledged to buy another $700 billion of Treasuries and mortgage-backed securities.)
Gold, meanwhile, is up modestly, rising 0.90 percent over the past 30 days through Friday, according to goldprice.org.
In the letter, Tudor also told clients industrial commodities “could stay under pressure” and equity markets “may get roiled.”
“Roiled” wound up being a huge understatement, as the stock market subsequently plummeted and officially entered bear market territory last week.
“The best one can do is to be nimble as developments remain fluid,” Jones and his team counseled.
The rest of the 13-page letter lays out Jones’ long-term, contrarian case for rising inflation. But in the current crisis environment, most people are more concerned these days about a possible recession and maybe even deflation.
