Friday, October 29, 2010


From Pragmatic Capitalism:
World renowned hedge fund manager Paul Tudor Jones says global imbalances are causing extreme problems in the USA and that the Fed’s response is ultimately creating an environment exactly like the late 90′s when the Fed bailed out LTCM.  In short, Tudor Jones says the current economic malaise is being caused by the manipulation of the Yuan and the loss of US labor to China.  This currency imbalance has resulted in a much weaker US economy over the last 15 years:
“The root cause of the unemployment woes is quite obvious. In the United States alone, in the last two decades, nearly six million jobs in manufacturing have been lost overseas. This equates to nearly four percentage points of the current 9.7% US unemployment rate. As importantly, the migration of these jobs contributed to the most unsustainable economic imbalance in the world today—China’s persistent bilateral trade surplus with the United States. During the last decade, China accumulated almost $1.4 trillion of US debt and at least $2.3 trillion in global assets. These figures could grow to $3.8 trillion and $7 trillion, respectively, over the next decade if the current renminbi/US dollar (RMB/USD) exchange rate continues to be artificially suppressed from appreciating.”
He believes the Fed is responding to this structural deficiency via QE and it reminds him an awful lot of 1999 when the Fed bailed out LTCM and flooded the system with liquidity in anticipation of the Y2K meltdown:
“Our current situation is highly reminiscent of 1999, when the fear of a Y2K computer meltdown led central banks to deliver global liquidity pulses in an effort to cushion any possible negative fallout from the failure of systems and the Internet.  Once again, policy leaders symptomatically attacked a structural deficiency.  Most of that excess liquidity ended up in a very narrow list of approximately 100 NASDAQ stocks, as $20B a month poured into margin accounts to purchase technology stocks.  Between October 1999 and March 2000, the NASDAQ nearly doubled.
With the Federal Reserve Board about the embark upon a LSAP program of over $1 trillion dollars, it is certainly important to understand exactly where much of this liquidity will roost.  And the similarities between 1999 and today bear heeding.”
Using the 1999 template his conclusion is simple – buy what has worked thus far in 2010 and short what hasn’t worked:...MORE
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Paul Tudor Jones Interview at Institutional Investor 

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