market folly

Hedge fund manager and macro trader Paul Tudor Jones has claimed that the massive 40%+ rally we've seen in equities since March is nothing more than a bear market rally. In Tudor Investment Corporation's latest letter to investors, Jones says that, "impressive counter-trend rallies are a feature, not an oddity, of secular bear markets. We are not inclined to aggressively chase the market here. Many doubts remain about the sustainability of this recovery, most prominently the weakness of household income growth."

Tudor essentially sees the market rallying then falling, and then repeating the cycle again. We are currently in the midst of a large rally which he feels will subside and give way to a decline in markets come September of this year. Tudor cites numerous negative catalysts for the move, including slowed growth in China. However, he still thinks that the markets will end the year then on a positive note and would be a buyer on large dips purely for the trade. This is because he thinks that 2010 could be another negative year for stocks as the rallying then declining cycle plays on. Being nimble is the name of the game and letting the tape lead you is the key here.

If you're unfamiliar with Paul Tudor Jones, he is regarded as one of the best traders around and some of his early work is showcased in the 1987 PBS Film, Trader: The Documentary. Years after the film's release, Tudor sought to buy every copy in existence in an effort to stop circulation. Since the video was so hard to find, it almost became a form of Wall Street contraband and fetched hundreds, if not thousands of dollars on eBay. However, the video recently surfaced and you can watch Paul Tudor Jones in action here.

Back then, Tudor managed a little over $100 million. Today, his firm manages in excess of $10 billion. $8.9 billion of those assets are in their main BVI Global fund, which is up 10% this year through the end of July. For the year of 2008, Tudor was down 4.5%, as noted in our year-end hedge fund performances post.

Since Tudor is a macro trader, we also wanted to point out some macro themes that he is seeing right now. For one, he thinks that Japan is an interesting story going forward due to the lower-house elections where the Liberal Democratic Party lost. Tudor feels this will spur new investment into the country and he is not the only hedge fund manager that we've seen talking about Japan lately. This will be an interesting theme to follow as more and more managers begin to warm-up to the previously frigid investment opportunities in that country. Additionally, Paul Tudor Jones is bearish on the U.S. dollar as he feels, "reserve accumulation and diversification trends will be persistent and mutually reinforcing the direction of the U.S. dollar."

For more resources on Tudor Investment Corp, we've covered Tudor's equity portfolio. Then, turning to Paul Tudor Jones himself, we posted an excellent compilation of quotes from Paul Tudor Jones as well as his hedge fund manager interview.


Pictured above is Paul Tudor Jones back in the day with one of his favorite phrases on the wall, "Losers average losers."