Paul Tudor Jones: What to Do When the Fed Cuts Rates

Opt for stocks and gold, and not the US dollar, hedge fund operator says.

Expecting Federal Reserve interest rate cuts soon, hedge fund honcho Paul Tudor Jones says the best investment moves are to go for stocks and gold, and wager against the US dollar.

Billionaire Jones said he didn’t expect the Fed to lower rates this year but has readjusted his timetable due to the escalation of the US-China trade war. “The tariffs are a very material event,” Jones said. “We haven’t had any experience in modern times with them. So you have to readjust the entire outlook.”

The futures market agrees with him on the rate cuts. According to CME Group, there may be as many as three quarter-point reductions in 2019, following four increases last year. The Fed has halted its tightening campaign and indicated that it might loosen policy if the data demand it—meaning economic troubles crop up. Right now, the benchmark federal funds rate ranges from 2.25% to 2.5%.

Until the trade war reignited, “I didn’t think we’d have a first cut in 2019,” Jones told Bloomberg at an investment conference. “I don’t think we would have had that had we not gotten into this tariff battle, and so it has accelerated everything.”

Jones, whose best investment call was to anticipate the 1987 stock market crash, which tripled his money, is making common-sense recommendations based on his call for lower rates in the near-term.

Lower rates usually are a tonic for stock prices (lower borrowing costs help corporations and stock buyers). They also betoken higher inflation, which tends to drive gold appreciation. And the now-strong dollar should weaken because foreign buyers, especially European ones who have tiny or negative rates, presumably would be less eager to buy US assets, particularly Treasury paper.

Jones also suggested betting on falling interest rates. Vehicles for that, of course, range from interest rate futures to exchange-traded funds.

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