Paul Tudor Jones' and Stanley Druckenmiller's ominous warning

Abraham George Macro View

I have repeatedly taken the names of two of the world’s greatest living macro traders and their views in describing the current Fed policies and their views on how dangerously poised the market conditions are. Paul Tudor Jones and Stanley Druckenmiller.

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Druckenmiller recently said the recovery in retail sales is ‘nothing we’ve ever seen’ comparing the speed at which the losses were recovered in this crisis to the GFC. In the GFC, the retail sales index peaked in Nov 2007. It recovered to peak levels again only in Jul 2011. A little less than 4 years. If we compare that the pandemic induced losses were fully recovered and back on trend in just five months. Druckenmiller insists that the Fed should not only stop its emergency stimulus program, but should be tightening now. Everything is running hot and according to both Jones and Druckenmiller the Fed has never been so reckless. There is more.

With the current Congress position, the Biden administration can get whatever spending package they want across the finish line. Whether or not they seek any support from the minority party, Congress will only serve to create perception that they tried.

There is a big infrastructure bill that is in the pipeline that will be passed soon. It will be smart for the administration to get this passed soon as in a few weeks, there will be really hot data released in terms of higher economic activity and inflationary pressures that will make the passage of the bill more difficult.

What surprises most in these circumstances is that the historically favoured inflation trade, gold has not moved. After a run up to $1900 and above the price is lower by 7%. As for the year it is down 6% and for the past twelve months it is flat. What is the disconnect? May be the gold believes the Fed. The inflation is ‘transitory’.

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Equities

The diverging performance between the Dow and the S&P is intact as the S&P is at a new high and the Dow is below the May 10 high and the June 01 countertrend high.

If the advance from June 18 is corrective in the Dow it should top out soon. If the Dow rises above 34,850 the June 01 intraday high, then it is catching up with the S&P and could make new highs.

Bonds

Bonds could have made a high on June 21. The move down could turn out to be impulsive and could eventually target prices close to 146 and 148.

Euro

The move down from 1.2267 to 1.1847 could be corrective. If so the subsequent rise should lead to new highs. Whatever Euro should hold 1.1700 if not the analysis is wrong.

Gold

There are bullish implications for gold. The move down from 1917 on Jun 01 must have bottomed out at 1761 on June 18 which can lead to a move above 1917 again. However a break below 1760 will lead to further falls before gold finds a much better bottom.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.