In June 1876 several hundred men, led by an overly confident Lt Colonel George Armstrong Custer, 7th Calvary Regiment of the U.S. Army, rode into an area in what is now southern Montana near the Little Big Horn river.
They engaged an Indian village there and grossly underestimated the strength of their opponent. They ran into several thousand, very unhappy Lakota Sioux and Cheyenne Indians.
In what is now known as Custer’s Last Stand, Lt. Colonel Custer and about 210 of his men, were completely overwhelmed and wiped out.
Legendary hedge fund manager Paul Tudor Jones spoke to Goldman Sachs last week. Mr. Jones is the founder of Tudor Investment Corporation, one of the oldest and best known hedge funds in the industry.
He touched on several topics with Goldman Sachs including inflation, interest rates, bonds, the tax cuts, market volatility, central banks, and the stock market.
Tudor Jones talked about the situation that Fed Chair Powell is facing and likened it to Custer’s Last stand. Here is what he said:
“Let me describe to you where I think Jerome Powell is right now as he takes the reins at the Fed. I would liken Powell to General George Custer before the Battle of the Little Bighorn, looking down at an array of menacing warriors.
On the left side of the battlefield are the Stocks—the S&P 500s, the Russells, and the NASDAQs—which have grown, relative to the economy, to their largest point not just in US history, but in world history.
Look to the middle and there waits the army of Corporate Credit, which is also larger than ever relative to the economy, as ultra-low rates have encouraged it to gain in size, stature, and strength.
And then on the right are the Foreign Currency Fighters, along with the Crypto Tribe, an alternative store of value that only exists because of the games central banks are playing.
All of these forces have been drawn to the battlefield because of our policy experiment with sustained negative real rates.
So Powell looks behind him to retreat. But standing there is none other than Inflation Nation, led by the fiercest warmongers of them all: the Commodities.”
For Paul Tudor Jones’ thoughts on many investing areas read this summary article from CNBC including this on market volatility:
“In my view, higher volatility is inevitable. Volatility collapsed after the crisis because of central bank manipulation. That game’s over. With inflation pressures now building, we will look back on this low-volatility period as a five standard-deviation event that won’t be repeated.”
And in case your statistics need some brushing up on, if you are a five standard deviation event it means that it happens less than 0.00006% of the time. So if Paul Tudor Jones is correct, it is most likely that no one alive today will ever see this kind of low volatility event again.