One legendary Wall Street investor is warning that today’s stock market offers chilling parallels to some of the worst meltdowns of the past century.
Paul Tudor Jones – the billionaire hedge fund manager who founded Tudor Investment Corp in 1980 and famously predicted the 1987 market crash – warned that the surging stock values might actually be a reason to worry.
In a video interview, Jones argued that the US economy has become more dependent on stock prices than at any time in history – and that exposes ever more Americans to the inevitable reality of a stock market crash.
‘Are we in a bubble? I don’t know if we’re necessarily in a bubble,’ said Jones.’[But] we’re so dependent upon firm equity prices.’
Bear markets – that’s a 20 percent or greater decline in stocks – coming along frequently, but Jones warns that if we saw a 30 to 35 percent decline, which happens once a decade or so, the economic impact would be even greater today than in years past.
What’s different now is the amount of money in stocks relative to the rest of the economy.
Central to his concerns is the Buffet Indicator, or the ratio you get when you divide the total value of all stocks by the complete value of the US economy.
It provides a clear indication of the market’s valuation at any given moment – and today it’s at an historic all-time high.