Billionaire Paul Tudor Jones warned on Tuesday that a mix of rock-bottom interest rates and runaway government spending was a “heady brew” fueling an economic bubble that will eventually burst.
At a wide-ranging discussion at the Greenwich Economic Forum with billionaire hedge fund chief Ray Dalio, Jones called the current combination of fiscal and monetary policy “the most stimulative it’s ever been.” Both men have become vocal advocates for the idea that growing inequality is fueling a populist backlash.
"It’s literally the most conducive environment for economic growth and strength that I’ve ever seen,” Jones said. But he noted that low rates and high government spending are also fueling political polarization and a widening wealth gap.
He also suggested the dynamic has created an unusual political convergence between Democrats and Republicans, as neither party has tackled the issue of deficit spending.
President Donald Trump “is the greatest salesman in the history of this country,” Jones said, noting that the president persuaded the Republican Party to embrace a massive deficit as “a reasonable proposition and [an example of] good government policy.”
He was also critical of the Federal Reserve, which just last week cut benchmark rates in the face of a slowdown. Combined with soaring public spending, Jones called U.S. public policy “a heady economic brew we’re all consuming.”
At the forum, the gloom was palpable amongst panelists worried about the country’s turn toward populism. In his remarks, Dalio lambasted widening wealth inequality, the effect it was having on political discourse — and the response from major party candidates, many of whom have embraced an expansive view of government intervention.
Jones’s $8 billion macro firm recently warned that the potential election of Democrat Elizabeth Warren could trigger a 25% correction in the stock market. On that score, he predicted the S&P 500 would likely tumble from current levels if either of the leading Democrats were elected, given their embrace of high taxes.
On that score, Jones told the forum that the 2020 presidential election will be “more meaningful” for markets than any other election he’s lived through.
“As an investor, you have to have a view on the election because the outcomes are so extreme. I've never seen this kind of polarity in elections as we have now,” the 65-year-old billionaire hedge funder said Tuesday.
Although most analysts believe a potential Warren presidency would be tempered by a still divided government, Jones insisted the Oval Office’s eventual occupant does matter.
"It does make a difference," he said. "Ronald Reagan, when he became president, was a huge difference to the stock market. I would say who the next president is also going to have a huge impact on the economy, the stock market, particularly asset prices."
—Yahoo Finance’s Julia LaRoche contributed to this article.
Javier David is an editor for Yahoo Finance. Follow Javier on Twitter: @TeflonGeek