An old school investor explains his thoughts

This is Paul Tudor Jones a long time ago (above) and more recently (below).

He is a billionaire hedge fund investor whose claim to fame was when he successfully predicted the 1987 Black Monday stock market crash. While a third of the stock market lost its value, he returned 125% gains to his investors.

Now, he is a Bitcoin evangelist.

There isn’t a shortage of cryptocurrency evangelists out there, but it’s refreshing to understand a traditional old school investor’s take.

Here is my summary of the letter he sent to his clients.

It’s all about inflation

Sometime in the last ten years, the recession that followed the ‘08-’09 credit crisis became known as The Great Recession, following the nomenclature of an even more gloomy period period in the 30’s called the The Great Depression.

Paul Tudor Jones, evoking a similar sentiment in their economic predictions, have titled their most recent investor letter The Great Monetary Inflation. Or GMI.

We are witnessing the Great Monetary Inflation (GMI) — an unprecedented expansion of every form of money unlike anything the developed world has ever seen

Milton Friedman famously stated that “inflation is always and everywhere a monetary phenomenon that arises from a more rapid expansion in the quantity of money than in total output.”

And then he shares the below chart.

Simply put, the red line is the amount of money in circulation. And the blue line is the level of inflation.

Therefore, Paul Tudor Jones suggests, inflation is on its way.

“Seeking refuge” from inflation

In the next part, he compares the different assets that can be held to protect value from the impact of inflation. These are: stocks/bonds, cash, gold, and bitcoin. For each of them, the following factors are considered: purchasing power, trustworthiness, liquidity, and portability. They are discussed and graded by a committee. The final score comes out as follows:

Ability to Store Value

  1. Stocks/bonds — 71
  2. Gold — 62
  3. Cash — 54
  4. Bitcoin — 43

These scores were then compared to their prices.

As of March 2021, Bitcoin market cap is up to ~600 bn (from the 186)

Paul’s conclusion was that although Bitcoin scored the lowest, it was still very high relative to it’s cheap price. In his own words:

What was surprising to me was not that Bitcoin came in last, but that it scored as high as it did. Bitcoin had an overall score nearly 60% of that of financial assets but has a market cap that is 1/1200th of that. It scores 66% of gold as a store of value, but has a market cap that is 1/60th of gold’s outstanding value. Something appears wrong here and my guess is it is the price of Bitcoin.

A day after the letter, Paul Tudor Jones participated in the following CNBC interview.

Disclosure:

  • I own small amount of BTC and ETH (<5% of my investment portfolio)
  • This piece is meant for educational purposes only, and is not investment advice