Global Policy Shifting From Austerity Toward Growth

Growth in the United States is softening, the slump in Europe deepening and Britain has fallen back into recession, heightening concern that efforts to cut budget gaps could go too far.

Fiscal austerity has been the mantra on both sides of the Atlantic for the past two years. The tide now appears to be turning.

In Europe, socialist Francois Hollande, who is favored to win the run-off election for the French presidency on Sunday, has laid out a growth agenda. Italian Prime Minister Mario Monti, after pushing through tough budget reforms, is calling on the European Union to back a growth plan.

European Central Bank President Mario Draghi wants a "growth compact" for Europe to complement its fiscal compact, an issue he is likely to be quizzed on at his monthly news conference on Thursday.

Even Germany, fast losing allies for its harsh fiscal medicine after the Dutch government fell over budget cuts, is modifying its tone. "We are not the (fiscal) consolidation Taliban," German Deputy Finance Minister Thomas Steffen said at a conference last week.

In the United States too, there are tentative signs the fiscal debate is poised for recalibration.

"Harsh austerity was all the rage, and it drove the (U.S.) Republican Tea Party landslide in 2010 and became the dominant prescription in Europe," said Greg Valliere, political economist at Potomac Research Group.

"Now it's in retreat on both sides of the Atlantic."

Analysts point to U.S. Senate Republican leader Mitch O'Connell's decision to withhold his support for the tough budget adopted by the Republican-controlled House, which would deepen domestic spending cuts beyond levels agreed in torturous deficits talks last August.

A new poll hints at a waning of support for the Tea Party, the driving force behind deep budget cuts. An ABC News/Washington Post poll on April 15 found that Americans by a broad 23-point margin say the more they hear about the Tea Party, the less they like it. Its support has slipped to 41 percent of Americans from 47 percent last September, the poll found.

U.S. Federal Reserve Chairman Ben Bernanke last week issued his sternest warning yet over the risks of sharp fiscal contraction. Numerous tax cuts are due to expire and budget cuts will kick in at year end, enough to withdraw $500 billion from the economy. Analysts say that would cut 3 to 5 percentage points from growth and tip the economy back into recession.

"There is, I think, absolutely no chance that the Federal Reserve could or would have any ability whatsoever to offset that effect on the economy," Bernanke said.

Although it is too early to tell exactly how the U.S. budget debate will play out in November's elections, analysts say an awareness is gradually building in both Europe and the United States that too-fast budgetary consolidation could actually damage the goal of debt reduction.

Investors also may be willing to give governments leeway.

"Politicians are nervous that loosening the fiscal brake will be taken negatively by markets. But we have reached the point where the contrary is true," said Martin Lueck, an economist at UBS Investment Research.

"If there is a realistic stance of supporting growth on the one hand and fiscal consolidation on the other hand, it will be well received," he said.

ESCAPING THE TRAP

Paul McCulley, former managing director at the giant bond fund PIMCO and now at the think tank Global Interdependence Center, says indebted Western nations are running full force into a liquidity trap. Households, corporations and governments are deleveraging at the same time, sucking all the drivers of growth from the economy and worsening budgets.

No matter how much money a central bank pumps in to hold interest rates low and ease deleveraging, it isn't enough to brake the vicious downward cycle as governments cut budgets, he argues.

"Fiscal austerity does not work in a liquidity trap and makes as much sense as putting an anorexic on a diet. Yet diets are the very prescription that fiscal austerians have imposed," he said in a paper delivered last month at the Bank of France.

John Maynard Keynes called this the paradox of thrift - by paying off debt and saving more, growth weakens and budget deficits and debt levels worsen.

The answer, said McCulley, is for governments to spend more, supported by a central bank that buys up government debt. This will reflate the economy, restore demand and avert depression, which in turn will allow government debt to be paid down.

The U.S. economy has not reached the point of ever-worsening deficits. But first-quarter GDP growth slowed to a 2.2 percent annual rate from 3.0 percent in the fourth quarter. A taste of whether the slowing continued into the second quarter will come in the April jobs report on Friday.

While analysts forecast 170,000 new jobs added, a gain from 120,000 in March, that would be down from the 246,000 monthly average seen from December to February. But seasonal quirks and warm winter weather may depress the number.

A national factory index and U.S. car sales data on Tuesday are expected to show steady growth, which would support the Fed view that the U.S. economy is gradually firming.

Why the GDP is lying

To see unemployment come down we need to see growth in the 3.5% range, and our next topic will show us why we are not even close to that number.

A Very Soft GDP Number

GDP came in at 2.8% for the 4^th quarter of 2011. That is a respectable headline number, given that the US economy only did 1.6% for the whole of last year. For those who look at this number as half full, I offer the following observations. First, examine GDP growth for the last few years. The 4^th quarter has been much better than previous quarters, and then GDP dropped off again.

The 2.8% number is softer than it looks. Two-thirds of that growth (1.9%) was from inventory build-up (standard accounting practice says that growth in inventory increases GDP, while sales of inventory reduces it). “Real final sales (GDP less inventory changes) expanded at an anemic 0.8% annual pace in the fourth quarter, a sharp slowdown from the third quarter’s healthy 3.2% rate. That paints a different picture from the apparent pick-up in headline GDP growth from the third-quarter’s 1.8% yearly rate. The difference reflects the shift to inventory building in the fourth quarter from a drawdown in the third quarter.” (Barron’s)

I suppose one could spin inventory growth as businesses being optimistic about future sales and building inventory, but given the weaker retail sales of late (in comparison to previous years) that is rather doubtful. And so all that really happened was a total reversal of inventory sales in the previous quarters. There will be a drawdown of inventories over the next few quarters, which will be a drag on future GDP numbers, much like the pattern we have seen the past few years.

Retail sales growth was not strong. And for the last year, 90%-plus of total retail sales has come from decreased savings, as the savings rate dropped from 4% to 2%. It will be hard to go much lower, so the “boost” we got last year from retail sales accounts for most of the year-over-year growth in GDP. If most of retails sales growth came from reduced savings, that suggests that retail sales will not offer much in the way of growth for the coming year. Just saying.

Further, when calculating real GDP, one subtracts inflation. The Fed prefers an inflation measure called PCE (Personal Consumption Expenditures). It is essentially a measure of goods and services targeted toward individuals and consumed by individuals. The number you read in the various media is the CPI or Consumer Price Index. The CPI is inflexible, in that it’s always the same basket of goods. PCE on the other hand, is supposed to take into consideration the notion that if steak is too costly, we’ll eat hamburger. The CPI is typically 0.3-0.5% higher than the PCE, which is convenient if you want the GDP number to look better.

The Fed changed to PCE in February of 2000. The change was buried in the footnotes of the annual Humphrey-Hawkins testimony by then-Fed Chairman Greenspan. So the anemic growth of 1.9% for the last decade would have been even worse if we had used the previous measurement of inflation (CPI). Understand, there is an argument in favor of using PCE, as many academics argue that CPI actually overstates inflation. But there is also an argument to use CPI. It somewhat depends on what you want the final numbers to be.

Fast forward to today, and the year-over-year change of CPI was 2.5%, with the PCE only rising 1.7%. And last quarter was down sharply, to +0.04% on an annual basis. An anomaly of lower energy and commodity costs? Partially, for sure. So if their target rate of inflation is 2%, using PCE gives the Fed grounds for a looser monetary policy.

All in all, GDP was helped by numbers that are not likely to repeat. For a long time I have maintained that the US economy is in a Muddle Through range of around 2%. I remember when last year at this time we had estimates of 4-5% growth for 2011. I looked so bearish. Now, not so much, as 2% would have been better than what we got.

I think we will be lucky to Muddle Through again this year. Mind you, if it was not for a potential shock coming from a serious European crisis and real recession, the US should not slip into outright recession this year.

Source: JohnMauldin.com (http://s.tt/15qYi)

To see unemployment come down we need to see growth in the 3.5% range, and our next topic will show us why we are not even close to that number.

A Very Soft GDP Number

GDP came in at 2.8% for the 4^th quarter of 2011. That is a respectable headline number, given that the US economy only did 1.6% for the whole of last year. For those who look at this number as half full, I offer the following observations. First, examine GDP growth for the last few years. The 4^th quarter has been much better than previous quarters, and then GDP dropped off again.

The 2.8% number is softer than it looks. Two-thirds of that growth (1.9%) was from inventory build-up (standard accounting practice says that growth in inventory increases GDP, while sales of inventory reduces it). “Real final sales (GDP less inventory changes) expanded at an anemic 0.8% annual pace in the fourth quarter, a sharp slowdown from the third quarter’s healthy 3.2% rate. That paints a different picture from the apparent pick-up in headline GDP growth from the third-quarter’s 1.8% yearly rate. The difference reflects the shift to inventory building in the fourth quarter from a drawdown in the third quarter.” (Barron’s)

I suppose one could spin inventory growth as businesses being optimistic about future sales and building inventory, but given the weaker retail sales of late (in comparison to previous years) that is rather doubtful. And so all that really happened was a total reversal of inventory sales in the previous quarters. There will be a drawdown of inventories over the next few quarters, which will be a drag on future GDP numbers, much like the pattern we have seen the past few years.

Retail sales growth was not strong. And for the last year, 90%-plus of total retail sales has come from decreased savings, as the savings rate dropped from 4% to 2%. It will be hard to go much lower, so the “boost” we got last year from retail sales accounts for most of the year-over-year growth in GDP. If most of retails sales growth came from reduced savings, that suggests that retail sales will not offer much in the way of growth for the coming year. Just saying.

Further, when calculating real GDP, one subtracts inflation. The Fed prefers an inflation measure called PCE (Personal Consumption Expenditures). It is essentially a measure of goods and services targeted toward individuals and consumed by individuals. The number you read in the various media is the CPI or Consumer Price Index. The CPI is inflexible, in that it’s always the same basket of goods. PCE on the other hand, is supposed to take into consideration the notion that if steak is too costly, we’ll eat hamburger. The CPI is typically 0.3-0.5% higher than the PCE, which is convenient if you want the GDP number to look better.

The Fed changed to PCE in February of 2000. The change was buried in the footnotes of the annual Humphrey-Hawkins testimony by then-Fed Chairman Greenspan. So the anemic growth of 1.9% for the last decade would have been even worse if we had used the previous measurement of inflation (CPI). Understand, there is an argument in favor of using PCE, as many academics argue that CPI actually overstates inflation. But there is also an argument to use CPI. It somewhat depends on what you want the final numbers to be.

Fast forward to today, and the year-over-year change of CPI was 2.5%, with the PCE only rising 1.7%. And last quarter was down sharply, to +0.04% on an annual basis. An anomaly of lower energy and commodity costs? Partially, for sure. So if their target rate of inflation is 2%, using PCE gives the Fed grounds for a looser monetary policy.

All in all, GDP was helped by numbers that are not likely to repeat. For a long time I have maintained that the US economy is in a Muddle Through range of around 2%. I remember when last year at this time we had estimates of 4-5% growth for 2011. I looked so bearish. Now, not so much, as 2% would have been better than what we got.

I think we will be lucky to Muddle Through again this year. Mind you, if it was not for a potential shock coming from a serious European crisis and real recession, the US should not slip into outright recession this year.

Source: JohnMauldin.com (http://s.tt/15qYi)

The paradox of prosperity

http://www.economist.com/node/21543537

The paradox of prosperity

For China’s rise to continue, the country needs to move away from the model that has served it so well

Jan 28th 2012 | from the print edition

IN THIS issue we launch a weekly section devoted to China. It is the first time since we began our detailed coverage of the United States in 1942 that we have singled out a country in this way. The principal reason is that China is now an economic superpower and is fast becoming a military force capable of unsettling America. But our interest in China lies also in its politics: it is governed by a system that is out of step with global norms. In ways that were never true of post-war Japan and may never be true of India, China will both fascinate and agitate the rest of the world for a long time to come.

Only 20 years ago, China was a long way from being a global superpower. After the protests in Tiananmen Square led to a massacre in 1989, its economic reforms were under threat from conservatives and it faced international isolation. Then in early 1992, like an emperor undertaking a progress, the late Deng Xiaoping set out on a “southern tour” of the most reform-minded provinces. An astonishing endorsement of reform, it was a masterstroke from the man who made modern China. The economy has barely looked back since.

Compared with the rich world’s recent rocky times, China’s progress has been relentless. Yet not far beneath the surface, society is churning. Recent village unrest in Wukan in Guangdong, one province that Deng toured all those years ago; ethnic strife this week in Tibetan areas of Sichuan; the gnawing fear of a house-price crash: all are signs of the centrifugal forces making the Communist Party’s job so hard.

The party’s instinct, born out of all those years of success, is to tighten its grip. So dissidents such as Yu Jie, who alleges he was tortured by security agents and has just left China for America, are harassed. Yet that reflex will make the party’s job harder. It needs instead to master the art of letting go.

China’s third revolution

The argument goes back to Deng’s insight that without economic growth, the Communist Party would be history, like its brethren in the Soviet Union and eastern Europe. His reforms replaced a failing political ideology with a new economic legitimacy. The party’s cadres set about remaking China with an energy and single-mindedness that have made some Westerners get in touch with their inner authoritarian. The bureaucrats not only reformed China’s monstrously inefficient state-owned enterprises, but also introduced some meritocracy to appointments.

That mix of political control and market reform has yielded huge benefits. China’s rise over the past two decades has been more impressive than any burst of economic development ever. Annual economic growth has averaged 10% a year and 440m Chinese have lifted themselves out of poverty—the biggest reduction of poverty in history.

Yet for China’s rise to continue, the model cannot remain the same. That’s because China, and the world, are changing.

China is weathering the global crisis well. But to sustain a high growth rate, the economy needs to shift away from investment and exports towards domestic consumption. That transition depends on a fairer division of the spoils of growth. At present, China’s banks shovel workers’ savings into state-owned enterprises, depriving workers of spending power and private companies of capital. As a result, just when some of the other ingredients of China’s boom, such as cheap land and labour, are becoming scarcer, the government is wasting capital on a vast scale. Freeing up the financial system would give consumers more spending power and improve the allocation of capital.

Even today’s modest slowdown is causing unrest (see article). Many people feel that too little of the country’s spectacular growth is trickling down to them. Migrant workers who seek employment in the city are treated as second-class citizens, with poor access to health care and education. Land grabs by local officials are a huge source of anger. Unrestrained industrialisation is poisoning crops and people. Growing corruption is causing fury. And angry people can talk to each other, as they never could before, through the internet.

Party officials cite growing unrest as evidence of the dangers of liberalisation. Migration, they argue, may be a source of growth, but it is also a cause of instability. Workers’ protests disrupt production and threaten prosperity. The stirrings of civil society contain the seeds of chaos. Officials are particularly alive to these dangers in a year in which a new generation of leaders will take power.

That bias towards control is understandable, and not merely self-interested. Patriots can plausibly argue that most people have plenty of space to live as individuals and value stability more than rights and freedoms: the Arab spring, after all, had few echoes in China.

Yet there are rights which Chinese people evidently do want. Migrant workers would like to keep their limited rights to education, health and pensions as they move around the country. And freedom to organise can help, not hinder, the country’s economic rise. Labour unions help industrial peace by discouraging wildcat strikes. Pressure groups can keep a check on corruption. Temples, monasteries, churches and mosques can give prosperous Chinese a motive to help provide welfare. Religious and cultural organisations can offer people meaning to life beyond the insatiable hunger for rapid economic growth.

Our business now

China’s bloody past has taught the Communist Party to fear chaos above all. But history’s other lesson is that those who cling to absolute power end up with none. The paradox, as some within the party are coming to realise, is that for China to succeed it must move away from the formula that has served it so well.

This is a matter of more than intellectual interest to those outside China. Whether the country continues as an authoritarian colossus, stagnates, disintegrates, or, as we would wish, becomes both freer and more prosperous will not just determine China’s future, but shape the rest of the world’s too.

Europe has three main problems.

Europe has three main problems.

1. A growing number of its countries are insolvent or close to it. It is increasingly likely that the only way forward is for defaults of some type, to lessen the burden of debt to a level where it can be dealt with and that will allow the countries the possibility of growth, which is the only real answer to the problems they face.

2. Because of growing fears of multiple defaults (just Greece would be bad enough!) most of the banks in Europe are seen to be insolvent and in need of hundreds of billions of euros of new capital. The interbank market in Europe is in a shambles, and banks park their cash with the ECB, at a lower rate of return, as that is the only institution they trust. They clearly do not trust each other. As an aside, I heard from many sources while I was Hong Kong and Singapore, meeting with readers and friends, that European banks (especially French) are cutting back on their trade lending, which is making normal commerce more difficult. Didn't we just go through that in 2008?

3. The real problem in Europe is the massive trade imbalances between the peripheral countries and the so-called core countries. Without the ability to adjust currencies, those trade imbalances will render any debt solution moot, as a country cannot balance its budget while it runs a trade deficit and its citizens and businesses also deleverage. I have written about this arithmetic problem on numerous occasions. There must be balance or there must be a mechanism to achieve balance.

One cannot solve one problem without solving all three. Either they all get done or none truly get done. You can kick the can down the road by solving problems 1 and 2, but problem 3 will put you shortly back to square one.

Europe is now trying to address problems 1 and 2. They are talking about a "new treaty" that will require austerity of a real kind, although I understand that Germany has put in a clause that gives it some extra time to achieve its own balanced budget. And the ECB is dispensing euros through the back door to banks, in exchange for anything resembling collateral. Not directly of course, as that is prohibited, but the same thing is being accomplished, despite objections in some quarters, mostly German.

Europe has three main problems.

1. A growing number of its countries are insolvent or close to it. It is increasingly likely that the only way forward is for defaults of some type, to lessen the burden of debt to a level where it can be dealt with and that will allow the countries the possibility of growth, which is the only real answer to the problems they face.

2. Because of growing fears of multiple defaults (just Greece would be bad enough!) most of the banks in Europe are seen to be insolvent and in need of hundreds of billions of euros of new capital. The interbank market in Europe is in a shambles, and banks park their cash with the ECB, at a lower rate of return, as that is the only institution they trust. They clearly do not trust each other. As an aside, I heard from many sources while I was Hong Kong and Singapore, meeting with readers and friends, that European banks (especially French) are cutting back on their trade lending, which is making normal commerce more difficult. Didn't we just go through that in 2008?

3. The real problem in Europe is the massive trade imbalances between the peripheral countries and the so-called core countries. Without the ability to adjust currencies, those trade imbalances will render any debt solution moot, as a country cannot balance its budget while it runs a trade deficit and its citizens and businesses also deleverage. I have written about this arithmetic problem on numerous occasions. There must be balance or there must be a mechanism to achieve balance.

One cannot solve one problem without solving all three. Either they all get done or none truly get done. You can kick the can down the road by solving problems 1 and 2, but problem 3 will put you shortly back to square one.

Europe is now trying to address problems 1 and 2. They are talking about a "new treaty" that will require austerity of a real kind, although I understand that Germany has put in a clause that gives it some extra time to achieve its own balanced budget. And the ECB is dispensing euros through the back door to banks, in exchange for anything resembling collateral. Not directly of course, as that is prohibited, but the same thing is being accomplished, despite objections in some quarters, mostly German.

Source: JohnMauldin.com (http://s.tt/15kJX)

Europe has three main problems.

1. A growing number of its countries are insolvent or close to it. It is increasingly likely that the only way forward is for defaults of some type, to lessen the burden of debt to a level where it can be dealt with and that will allow the countries the possibility of growth, which is the only real answer to the problems they face.

2. Because of growing fears of multiple defaults (just Greece would be bad enough!) most of the banks in Europe are seen to be insolvent and in need of hundreds of billions of euros of new capital. The interbank market in Europe is in a shambles, and banks park their cash with the ECB, at a lower rate of return, as that is the only institution they trust. They clearly do not trust each other. As an aside, I heard from many sources while I was Hong Kong and Singapore, meeting with readers and friends, that European banks (especially French) are cutting back on their trade lending, which is making normal commerce more difficult. Didn't we just go through that in 2008?

3. The real problem in Europe is the massive trade imbalances between the peripheral countries and the so-called core countries. Without the ability to adjust currencies, those trade imbalances will render any debt solution moot, as a country cannot balance its budget while it runs a trade deficit and its citizens and businesses also deleverage. I have written about this arithmetic problem on numerous occasions. There must be balance or there must be a mechanism to achieve balance.

One cannot solve one problem without solving all three. Either they all get done or none truly get done. You can kick the can down the road by solving problems 1 and 2, but problem 3 will put you shortly back to square one.

Europe is now trying to address problems 1 and 2. They are talking about a "new treaty" that will require austerity of a real kind, although I understand that Germany has put in a clause that gives it some extra time to achieve its own balanced budget. And the ECB is dispensing euros through the back door to banks, in exchange for anything resembling collateral. Not directly of course, as that is prohibited, but the same thing is being accomplished, despite objections in some quarters, mostly German.

Source: JohnMauldin.com (http://s.tt/15kJX)

Paul Tudor Jones Profile

By Jonathan Yates

Counterpunching is the key to success for legendary investor Paul Tudor Jones II, founder of the hedge funds group, Tudor Investment Corporation.

A former welterweight boxing champion in college at the University of Virginia, like any seasoned master of the sweet science, the investment focus of Jones and his funds at Tudor Investment Corporation reflect that there are no big early wins with something as formidable as the financial markets; rather that success emanates from dominating the middle of the ring through macro trading, controlling the corners and developing your best combination of moves to be deployed when the opportunity presents itself from event driven strategies.

In an interview, Jones likened this to playing three dimensional chess, whereas micro trading of one instrument would be chess on one plane. “When trading macro, you never have a complete information set or information edge the way analysts can have when trading individual securities. It’s a helluva lot easier to get an information edge on one stock than it is on the S&P 500,” he observed.

Jones furthered, “When it comes to trading macro, you cannot rely solely on the fundamentals; you have to be a tape reader, which is something of a lost art form. The inability to read a tape and spot trends is also why so many in the relative value space who rely solely on fundamentals have been annihilated in the past decade. Markets have consistently experienced ‘100 year events’ every five years.”

Such an event appeared for Jones in 1987, when he predicted “Black Monday,” tripling his money through short positions when the New York Stock Exchange shed 500 points from the Dow Jones Average on October 19. At the closing bell that afternoon, the Dow was wobbling at 1738.74, a plunge of 22.61 percent (the largest one day drop, except for periods of market closure such as after September 11, 2011). It is estimated that Paul Tudor Jones made about $100 million that day.

Waiting for these opportunities to emerge, Jones invests to control the middle through swing trading. This allows him to limit the exposure of his capital, yet benefit when the financial markets begin to move from external events. Here he invests defensively, trading the smallest amount when the market is the least opportune. To further limit losses and control his trading, he never “averages down,” increasing a position to reduce the price per unit. By decreasing a losing position rather than increasing it through averaging down, his vulnerability to a reversal is never extended. His investment philosophy here is to play great defense, not great offense. For this, he deploys both price stops and time stops.

When the fundamentals turn is when Tudor Jones moves into position, by controlling the corners of the market through very low risk movements, never overexposing his position in the process. When a trade proves to be a winner, it is increased. When a price or time stop is reached, it is closed out, no matter what. Again: offense wins games, defense wins championships.

The recent portfolio of Tudor Jones Group evinces this approach. Most of the stocks added, were large caps (328 in all). These included Cisco, AT&T, Citi, Microsoft, Apache Corporation, Starwood Property Trust, Noble Energy and Peabody Energy. At over seven percent of the portfolio was the SPDR S&P 500 ETF Trust, the ultimate holding for a macro trader waiting for an opportunity from a turn in the market.

This portfolio is one crafted to react (100 year events happening every 5) in a volatile period of little, if any growth. “I think we’re going into one of those slow or no growth periods in the U.S., which will give us a lot of volatility,” remarked Jones. For this, deeply liquid holdings, such as SPDRs and Microsoft, are imperative. Stocks such as these, blue chips that will maintain value in a little or now growth epoch, pay dividends and allow for massive amounts of capital to be redeployed when an event inevitably arises.

If this period of little or no growth does evolve, as predicted by Tudor Jones, it will not be his first. He started work in the securities industry as a broker for EF Hutton in the late 1970s. From the late 1950s to the early 1980s, the Dow Jones Average was basically flat: it hit a high of 731 for the decade of the ‘50s in 1958 and was still trading in the 700s in the early 1980s. The high for the period of the ‘50s to the early 1980s was 1067, reached on January 11, 1973, before the first Arab oil embargo in October of that year. As a result of the first energy crisis, when OPEC nations quadrupled the price of oil overnight and eventually cut off supplies to the United States in retaliation for the U.S. support of Israel in the October 1973 Yom Kippur War, the Dow Jones Industrial Average hit a low of 570 on December 8, 1974, a plunge of 54.3 percent (adjusted for inflation).

During this span, Jones set up shop in Greenwich, Connecticut with Tudor Investment Corporation in 1980. Profitable from the beginning, he shunned Harvard Business School, as he realized his skill set was something that could not be taught or learned within the confines of ivy covered walls.

He attributes this period, the 1970s, with having the biggest impact on his career. “Trading commodity markets back in the late 1970s, when they were still extraordinarily volatile, allowed me to experience repeated bull and bear markets across a variety of different instruments,” he remembers. Not all of the memories from this time are pleasant, though. He furthered, “Remember, in agricultural markets the cycle the can be just 12 months. I lost my stake a couple of times, which taught me risk control and risk management.”

If the market for the period ahead will be little or no growth, there will be several factors favoring Tudor Investment Corporation. First will be its size. In the past decade, it has had close to $20 billion under management. As Marshal Zhukov, the Russian military strategist from World War II and mastermind of The Battle of Stalingrad noted, “Quantity has a quality all of its own.” Just the sheer mass of funds available to Tudor Investment Corporation will allow it to capitalize on events from which others will be precluded from moving forward due to a basic lack of liquidity.

There is also the fee structure. While the industry standard for hedge funds is two percent per annum of assets under management and twenty percent of profits, Tudor Investment Corporation charges four percent per annum for investing funds and takes twenty three percent of the profits for the house. Clients willing to pay a higher tariff obviously are demonstrating a greater commitment, meaning they will not withdraw their funds in inevitable periods when returns are low (and also resulting in a net worth over $3 billion for Jones, according to Forbes). This will prevent Tudor Investment Corporation from being sucked into the vortex of a death spiral that claimed so many hedge funds during The Great Recession.

Most importantly, is that Paul Tudor Jones, and Tudor Investment Corporation, is preparing for little or no growth, and maximum volatility. Volatility is a trader’s greatest ally and source of largest profits…when the holdings and investment professionals are primed for that eventuality. The composition of the portfolio as structured by Paul Tudor Jones reflects that belief. As a result, Tudor Investment Corporation is “locked and loaded,’ and the powder dry for whatever opportunities come into range and are targeted in the trading days ahead.

http://www.traderslog.com/paul-tudor-jones-profile/