Markets

Paul Tudor Jones says we're in a global debt bubble and headed for some 'scary moments'

Key Points
  • "From a 50,000-feet viewpoint, we're probably in a global debt bubble," says Paul Tudor Jones, who is famous for making big macro calls. "Global debt to GDP is at an all-time high."
  • The investor added that some "scary" moments may come in the corporate bond market.
  • Jones also said the Trump administration's corporate tax cut from late last year could hurt investors down the road as the Federal Reserve keeps raising rates.
VIDEO1:3301:33
Paul Tudor Jones: We are in a global debt bubble

Billionaire investor Paul Tudor Jones believes that the world has loaded on too much debt, which could bring trouble across markets and asset classes.

Worldwide debt, which recently hit a new high at $247 trillion, according to the Institute of International Finance (IIF) figures released earlier this year, is being eyed by economists as a growing risk to the global growth outlook.

"From a 50,000-feet viewpoint, we're probably in a global debt bubble," Jones said at the Greenwich Economic Forum in Connecticut last week. "Global debt to GDP is at an all-time high."

"This is going to be a very challenging time for policymakers moving forward," he said.

Jones is famous for making big macro calls. One of his biggest predictions came when he correctly called the 1987 crash. His hedge fund, Tudor Investment, reportedly manages $7 billion in assets.

The hedge fund manager believes it is in the corporate bond market where the first signs of trouble will emerge. Data from S&P Global released earlier this year showed U.S. corporate debt hitting an all-time high, totaling $6.3 trillion. Global debt also hit a record high earlier in 2018, reaching $247 trillion.

"I think this time it's going to be corporate credit and I think the breakdowns are something that we have to pay attention to in the last day or two," he said. "And they're really scary because, one thing about this credit bubble [is] we've had liquidity absolutely dry up in so many markets."

"There probably will be some really scary moments with corporate credit," he added.

Tax cut mistake?

Jones also said the Trump administration's corporate tax cut from late last year could hurt investors down the road by causing the economy to overheat and the Federal Reserve to keep raising rates.

"Clearly the tax cut and the economic activity that has come from it has caused the Fed to raise rates," he said. "That tax cut was promised before the Fed began hiking, President Trump was running for office, and rates were zero. Do you really think we would've had that kind of a tax cut if we knew where rates were going to be? I doubt we would have."

The Fed has raised rates three times this year, with one more hike expected before year-end. Rapidly rising rates can sometimes spook equity investors because they make it more expensive for companies to borrow money and fund buybacks and expansion.

"Zero rates and negative rates encourage excess lending. That's of course why we're in such a perilous time," he said adding stocks are probably in the 70th percentile of overvaluation.

U.S. stocks reached an all-time high earlier this year, but briefly fell into a correction in October. Investors have been fretting over higher interest rates as well as a potential slowdown in the global economy.