Investor Letter: Paul Tudor Jones’ Market Outlook

While the stock market rallied 8 percent in July, widely followed fund manager Paul Tudor Jones’ Global Fund returned just 1.04 percent for the month.

In a letter to its clients dated August 3, the Tudor Investment Corp., a $10.8 billion hedge fund, reported that its Tudor BVI Global Fund returned 10.67 percent for the first half of 2009.

In its market outlook, the firm takes the view that the run-up in stocks over the last 100 days is a “bear market rally.”

“The bottom line is that we are not inclined to aggressively chase the market here,” the firm said in the letter.

“Rather, we eye a better opportunity to be long equities into year-end on a potential autumnal pullback.”

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With respect to a sustained recovery, the Tudor Investment Corp. has doubts. The firm cited the weakness of household income growth as a concern as well as the impact of the crisis on growth in many countries.

On the issue of inflation, the firm said in its report that “the lack of understanding by both markets and policy makers of the impact of the mix of large fiscal deficits and quantitative easing policies has increased volatility and generated fears of uncontrolled inflation.”

The firm said that policy stimulus will peak around the first quarter of 2010 and liquidity facilities and credit guarantees will be discontinued. At that time, “markets will have to assess the sustainability of growth.”

A spokesperson for the firm declined to comment on the letter.

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Disclosure information was not available for Jones or his company.