Home > News > Newsmakers > Stock Market Feels Like 1999’s, Says Paul Tudor Jones
Newsmakers

Stock Market Feels Like 1999’s, Says Paul Tudor Jones

Hedge fund honcho thinks current wacky times could be headed for a popping bubble.

By Larry Light

The stock market is partying like it’s 1999, and the result may well end in a painful sell-off, according to billionaire hedge fund chief Paul Tudor Jones.

“We are just again in this craziest monetary and fiscal mix in history. It’s so explosive. It defies imagination,” Jones told CNBC at the World Economic Forum in Davos, Switzerland. “It reminds me a lot of early ’99 [when] we had 1.6% PCE, 2.3% CPI. We have the exact same metrics today.”

While those two inflation measures are similar, then and now, he noted that interest rates were higher two decades ago. “The difference is fed funds were 4.75%; today it’s 1.62%. And back then we had budget surplus and we’ve got a 5% budget deficit,” Jones said. “

To Jones, “We’re in such extraordinary times. We’ve never seen a fiscal monetary mix like this. So, it argues for some massive blow-off at the top.” 

Want the latest institutional investment industry
news and insights? Sign up for CIO newsletters.

But that situation doesn’t mean that investors should bail out of the market, he added. The 1990s dot-com bubble popped in March 2000, so anyone exiting early would leave money on the table, he warned. “The train has got a long, long way to go if you think about it.”

The Nasdaq Composite more than doubled from mid-January 1999 to its zenith in early March 2000, Jones emphasized. “That’s a long way from now. At the top theoretically, rates [would] be substantially higher.”

The stock market hit a peak in early 2000, with the tech-heavy Nasdaq Composite approaching 5,000. Then, as profit-free hot start-ups like Pets.com imploded, Nasdaq started at painful slide that finally hit bottom in September 2002, at half the level of January 1999. The market had a gradual recovery that only started to pick up speed in fall 2003.

What could end up squelching the current rally? Most analysts say it should last through this year because the US economy is solid, and other nations are nudging back up. Jones , founder and CIO of Tudor Investment Corporation, warned that the new “curveball” to smash the bull market could be the outbreak of the coronavirus.

“That’s a big deal,” he said and compared the disease to the SARS (severe acute respiratory syndrome), which broke out in Asia in 2002 and 2003, killing 775 people. Thus far, the coronavirus has killed six people in China, with 300 confirmed cases. Meanwhile, the disease was diagnosed in Washington State, concerning a visitor to China who had returned home.  That news helped send the S&P 500 down 0.27% on Tuesday.

Related Stories:

Paul Tudor Jones: What to Do When the Fed Cuts Rates

Paul Tudor Jones Says Stocks Will Be Boffo, but then … Look Out Below

Companies Should Pay Better, Survey from Paul Tudor Jones Group Says

Tags: , , , , ,

Home > News > Pensions > Tax Cuts Could Come Back to Haunt State Retirement Systems
Pensions

Tax Cuts Could Come Back to Haunt State Retirement Systems

Report urges states to close tax loopholes to avoid cutting pension benefits.
By Michael Katz

Although state retirement systems have made a strong recovery from the Great Recession to reduce once-yawning funding gaps, years of tax cuts could come back to haunt states and force them to reduce retirement benefits. That’s according to a report from the National Conference on Public Employee Retirement Systems (NCPERS).

NCPERS is urging state governments to close tax loopholes and end “irresponsible corporate subsidies” before another recession strikes to avoid cutting state services and public employees’ retirement benefits.

“With the US economy now 10 years into an economic expansion, it’s not a question of if, but when, we will face another recession,” Hank Kim, executive director and counsel of NCPERS, said in a statement. “State governments have an immediate opening to improve their revenue structures and need to act decisively.”

The report said Americans’ personal income, adjusted for inflation, rose 24% from the end of the Great Recession in mid-2009 to the last quarter of 2018. Real tax revenues collected by the states, however, were only 13.4% above where they were during the third quarter of 2008, their pre-recession peak.  

For more stories like this, sign up for the CIO Alert newsletter.

“Meeting future pension plan obligations and commitments to other public services will be much easier if states have an adequate and growing tax revenue structure,” said the report.

Part of the declining share of state tax revenues as a share of income is attributed to legislated tax changes, said the report. According to the National Council of State Legislatures (NCSL) states cut taxes each year from 1995 to 2000, a period of strong economic growth with the GDP growth averaging 4.3%.

But the US was hit by a recession in 2001, which was followed by six years in which the GDP growth averaged just 2.7%.  From 2001 to 2009, states enacted tax increases, mostly through sales taxes. In 2010, the first year of recovery, there were large increases in numerous taxes and fees, and since then, legislated tax changes have been small, and the enacted changes tended to be sales tax increases.

NCPERS expects another recession could hit the economy at some point over the next decade.

“When that happens, the states’ ability to meet their financial commitments, such as public pensions, will depend on those states having sufficient revenues to fulfill these commitments,” said the report. “When tax revenues tighten, as they do in recessions, the competition for general fund dollars will become even more intense, and public pensions will face greater challenges in obtaining the funding to meet any budgetary gaps.”

The report outlined several principles for making state tax systems stronger, more resilient, and fairer for both current and future taxpayers:

  • Avoid tax cuts and other legislative actions that reduce tax revenues.
  • Tax cuts and tax incentives aimed at attracting businesses and jobs rarely work as advertised.
  • Reverse previous tax cuts. Major tax increases are never easy, but the easiest tax to raise is probably one that was recently cut.
  • Increase reliance on personal income tax. Personal income tax has the capability to grow at least as fast as the growth in the income of state residents.
  • Minimize dependence on sales and other consumption taxes. Sales taxes are regressive, meaning they fall harder on low-income taxpayers, and the revenues tend to diminish over time.
  • Be wary of exotic revenue sources such as lotteries and gambling, casinos, which tend to displace existing revenues.
  • Require all tax breaks to expire after some set period.

Related Stories:

NCPERS Study Reports Solid Year for Public Pensions

Congress Mulls Trump-Backed Proposal to Raise Taxes on Fund Managers Again

California Supreme Court Rules in Favor of Pension Benefit Cuts

 

 

 

Tags: , , , , , ,

«