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Paul Tudor Jones: 'Capital preservation is the most important thing' right now

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(Kitco News) One of Wall Street's most prominent investors Paul Tudor Jones warned that he can't think of a worse environment for stocks and bonds than now, adding that "capital preservations is the most important thing" to focus on.

The billionaire hedge fund manager cited the Federal Reserve's upcoming aggressive rate hikes as concerning considering the financial situation.

Markets are currently pricing in a 98.7% chance of a 50-basis-point rate hike at the FOMC's May meeting, according to the CME's FedWatch Tool. The official announcement is scheduled for Wednesday at 2 pm ET time.

But this is not all. Markets are also pricing in an 86% chance of a 75-basis-point rate hike at the June meeting and an 80.6% chance of an additional 50-basis-point hike at the July meeting.

"You can't think of a worse environment than where we are right now for financial assets," Jones, the founder and chief investment officer of Tudor Investment, told CNBC Tuesday. "Clearly, you don't want to own bonds and stocks."

This environment is "uncharted territory" for investors because the central banks primarily have a good track record of easing monetary policy during an economic slowdown, Jones added. This is very different from tightening into a slowing economy.

Jones' advice is to focus on capital preservation: "I think we're in one of those very difficult periods where simple capital preservation is, I think, the most important thing we can strive for. I don't know if it's going to be one of those periods where you're actually trying to make money," he said. "If there was a strategy that I would want to employ right now, if someone put a gun to my head, I'd say simple trend-following strategies. They are not too popular today ... They will probably do very well in the next five to 10 years."

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There are growing fears that the U.S. economy will face a recessionary period as the Fed rushes to tighten economic conditions to fight four-decade high inflation in the U.S.

The Fed will now be torn between battling inflation or encouraging growth. "They've got inflation, on the one hand, slowing growth on the other, and they're going to be clashing all the time," Jones noted.

The big data surprise last week was the U.S. economy contracting 1.4% in the first quarter versus expectations of at least 1% growth. 

Goldman Sachs already said it sees a chance of a recession over the next two years at 35%.

A few months ago, billionaire "Bond King" Jeffrey Gundlach revealed that he was now on "recession watch."

And according to Deutsche Bank, the U.S. economy will experience a "major hit" in 2023 and 2024 as the Federal Reserve slows growth prospects with its aggressive tightening plan to fight inflation. Deutsche Bank was one of the first major banks to project a recession in the U.S.

Bank of America has also joined the bearish club as it warned investors of the coming inflation shock. "'Inflation shock' worsening, 'rates shock' just beginning, 'recession shock' coming," BofA chief investment strategist Michael Hartnett wrote in a note to clients. "Inflation causes recessions."

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