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Ken Griffin and Stanley Druckenmiller on the markets as investors flood into cash

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In This Issue

  • Ken Griffin and Stanley Druckenmiller on where they stand on the markets
  • Investors flood into cash with risk assets stuck in turmoil
  • Paul Tudor Jones believes we could already be in a recession

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Citadel founder and CEO Ken Griffin spoke to CNBC’s Scott Wapner about his view on the markets and why he believes it's crucial to for the Fed bring down inflation expectations.

Stanley Druckenmiller struck a pessimistic tone as he sees "hard landing" in 2023 with a possible deeper recession than many expect.

Cash is king again as money managers in no rush to embrace risk assets with Fed raising rates

Cash, one of the most hated corners of the market for years, is getting some newfound love from money managers as the Federal Reserve's firm commitment to rate hikes roiled nearly every other asset class.

 

Global money market funds saw $89 billion of inflows for the week ending Oct. 7, the largest weekly injection into cash since April 2020, according to data from Goldman Sachs' trading desk. Meanwhile, the mutual fund cohort is also holding a record amount of cash, the data said.

 

Asset managers rushed to the sidelines as they expect more ugly moves for risk assets amid the Fed's inflation fight. Money market funds are also yielding better returns than previous years after Treasury yields got pushed up by rate hikes.

Billionaire investor Ray Dalio recently said he's changed his mind about his long-held belief that cash is trash. Paul Tudor Jones also echoed the sentiment, seeing value for cash even in the face of surging inflation

 

"I think he's 100% right. That's kind of the playbook that we are in at this part of the cycle when central banks are aggressively trying to attack inflation globally," Jones said on CNBC's "Squawk Box" earlier this week. "You would unequivocally want to favor cash."

 

Cash equivalents were the only major asset class that gained in the third quarter with a 0.5% return, outpacing inflation for the first time on a quarterly basis since the second quarter of 2020, according to Bank of America. The S&P 500 suffered a 5% loss for the period, marking its worst third quarter since 2015.

 

Many on Wall Street believe that the Fed's bold action could tip the economy into a recession. The central bank is tightening monetary policy at its most aggressive pace since the 1980s. 

 

"It's a grievous set of circumstances that I've ever seen over the course of my career," said James Rasteh, CIO of activist and event-driven hedge fund Coast Capital. "The Fed created a melt-up and now it seems that they created a melt-down... A lot of drivers of inflation are structural, and therefore not responsive to interest rates."

 

Rasteh said his New York based hedge fund is "allocating capital sparingly and with great caution." Coast's Engaged fund is up 7.6% year to date as they picked up out-of-favor value names in Europe, according to a person familiar with the returns.

Delivering Alpha Headlines

Big thoughts from the big money

Paul Tudor Jones believes we are in or near a recession

Billionaire hedge fund manager Paul Tudor Jones believes the U.S. economy is either near or already in the middle of a recession as the Federal Reserve rushed to tamp down soaring inflation with aggressive rate hikes. “I don’t know whether it started now or it started two months ago,” Jones told CNBC when asked about recession risks. “We always find out and we are always surprised at when recession officially starts, but I’m assuming we are going to go into one.” He added stocks could fall 10% further when a downturn is upon us.

Michael Burry issues warning on frothy stocks

“The Big Short” investor Michael Burry, known for calling the subprime mortgage crisis, recently sounded alarms on frothy stocks with an extremely inflated market capitalization but little earnings. “There were still 218 primary stock listings in the United States with a market cap over $1 billion and EBITDA less than NEGATIVE $100 million,” Burry said in a tweet. “29 of them had market caps over $10 billion, totaling $655 billion. Saying it again. ALL the silliness must go.”

Ken Griffin’s hedge fund Citadel is up 29% this year

Ken Griffin’s flagship hedge fund continued to shine amid the market’s extreme volatility, outperforming yet again in September and bringing its 2022 gains to nearly 30%, according to a person familiar with the returns. Citadel’s multi-strategy flagship fund Wellington rallied 2.5% last month, pushing its 2022 performance to 28.7%, the person said. All five core strategies in the fund — commodities, fixed income and macro, equities, quant and credit — were positive in September and year to date.

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