Billionaire trader Paul Tudor Jones rings the bubble alarm, warns the Fed could tank the economy, and predicts pandemic winners will struggle

• Paul Tudor Jones diagnosed a huge market bubble and warned that popping it could hammer the economy.
• The billionaire trader predicted the best-performing assets during the pandemic would soon struggle.

Paul Tudor Jones sounded the alarm on a sprawling market bubble during a CNBC interview on Tuesday.

The billionaire trader and founder of Tudor Investment Corporation warned asset prices could plunge, and the economy could suffer if the Federal Reserve hikes interest rates and tapers bond purchases as expected. He singled out the pandemic's winners — a group that includes meme stocks and cryptocurrencies — and predicted they would be hit the hardest by tighter monetary policies.

Jones also called out the heady valuation of the US stock market today, and predicted that commodities would outperform financial assets over the next few years.

Here are Jones' six best quotes from the interview, lightly edited and condensed for clarity:

1. "US equities are really extraordinarily valued relative to GDP." — Jones pointed to the current Buffett indicator reading of more than 200%, which suggests the stock market is hugely overpriced relative to the size of the economy.

2. "Can the Fed unwind what appears to be a financial bubble without there being huge, negative economic consequences? It'll be interesting to see. I'm nervous because we're at such lofty heights."

3. "Jay Powell has to do a lot of catching up to deal with the inflation problem he has right now. We're getting ready to see a major shift, and it's going to have a lot of consequences for a variety of asset prices." — referring to Jerome Powell, the chair of the Federal Reserve.

4. "It's going to be tough sledding for the inflation trades of the pandemic going forward. The things that performed the best since March 2020 are probably going to perform the worst as we go through this tightening cycle." — Jones noted some companies are still gorging themselves on cheap debt, and predicted their stock prices would fall as interest rates climb to 2% over the next couple of years.

5. "Commodities are so incredibly undervalued relative to financial assets. One would think on a relative basis, as we go through this tightening, that commodities would outperform financial assets by a wide margin."

6. "Being just, and being in line with Americans' views on what is just, is great for business." — Jones asserted that the companies that lead the pack on issues such as pay transparency and climate change tend to outperform their rivals over the long term.