Billionaire hedge fund manager Paul Tudor Jones, who gained some notoriety for anticipating the 1987 stock market crash, thinks that stock prices should continue to climb this year in spite of rising interest rates. In remarks on CNBC, he said: "I can see things getting crazy particularly at year-end after the midterm the upside. I think you’ll see rates go up and stocks go up in tandem at the end of the year."

However, noting that the value of the U.S. stock market relative to GDP is already high by historic standards, Jones added, "I think this is going to end with a lot higher prices and forcing the Fed to shut it off." He expects interest rates to move significantly upward late in the third quarter or early in the fourth, eventually putting a halt to stock market gains and inducing a recession. While he sees similarities with 1987 in the current situation, as well as echoes of the dotcom bubble environment of 1999, he does not believe that a severe stock market crash along the lines of 1987 is in the cards.

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Impact of Low Real Rates

While interest rates are on the upswing, they nonetheless remain low by historic standards, especially inflation-adjusted real interest rates, Jones observed. Thus, at least in the short term, he does not think that interest rates will rise enough to swing investors' preferences away from stocks and into bonds. However, as noted above, he adds that eventually interest rates will reach a point where the economy is thrown into recession, and stock prices decline.

'Reward/Risk is Diminished'

In his interview, when asked whether he was mainly in cash, Jones told CNBC, "I'm probably right now in my positions as light as I've been...I don't have a lot of macro positions right now." The reason, he said, is that "reward/risk in a lot of things is diminished at this particular point in time." He added that his usual investment strategy is to take "significant leveraged positions when an imminent move is in sight." Nonetheless, he predicted that "the third and fourth quarter will be phenomenal trading times," though he did not specify exactly why.

'Bubbles in Stocks and Credit'

In March, per an earlier CNBC report, Jones said in an interview with Goldman Sachs: "We have the strongest economy in 40 years, at full employment. But it is unsustainable and comes with costs such as bubbles in stocks and credit. With rates so low, you can't trust asset prices today...I would steer very clear of bonds...they're overvalued and over-owned."

He also criticized the tax cuts and spending increases enacted by Congress in recent months, saying, "This reminds me of the late 1960s when we experimented with low rates and fiscal stimulus to keep the economy at full employment and fund the Vietnam War...we are setting the stage for accelerating inflation, just as we did in the late '60s." Former Federal Reserve Chair Ben Bernanke recently raised similar concerns. (For more, see also: Ben Bernanke: Economy Is Headed 'Off The Cliff.')

In that March interview, Jones predicted that the yield on the 10-Year U.S. Treasury Note would be at least 3.75% by year-end, and he advised investors to be in cash, commodities and "hard assets." The yield on the 10-Year T-Note rose above 3% on June 13, after the Fed's latest rate hike announcement, but has dipped below that level subsequently, per CNBC data. According to a CNBC graphic displayed during his June 12 interview, Jones believes that rates should be 150 basis points higher.