Paul Tudor Jones thinks all roads lead to inflation, and his view centres on a spiralling public debt where he sees the only way out is to inflate the debt away.
Paul Tudor Jones believes the US Presidential elections scheduled for November 5 are like the Superbowl event in the hedge fund world.
A string of Wall Street heavy-weight investors like Stanley Druckenmiller are convinced Trump will win, based on various indicators like the share price of DGT (Trump media stock) and Bitcoin.
Dan Loeb is also repositioning his portfolio around the thesis that Trump will be president.
“Certainly, the markets believe Trump is going to win.
“Certainly, the markets believe Trump is going to win”
Paul Tudor Jones
I think market participants are skewed heavily to Republicans, so I don’t know if I necessarily believe the betting markets,” said Paul Tudor Jones.
“In football betting, you can get a huge home bias when the line doesn’t reflect reality,” he added.
But based on some recent polls, Paul Tudor Jones is also going with the consensus on Wall Street and positioning his portfolio for a Trump win.
Here is the takeaway for investors.
Irrespective of who will sit in the White House, Paul Tudor Jones thinks all roads lead to inflation
So, he is positioning more inflation trades based on
spiralling public debt and an easing Fed.
He believes the US is at an inflexion point based on the debt trajectory.
“We have gone from 25 years, a debt to a GDP of around 40% to almost 100%, that’s 60 per cent, in nearly 25 years.
Projections CBO says we go from 98 to 122.
I think 124 is very conservative over the next 10 years,” he said.
“We have gone from 25 years, a debt to a GDP of around 40% to almost 100%, that’s 60 per cent, in nearly 25 years”
PAUL TUDOR JONES
In the next 30 years, he predicts 200% debt to GDP.
“So that is something that can not go on forever,” he said, echoed also by Fed chair Powell earlier in the year.
“They are handing out tax cuts like they are Mardi Gras beads.
We are doing tax cuts for everything from tips to two cans, so it is crazy what they promised,” he said.
But democracies vote for candidates who promise the Dolce Vita, no or low taxes, a booming stock market, modern public services, and money-for-nothing UBI.
Everyone wants something for nothing and charge it all to a golden credit card, the treasury, and spend now, pay never.
“After the election, you have budget deficits as far as the eye can see. The question is, will the markets allow either candidate to spend,” he said.
“I think under Trump, the deficit goes up 500 billion per year
Under Harris’s plan, the deficit goes up by an additional 600 billion annually.
I have a feeling all those predictions are pipe dreams,” he said
He thinks the treasury market will not tolerate those spending plans and believes the elections are an inflexion point.
“Let’s assume I am making $100,000 a year, and you lent me $700,000 because we are great friends” – Paul Tudor Jones
Bond investors will reassess the proposition the government is making and decide whether they want to participate.
Paul Tudor Jones is a bond bear.
“Let’s assume I am making $100,000 a year, and you lent me $70,000 because we are great friends. I then say to you, I am going to pay all that back to you in 30 years, but between now and then, when I pay it back, I want to borrow another $440,00 every year for the next 30 years, and at the end of 30 years, I am going to pay it all back.
Would you lend me that money?”
Unlikely, said the interviewer.
“You son of a bitch, I thought we were best friends,” he said.
“That is the exact proposition, the US government makes to investors to buy US bonds.
We owe $35 trillion, our tax take is $5 trillion, so we owe seven times what our tax take will be this year, and our deficit is $2 trillion, and it is $2 trillion now as far as the eye can see,” he said.
“I am long gold and Bitcoin. I think commodities are so ridiculously under-owned” – Paul Tudor Jones
Paul Tudor Jones thinks all roads lead to inflation based on stress in the bond market
Sure, other countries’ bonds are far worse than the US treasuries, but PTG thinks global investors could start reducing exposure to bonds as an asset class.
He thinks we are in an economic kayfabe, a portrayal of staged events within the industry as “real” or “true”,
“Kayfabe is not just in the US, it is in the UK, France, Greece, Italy and Japan being the biggest of all. The question is whether, after the election, will there be a Minsky moment in the US debt market where there is a point of recognition that what they are talking about is fiscally financially impossible?”
I am not betting on any fixed income. I am short the back end of fixed income because it is the wrong price.
We become broke very quickly unless we get serious about spending issues.”
He doesn’t believe we can cut spending much with 60% transfer payments, which is why Paul Tudor Jones thinks that all roads lead to inflation
“Just to get to the point where we stabilise debt to GDP, you need to let Trump tax cuts expire that $390 billion.
You need to increase payroll tax on every single person.
We are going to have a period of contraction,” he said.
It will be vital for the Fed to offset the Fiscal contraction.
I think all roads lead to inflation.
I am long gold and Bitcoin. I think commodities are so ridiculously under-owned, so I am long commodities,
NASDAQ has also been a good inflation hedge.”
He has a basket of commodities, gold, cryptos and NASDAQ, and he holds no fixed-income investments.
He thinks the playbook to get out of this is to inflate your way out, small taxes on consumers and, set interest rates above inflation and nominal growth above inflation, which is why you reduce debt to GDP.
“The Fed should remain easing, but every 100 basis points is worth 90 billion a year to the deficit. All roads lead to inflation,” he said.