Paul Tudor Jones on Unprecedented Geopolitical Risks

Paul Tudor Jones (PTJ), the founder and CIO of Tudor Investment and founder of the Robin Hood Foundation, recently spoke with Andrew Ross Sorkin and Joe Kernen on CNBC’s “Squawk Box.”

PTJ emphasized that the current geopolitical uncertainty and the U.S. fiscal situation make it a perilous time for equity investors:

It’s a really challenging time to want to be an equity investor in U.S. Stocks right now. It’s really hard because you’ve got the geopolitical uncertainty — because I think we’ve come to live with to a certain extent — but all of those had the ability to have a non-linear outcome. So something not just business as usual. But I think equally as much of a problem is the fiscal situation that we’re facing in the United States, which is going to require a completely different political mentality.

PTJ argued that the fiscal challenges facing the U.S. differ from other cataclysmic events like Pearl Harbor or COVID-19, which were external shocks. The fiscal issues are clear and have obvious remedies but are not yet part of the political dialogue. He stressed that this should be the main topic for the next presidential election.

PTJ warned that the U.S. is entering a vicious circle with a debt-to-GDP ratio of 122%. Rising interest rates will lead to higher funding costs, causing further bond liquidation and even higher rates. He noted that the interest bill would soon exceed defense spending and could account for nearly 20% of tax revenue unless action is taken.

PTJ criticized both Donald Trump and Joe Biden for worsening the fiscal situation. Trump initially promised to cut taxes and spending but only managed to cut taxes, thereby increasing the budget deficit. Biden’s “Build Back Better Act” was dubbed by Jones as the “Build Back Debtor Act.” He argued that neither of them could fix the problem they helped create.

PTJ called for fiscal retrenchment, including dealing with entitlements like Social Security, Medicare, and Medicaid. He also advocated for raising taxes, especially on the wealthy, stating that the U.S. has the fifth lowest tax take among 40 OECD countries.

PTJ mentioned that the bond market is signaling trouble ahead. A 100 basis point spike in bond yields has been caused by the need for the private sector to find funding for $2.3 trillion. He warned that in 2024, this figure would rise to $2.7 trillion, making it almost 10% of the federal budget.

PTJ went on to say that the bond market would dictate terms going forward. He predicted a likely recession in the first quarter of next year due to the bond market’s influence on rate hikes.

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