Tudor Investment CEO Paul Tudor Jones Talks Next Fed Chair Should Be 'Uber Dovish'
26:33 Share

This is an iHeart Podcast. Switch to Verizon Business and get more from your internet without paying more for your internet. Get LTE Business Internet starting at $39 a month when paired with select business mobile plans. That's unlimited data and with it, unlimited possibilities. Start saving today with Verizon Business, ranked number one in small business internet customer satisfaction by J.D. Power.

Starting price for 25 megabits per second LTE internet plan with smartphone plan savings, plus taxes, fees, and economic adjustment charge. Terms apply. For J.D. Power 2024 award information, visit jdpower.com slash awards. Bloomberg Audio Studios. Podcasts. Radio. News.

Now, we welcome our TV and radio audiences for a conversation with one of the most respected traders on Wall Street. Paul Tudor Jones made his name calling the Black Monday market crash in 1987, shorting stocks during the largest single-day percentage drop in U.S. history. Jones became a gold bullionist.

in the aftermath of the GFC and bought Bitcoin as the money printer went burr during COVID. He also founded the Robin Hood Foundation in 1988 and has helped since then to raise nearly $3 billion to get New Yorkers permanently out of poverty. Paul Tudor Jones, a co-chairman and chief investment officer of Tudor Investment, joins us now on set. Paul, it's great to have you here. It's great to be here. Thanks so much for joining us. I want to talk first of all

Before we get into the markets, economics, and AI, about your philanthropic efforts, and specifically a partnership that Robinhood has with Bloomberg in a contest called Pick a Ticker. You have a $10,000 bet essentially, one long, one short. How did this contest go and who is the winner? - Well, we did it right, it actually starts right before our investor conference that we hold every fall.

This year we had 40 participants. We raised about $400,000 that went, three quarters of which went to Robin Hood. It was fantastic. The winner was Bill Ackman of Pershing Square. He was long Fannie Mae. And see, number two was a guy named Mark Gallant who actually used to work for me. And three was Stan Druckenmiller. No surprise, he's going to always be placing. They came in, I think if you took the top,

three or four and you had made their bet you would have made seven times your money in six months. So it's a great competition. I really hope this year we can expand it so it'll be a much bigger group. It's $10,000. It's a six-month competition, one long, one short. And yeah, it's a lot of fun actually. Shout out also to Ann Nikolayevsky who got up there on the board with those. She was our only female entrant. I hope we get a lot more

ladies that will participate this time. So they have another chance coming up this fall. Absolutely. And I thought since we have you here, you could help us. Give us a tip. What's the one long you would hit for the next contest? I would say probably the yield curve. It just depends on where. I think it will be higher at that point in time. Mine would be very esoteric, so let me think. Well, I would definitely be betting on

substantially lower front-end rates. We'll have a new Fed chair within six months of that point in time, and I think Trump's going to pick someone who's going to be...

uber-dubbish. Well let's talk a little bit more about the yield curve. Matt and I were actually emailing at like four in the morning about the yield curve because it's broken a lot of hearts, that steepener bet and the way you lay it out, short end rates coming down, you have concerns about the deficit potentially boosting the long end. It seems like a no-brainer but it feels like it just hasn't worked. So what's different this time? Well it's working, it's just you know it's vol adjusted, it's just a slow moving train but

I think in the long run it has to work. We are fiscally constrained and we're gonna have budget deficits of 6% plus as far as the eye can see. So one of the major offsets if I was the president

would be to lower my interest rate costs by appointing a Fed chair who was as dovish as could possibly be. That's kind of the playbook when you're 100% debt to GDP and you're fiscally constrained. You can see it happening in Japan right now. He's way as reluctant to raise rates beyond 50 basis points, even though they have inflation rates.

pick a number somewhere between two and three percent I think they fudge the numbers down all the time you got wage growth at three and a half percent there so that's you know historically the way that you get out of a debt trap is you run the lowest real rates possible you lower your interest burdens and I'm sure that's what we'll see beginning when the next Fed chair comes

Well, we definitely want to talk about who the next Fed chair might be and who you would like to see. But let's talk first a little bit more about the deficit, because it feels like you take a look at the bond market over the past few weeks, the past few months, you can see those fears being expressed. But concerns about a higher deficit feels like one of those evergreen issues out there.

Give us first your feel, how you're feeling about the deficit projections that we've been getting and also how you might invest around that. Well, the big beautiful bill is really interesting. First of all, it's a genius in branding. The name of it's a genius in branding. But I think what you've got to do is you have to go to first principles. What would...

the actual budget look like if we were trying to balance the budget? If we were actually trying to balance the budget, what is the counterfactual to the big beautiful bill? So if you actually had to balance the budget, it probably would be the big beastly bill. And at some point down the road, who knows when that's going to be. Maybe it's next year. Maybe it's the next administration. Maybe it's

10 years down the road. At some point, probably, the bond markets are gonna call BS on governments around the world playing chicken with them, right? So to give you an idea, if you were to balance the budget today, let's assume, first thing I would do if I was president, I was trying to point the most dovish central banker I could to lower interest costs. So let's assume

that I could make a pact with my chairman of the Fed that I'm going to go through an austerity package. I'm going to balance it. But I need you to really drop rates to, let's say, 2.5%. So if you drop rates to 2.5% and you get a 50 basis point reduction, or let's say even a 100 basis point reduction in 10-year rates, that saves you $175 billion.

The starting gap is $900 billion, so that saves you $175. Now I'm down to $725 billion that I've got to find through tax hikes and spending cuts. So let's assume that we're going to do this fairly. We're going to do 50% tax hikes in the rich because they've benefited the most in the last 30, 40 years, 50% spending cuts. What does that look like?

On the spending cut side, I would just do, just to make it simple,

Let's just call it a blanket 6% reduction in everything. Social Security, Medicaid, defense spending, you name it. I'm just going to cut everything 6% across the board. That's what it would take to get you $360 billion, half of that $7.25 billion. It's tough to do with Congress, right? I'm just saying there will be a point.

where the markets are going to demand it. I don't know when it'll be. Maybe it'll be in my lifetime. Who knows when it'll be? By the way, how do you invest around that? Because you famously made a lot of money shorting the end in Japanese assets into the lost decade, which was another situation where you saw a country just...

boost its fiscal debt and deficits. I will get to that, but let me just finish the tax hike side. So to get $363 billion in tax hikes, you're going to have to raise the top income rate to $49 billion.

You're going to have to have a 1% wealth tax annually, and you're going to have to raise the capital gains rate to 40. So if all we're going to do is stabilize debt to GDP, that's the big beastly bill that somewhere down the road, and again, who knows when it's going to be. Remember, you have Italy, France, and Japan

who on the current projections will be in worse fiscal shape than we are and they seem to be doing okay. And that's why we keep going with the kayfabe in wrestling, the suspended reality where we like to watch the show but we know it's not real. So we know that

these 6% budget deficits are not sustainable in the long run, but it's okay because it's okay now. It's okay in the short run. It feels good and it's not hard. It's actually really easy. Remember, in the first Trump administration, he normalized 4% budget deficits. That's what we had pre-COVID. And now in this administration, he's normalizing 6% budget deficits. So

And I'm not judging, I'm just calling balls and strikes. That's where we are. So with that in mind, knowing that we have a whole pricing structure that's created on something that's not sustainable, it's really, really hard to invest for the long run because

The day that it'll probably be the bond market first or maybe it's the dollar, who knows. The day that we're called to carpet on that and the day that you actually went through that exercise that I just described, then you know that

that multiples on stocks will not be where they are right now. - Right. - But are you short the dollar? I mean, you mentioned you're into yields. - I would say that the easiest long-term trades are, you know the yield curve's gonna steepen, probably the historic-wise. You know we're gonna cut short-term rates dramatically in the next year. And you know the dollar will probably be lower because of that.

A lot lower because of that. How much lower? We're off 10% from our high right now, 8%. I would say that that's, I think that's a year from today, that's probably a realistic assumption. I want to go to one point that you made in that blueprint that you laid out.

And that comes to appointing the most dovish Fed chair possible. Jerome Powell's turn ends in May 2026. We've heard from the president recently that he's going to announce some contenders sometime soon. Bloomberg News has reported in the past 24 hours that Scott Besson has emerged as a pick. Kevin Warsh is under consideration. I mean, if you had your pick, who do you think is best suited for the chair? Those are two great names. Those are two fabulous names.

Again, if I was president, if I just think about President Trump, he's a growth guy, right? He's a loyalty and growth guy. You're going to be my pick if you're loyal to me. You're going to be my pick if you're a growth guy. And I'd pick a growth guy. Probably Scott would be more in line with that than Kevin would. They will have had...

a really close working relationship at that point. I also think, again, the playbook's pretty clear historically and right now.

We are fiscally constrained. We're in a debt trap. You're going to have to run negative real rates to get out of it. That's what we did in the 50s. If you'll remember, we had a variety of prices fixed by the Treasury while we had 5% and 6% inflation for a period of time. We're going to have negative real rates, and that's why you have to think about

what is facing our policy makers in this debt trap as you construct your portfolio. So what would an ideal portfolio be and something like that? Well, what has worked so far? What has worked so far has been some combination of stocks,

which won't do great, which would do terribly if we ever actually had, if they called us out and the bond market actually gave us an accident that then spilled over. But it would be some combination of probably gold, vol adjusted, Bitcoin, gold, stocks. That's probably your best bet.

portfolio to fight inflation. Vol adjusted because the vol of Bitcoin is obviously five times out of gold. So you're going to do it in different ways. You said at one point you would allocate one or two percent of your portfolio to Bitcoin. Is it still that level? Yeah, I mean, I think you just, particularly now that the roadmap is clear, then I mean, the

Again, if I'm a policymaker, I'm going to run really low real rates. I'm going to have inflation running hot. And I'm going to tax the American consumer to get out of my debt trap. And that's exactly what Japan, who's the most fiscally constrained in the world, doing. And it works until the population throws you out because you let inflation get too hot.

So maybe you're in a world with 3, 3.5% inflation and 2.5% overnight rate, and you're kind of trying to run hot and grow your way out of it. Well, let's talk a little bit more about equities. You mentioned in that scenario that you laid out equities obviously would do terrible, but where we stand right now, I mean, we're back to 6,000-ish on the S&P 500. We're slightly positive for the year. It feels like...

after the big performance that we saw in May, though, that people are not sure where to go from here. So assuming we can continue along this path where inflation is under control, it seems like the labor market is under control and trade negotiations continue to progress. I mean, what's your base case on equities right now? Well, again, so...

A year ago, I never thought the bond market would tolerate the big, beautiful bill. I just didn't think it would. I thought, wow.

I thought there'd be a revolt. I thought bond vigilantes actually had some stuff. They've come back out? But they clearly haven't surfaced. Well, we haven't seen inflation. Well, there's a couple of things going on. One, we know 12 months from now rates are going to drop precipitously with a new Fed chair. If you...

I mean, was it last week when Donald Trump saw after, was it, I forget, was it ADP? Drop rate's 100 basis points. Yes, he did. So we know where his head is. We know who he's going to point. Well, and just now...

the vice president, J.D. Vance, said this is monetary malpractice in a tweet reply to our Joe Weisenthal. So they really want the Fed to cut rates. So that also is a tailwind for the bond market, right? Because you know short rates right now aren't going to be there a year from today.

So that's a tailwind. And again, I think the biggest threat to the stock market has been our fiscal proficiency, something like the big beautiful bill, because that was always going to be a threat to the safety and security of the bond market, whether investors would tolerate what's going on.

Right now, it seems like, both globally and domestically, that the world's okay with kayfabe. Kicking the can down the road, we're going to suspend reality. It's okay. So in that scenario, again, if I'm...

If I have to make a decision on stocks and I think that rates are going to be 3% in 12 months, yeah, I'm probably long. By the way, you keep mentioning Kayfay and we're all kind of watching this knowing it's fake, but don't really care right now. Is that because we're not invested? Because Brad Gerstner has this idea and Ted Cruz was on Bloomberg talking about it yesterday.

I think it's Invest America, where you give every child born $1,000 and then allow parents or relatives to invest $5,000 a year. Then by the time they're 18 and the stock market continues to appreciate, they have a serious nut. But they're also, they've got skin in the game. Yeah, I think it's, see, here I'm the budget guy.

Yeah, I'm the budget hawk and the cranky gap. But that's the best $4 billion that would ever spend in history because...

The idea of making kids stakeholders from an early age in capitalism is so important, oh my gosh. And then allowing employers or relatives or whatever to build that account so that at an early age they understand the idea of entrepreneurship, of free markets, of self-individual excitement about understanding how

productivity actually works, how we build things through our own sheer initiative. I think it's just spectacular idea. It's the best $4 billion this government could ever spend. So there's a good way to add to the deficit and there's a bad way. That would be the best $4 billion. I'm very conscious of the clock. We only have about eight minutes left with you. So let's

talk a little bit about AI. You've expressed concerns about AI in the past. And, May, I believe you said that it could be pretty disastrous if you really put your thinking cap on. But I'm curious from the investment perspective, when you wear your investor hat,

How do you view it then? I mean, there's plenty of things to get concerned about, but we were having a great conversation with Cliff Asness of AQR last week. He's had a real change of heart when it comes to AI. He's embraced it. Are you embracing it? Well, for sure I'm embracing it. We tested two models last week internally. We have a variety of quad teams at Tudor. We tested two models, commercially available models, and

Where AI has gone in the last four months, in the last four months, is so incredible. These models will do democratize quant modeling for the markets. I've been an investment in quant modeling for the last 30 years, internally, externally, variety of ways. And what these new models do is...

There's a huge barrier to entry if you think about quant modeling, which is I need to have dozens. If you look at the big ones, whether it's Two Sigma or Jumper, they have hundreds, thousands of employees. That's their edge. That's Cliff's edge, right? With these new models, wow.

They lose the edge. It's incredible what these new models do. And the reason that I bring that up, of course you have to embrace it in our business. There's larger issues regarding AI that I think, if you don't mind, I can't tell you because I don't really trade individual stocks that much. I'm actually using the models from a quant standpoint, so I can't tell you which companies to buy. It's pretty clear that

that this is obviously the most disruptive technology in the history of mankind.

If I can just give you, here's the way I think of AI. You're too young for this, but there was a great Twilight Zone. Okay. Great Twilight Zone episode where aliens came down to Earth and they had this, and they hand this book, it says, to serve man. And everyone goes, hooray, they're going to save humanity. It's a humanitarian guide. And it turns out to be a cookbook.

I was ready to push back, but you called me out. It's a cookbook. I haven't seen that episode. So anyway, we just had our Robin Hood...

AI Poverty Summit on Monday, which I was at. Oh my Lord, the things that AI are going to do for education. There is no excuse for a low-income kid not to have the greatest education if his parents or caregiver is taking care of them. My gosh, they're going to have an individual tutor to walk them through everything. So it's really spectacular.

The downside of AI is that we've been served, right? When I say we've been served, you had in February, Elon Musk, you can think what you think of him with regard to his moral compass, but he's the Thomas Edison of our time, said AI has the 20% possibility of wiping out humanity. There's the safety side that should...

set off alarm bells throughout the world, particularly in this country, particularly with this administration. And then just last week you had Dario at Anthropic. Amadai, am I pronouncing that correctly? Anthropic is good enough. So anyway, he said that in one to five years we could have 10 to 20 percent employment

because of the displacement of white collar jobs by AI. So now we have... 10 to 20% unemployment. Unemployment in this country in one to five years. So now you have this massive stability issue. You've got a safety issue and a stability issue. And within the big, beautiful bill is a moratorium, a moratorium on AI regulation. So no guardrails. Oh, no.

My gosh. That is, when you've just been certain, and no one, see the interesting thing is no one in the AI community pushes back on this, right? Because anyone that understands it and sees how it's progressing, these models are increasing one to 500% in their efficiency every four months. Understand, these are real possibilities. Paul, how do we get to guardrails? Because in the case of the debt issue,

as Gary Shilling would call it, you've got bond vigilantes to push back. In the case of the AI bomb, which we fear, there's no government that's going to regulate this because they'll lose out to another government. Right. So I've come to this realization in the last...

two years that actually I think libertarianism is as much of a threat to our society as socialism. It's the other end of it, right? And you've really got this libertarian bit that's taken hold of this administration. So many of the biggest backers. But oh my gosh, our country's built on

I mean, we're built on a system of laws and regulations about private property rights, laws against assault, robbery, etc. So what we have to figure out in a thoughtful way, which is why you have to sit down and begin a discussion, how do we have AI for good? How do we prevent AI?

the AI for bad both on a safety standpoint and a security standpoint. One thing that we really need to do is again, what is the government's responsibility? What are companies' responsibility? We're gonna have this productivity boom, right? Capitalism is so spectacular at maximizing productivity, but it's actually really bad

really bad in its in its in the tails in the tails I'll say it's really bad about distributing income in a society socially beneficial fashion best example can be if we look at say since nineteen the mid eighties if you look and see how the productivity gains United States have been distributed its about 15 percent

to the bottom 90 and 85% to the top 10. And so what happens when you do that? Well, you get the incredible divisiveness that we have right now. We have a crisis of trust in this country. No one knows who to trust. Hell, we had a faction of the Republican Party storm the Capitol in 2020 because they lost an election.

We're at a really socially fragile time because of wealth disparity, and now we have AI that unless we think about how we distribute those productivity gains in a way so is it

Dario mentioned we're going to have a token on every time a model is used. Bill Gates said we're going to suggest that I think six or seven years ago maybe we tax robotics. There has to be a, we need to sit down and thoughtfully think through how we distribute the coming productivity gains so that people are happy and not unhappy. Paul,

Paul, it's been a real pleasure having you. I appreciate you coming in and I hope we can get you back sometime soon. Paul Tudor Jones, their co-chairman, chief investment officer of Tudor Investment, also the founder of the Robin Hood Foundation. How can you free your team from time consuming office tasks? Amazon Business empowers leaders to not only streamline purchasing, but better support their teams.

This is an iHeart Podcast.