Tudor Investment CEO Paul Tudor Jones Talks Next Fed Chair Should Be 'Uber Dovish'

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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 nineteen eighty seven, shortingstocks during the largest single day percentage drop in US history. Jones became a gold bowl in the aftermath of the GFC and bought

Paul'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 Blue Blomberg in a contest called pick a Ticker.

You have a ten thousand.

Dollars bet essentially one long, one short. How did this contest go and who was the winner?

Well, we did it right.

It actually starts right before our investor conference that we hold every fall. This year we had forty participants. We raised about four hundred thousand dollars that went, three quarters of which went to Robinhood. It was fantastic. The winner was Bill Ackman, a Pershing Square. He was long Fannie May and see number two was a guy named Mark Gallott who actually used to work for me. In three was Stan Druckmiller. 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 ten thousand dollars, it's a six month competition, one long, one short, and uh yeah, it's it's a lot of fun.

Actually, shout out also to Anna Nikolsky, you got up there on the board with.

Who's our only female entront I hope we get a lot more ladies that'll participate this time, so.

They have another chance coming up this fall, and I thought, since we have you here, you could help us give us a tip.

What's the what's the one.

Long you would hit for the next contest.

I would say probably probably the yield curve. It just depends on where I think it'll be higher at that point in time. Mine would be very esoteric, so let me think, uh, well, it would definitely I would definitely be betting on substantially lower front end rates. We'll have a we'll have a new FED chair within six months at that point in time, and I think Trump's gonna pick someone who's gonna be uber dubbish.

Well, let's talk a little bit more about the yield curve. Matt and I were actually emailing it like four in the morning about the yield curve because it's broken a lot of hearts that's steepener bed, 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 vall 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 going to have budget deficits of six percent plus.

As far as the I can see.

So one of the major offsets if I was the president would be to lower my interest rate cost appointing a FED chair who is as dubvish as could possibly be. That's kind of the playbook when you're one hundred percent debt to GDP and you're fiscally constrained.

You can see it happening in Japan right now.

He's way is reluctant to raise rates more than beyond fifty basis points, even though they have inflation pick a number somewhere between two and three percent. I think they fudge the numbers down all the time. You've 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 shair 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. It feels like one of those evergreen issues out there. So give us first your feel how you're feeling about the deficit, production projections that we've been getting, and also how you might invest around that.

Well, the Big Beautiful Bill is really interesting. It's it's first of all, well, 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 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 ten years down the road. At some point, probably the bomb markets are going to 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 the first thing I would do if I was president, I was trying out to point the most douvish central banker I could to lower interest costs.

So let's assume that I could.

Make a pack with my UH, with my Chairman of the Fed. But 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 two and a half percent. So if you drop rates to two and a half percent and you get a fifty basis point reduction or let's say even one hundred basis point reduction in ten ure rates, that saves you one hundred and seventy five billion.

The starting gap is nine.

Hundred billion, so that saves you one hundred and seventy five Now I'm down to seven hundred and twenty five 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 gonna do fifty percent tax hikes in the rich because they've benefited the most in the last thirty forty years.

Fifty pp and cuts.

What does that look like On the spending cut size side, I would just do, just to make it simple, let's just call it a blanket six percent reduction in everything, social Security, medicaid, defense, spending, you name it. I'm just going to cut everything six percent across the board. That's what it would take to get you three hundred and sixty billion half.

Of that sentence to do with Congress, right, I'm.

Just saying there'll 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 shortening the end in Japanese assets into the last decade, which was another situation where you saw a country just boost its fiscal debt and deathicis.

I will get to that, but let me just finish the tax hike side. So to get three hundred and sixty three and tax hikes, you're gonna have to raise the top income rate to forty nine. You're gonna have to have a one percent wealth tax annually, and you're gonna have to raise the capitol games right.

To forty huh.

So if we're just gonna if all we're gonna do is stabilize debt to GDP, that's the big beastly bill that's somewhere down the road.

And again who knows what it's gonna 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 that's why we keep the we keep going with the cafe in wrestling, the suspended reality where we like to watch the show, but we know it's not real. So we know that these six percent budget deficits are not sustainable in the long run. But it's okay because it's okay now, it's okay the short run, and it feels good and it's not.

It's actually really easy.

Remember in the first Trump administration, he normalized four percent budget deficits, that's what we had pre COVID, and now in this administration he's normalizing six percent 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 a carpet on that and the day that you actually went through that exercise that I just described, and you know that multiples on stocks will not be where they are right now.

Right, But are you short the dollar? I mean you mention you're into yields.

I would say that the easiest long term trades are you know, the yield curve's going to steepen probably to historic wise. You know, we're going to 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 off ten percent from our high right now?

Yes, I would say that that's I think that's a year from today and 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 stubbish fed chair possible. Jerome Pal's turn ends in May twenty twenty six. We've heard from the President recently that he's going to announce some contenders sometime soon. Bloomberg News has reported in the past twenty four hours that Scott Besson has emerged as a pick. Kevin worsh 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 just a he's a growth guy, right, He's a He's a loyalty and growth guy. You're gonna be my pick. If you're loyal to me, you're gonna be my pick. If you're you're a growth guy. And I'd pick a growth guy. And probably Scott would be more uh in line with that than Kevin Wood. They will have had

You're gonna have to.

Run negative real rates to get out of it.

That's what we did in the fifties.

We had if you'll remember, we had a variety of prices fixed by the treasury, why we had five and six percent inflation for a period of time. We're gonna 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 constructure 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 bottom market actually gave us an accident that then spilled over. But it would be some combination of probably gold vall adjusted bitcoin gold stocks, that's probably your best portfolio to fight inflation vol adjusted because the vall of bitcoins obviously five times out goal. So you're gonna you're gonna 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 yeah?

I mean I think you just particularly now that the that the roadmap is clear, then I mean the the again, if I'm a policymaker, I'm gonna run really low real rates, I'm gonna have inflation running hot. Uh, and I'm gonna 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 until the population throws you out because you're let inflation get too hot.

So maybe you're in a world with three three.

And a half percent inflation and two and a half percent overnight rate and you're kind of trying to run hot and grow your way out of it.

Mm hmm.

Well, let's talk a little bit more about equities. You know, 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 six thousand ish on the S and P five hundred, 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

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 bomb vigilantes actually has.

Some stuff, but they'd come back out. But they clearly haven't surfaced.

And as we haven't seen inflation, and and well there's there's a couple of things going on. One we know twelve months from now rates are going to drop recipitously with a new FED share If you I mean, was it last week when Donald Trump.

Saw after was it I forget? Was it adp I drop rates?

One Hunter Basis points yes, So we know where his head is. We know who he's going to point well.

And just now the Vice President jd 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 tail wind.

And again, I think the biggest threat to the stock market has been the has been our fiscal profligacy, something like the Big Beautiful Bill, because that was always going to be a threat to the safety and security the bond market, whether investors would tolerate what's going on. And right now it seems like, both globally and domestically that the world's okay with Cafe kicking the can down the road.

We're going to suspend reality. It's okay. So in that scenario again, if.

I have to make a decision on stocks and I think that rates are going to be three percent twelve months, yeah, I'm probably long.

By the way, you keep mentioning KFE 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 Gershner 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 one thousand dollars and then allow parents or relatives to invest five thousand a year. Then by the time they're eighteen of 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 here.

I'm I'm I'm the I'm the budget I'm the budget.

Hawk.

And yeah, i'm the budget in the in the in

I think it's just spectacular idea.

It's the best four 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 four billion. I'm very conscious of the clock. We only have about eight minutes luck 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. I mean, it could be pretty disastrous if you think about, 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 gets concerned about. But we were having a great conversation with Cliff Astiness 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 quantinems a tutor. We tested two models, commercially available models. Where AI has gone in the last four months. In the last four months is so incredible. These models will the do democratize quant modeling for the markets Like I can just say I've I've been an investment in quant modeling for the last thirty years. Internally, externally, variety of ways, and what these new models.

Do is.

What you know, 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, the really whether it's two Sigma or Jumper Human, they have one hundred thousands of employees.

That's the edge, That's that's Cliff's edge, right with these new models.

Wowie, it's 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 to Yeah, 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 this is obviously the most disruptive technology in the history of mankind. If I can just give you that, 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 gonna They're gonna save humanity, see Humanitarian God.

And it turns out to be a cookbook.

I was ready to push back, but it's a beautiful kid.

Book I have seen.

So anyway, we just had a 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 are 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 and with regard to his moral compass, but he's the Thomas Jefferson Thomas Edison of our time said AI has the twenty percent

Anthropic is good enough.

So anyway, he said that in one to five years we could have ten to twenty percent employment because of the displacement of white collar jobs by AI.

So now we have unemployment, unemployment in this country in one to five years.

So now you have this massive stability issue. You've got a safety issue in a stability issue, and within the big beautiful bill is a moratorium, a moratorium on AI regulation.

So no guardrails. Oh my gosh. That is when you've just been certain and no one would see.

The interesting is no one in the AI community pushes back on this right because they anyone that understands it and sees how it's progressing. These models are increasing one to five percent in their efficiency every four months. Understand, these are real possibilities.

So Paul, how do we get to guardrails Because in the case of the debt bomb, right 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 gonna regulate this because they'll lose out to another government.

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 the other 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 law and regulations. My private property rights, laws against the soul 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 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 company's 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 the tales in the tails, I'll say, it's really bad about distributing income in a society a socially beneficial fashion. The best example can be if we look at say since nineteen the mid eighties, If you look and see how the productivity gains in the United States have been distributed, it's about fifteen percent to the bottom ninety and eighty five percent of the top ten.

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 capital in twenty twenty because.

They lost an election.

So we're at a really socially fragile time because of wealth disparity, and now we have AI that unless we think about think about how we distribute those productivity gains in a way. So is it Dario mentioned we're going to have a token, and every time a model's Bill Gates said we're gonna suggest it, I think six or seven years ago, maybe be tax robotics.

There has to be a we need.

To sit down and thoughtfully think through how we distribute becoming productivity gains so that people are happy and not unhappy.

Paul, it's been a real pleasure having you. I appreciate you coming in. I hope we can get you back sometime soon. Paul Tutor Jones there coach, chairman and chief investment officer of Tutor Investment, also the founder of the Robin Hood Foundation.